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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended December 31, 2002

OR

For the Transition Period From              to             

Commission File Number 1-10290

DQE, Inc.

(Exact name of registrant as specified in its charter)

411 Seventh Avenue Pittsburgh, Pennsylvania 15219

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (412) 393-6000

Securities registered pursuant to Section 12(b) of the Act:

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Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Preferred Stock, Series A (Convertible)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes  x  No  ¨

The aggregate market value of the voting common stock held by non-affiliates as of June 28, 2002 (the last business day of the registrant’s most recently completed second fiscal quarter) was $1,030,250,816, based on the New York Stock Exchange closing price of $14.00 per share on that date.

As of March 10, 2003, there were 74,569,747 shares of the registrant’s single class of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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GLOSSARY OF TERMS

BACK-TO-BASICS—Our business strategy in 2002 featured a more concentrated focus on core electric utility operations and complementary businesses, such as energy services. The strategy included the divestiture of non-core businesses.

COMPETITIVE TRANSITION CHARGE (CTC)—During the electric utility restructuring from the traditional Pennsylvania regulatory framework to customer choice, electric utilities have the opportunity to recover transition costs from customers through this usage-based charge.

CUSTOMER CHOICE—The Pennsylvania Electricity Generation Customer Choice and Competition Act gives consumers the right to contract for electricity at market prices from PUC-approved electric generation suppliers.

FEDERAL ENERGY REGULATORY COMMISSION (FERC)—The FERC is an independent five-member commission within the United States Department of Energy. Among its many responsibilities, the FERC sets rates and charges for the wholesale transportation and sale of electricity.

PENNSYLVANIA PUBLIC UTILITY COMMISSION (PUC)—The governmental body that regulates all utilities (electric, gas, telephone, water, etc.) that do business in Pennsylvania.

PROVIDER OF LAST RESORT (POLR)—Under Customer Choice, the local distribution utility is required to provide electricity for customers who do not choose an alternative generation supplier, or whose supplier fails to deliver. (See “Rate Matters.”)

REGIONAL TRANSMISSION ORGANIZATION (RTO)—Organization formed by transmission-owning utilities to put transmission facilities within a region under common control.

REGULATORY ASSETS—Pennsylvania ratemaking practices grant regulated utilities exclusive geographic franchises in exchange for the obligation to serve all customers. Under this system, certain prudently incurred costs are approved by the PUC for deferral and future recovery, with a return from customers. These deferred costs are capitalized as regulatory assets by the regulated utility.

TRANSITION COSTS—Transition costs are the net present value of a utility’s known or measurable costs related to electric generation that are recoverable through the CTC.

TRANSMISSION AND DISTRIBUTION—Transmission is the flow of electricity from generating stations over high voltage lines to substations where voltage is reduced. Distribution is the flow of electricity over lower voltage facilities to the ultimate customer (businesses and homes).

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PART I

ITEM 1. BUSINESS.

CORPORATE STRUCTURE

Part I of this Annual Report on Form 10-K should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, and with our audited consolidated financial statements, set forth in Part II, Item 8.

DQE, Inc. is an energy services holding company formed in 1989 to serve as the holding company for Duquesne Light and to engage in unregulated energy and related businesses. Our subsidiaries include those discussed below.

Continuing Operations

Duquesne Light Company, our largest subsidiary, is an electric utility engaged in the transmission and distribution of electric energy.

DQE Energy Services, LLC is an energy facilities management company that provides energy outsourcing solutions including development, operation and maintenance of energy and alternative fuel facilities.

DQE Communications, Inc. owns, operates and maintains a high-speed, fiber optic based transmission network, and leases dark fiber in this network to commercial, industrial and academic customers.

DQE Financial Corp. owns and operates landfill gas collection and processing systems, and is an investment and portfolio management organization focused on structured finance and alternative energy investments.

DQE Enterprises, Inc. manages our remaining electronic commerce and energy technologies investment portfolios.

Duquesne Power, Inc., formed to explore various alternative generation supply options, is currently inactive.

DQE Capital Corporation and Cherrington Insurance, Ltd. provide financing and insurance services for DQE and various affiliates.

Discontinued Operations

AquaSource, Inc. is a water resource management company. In 2002 we entered into agreements to sell substantially all of AquaSource’s assets. AquaSource is now reported as a discontinued operation. (See Note 13.)

We sold the propane distribution business of our subsidiary Pro Am, Inc. in December 2002. Pro Am is now reported as a discontinued operation. (See Note 13.)

Service Areas and Customer Concentrations

Continuing Operations

Duquesne Light’s electric utility operations provide service to approximately 587,000 direct customers in southwestern Pennsylvania (including in the City of Pittsburgh), a territory of approximately 800 square miles.

Our other business lines have operations and investments in several states and Canada. DQE Energy Services relies on a single alternative fuel facility customer for a significant portion of its revenues.

Discontinued Operations

AquaSource currently provides water utility service to more than 280,000 water and wastewater customer connections in 15 states.

Regulation

Continuing Operations

DQE and Duquesne Light are subject to the accounting and reporting requirements of the Securities and Exchange Commission (SEC). Duquesne Light’s electric delivery business is also subject to regulation by the Pennsylvania Public Utility Commission (PUC) and the Federal Energy Regulatory Commission (FERC) with respect to rates for delivery of electric power, accounting and other matters.

Discontinued Operations

AquaSource’s water utility operations are subject to regulation by various authorities within the states where they operate as to rates, accounting and other matters.

Business Segments

This information is set forth in Item 7 under “Results of Operations” and in Note 19 to our consolidated financial statements.

FORWARD-LOOKING STATEMENTS

We use forward-looking statements in this report. Statements that are not historical facts are forward-looking statements, and are based on beliefs and assumptions of our management, and on information currently available to management. Forward-looking statements include statements preceded by, followed by or using such words as “believe,” “expect,” “anticipate,” “plan,” “estimate” or similar expressions. Such statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. Actual results may materially differ from those implied by forward-looking statements due to known and unknown risks and uncertainties, some of which are discussed below.

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EMPLOYEES

At December 31, 2002, DQE and its subsidiaries had 1,870 employees (including 473 at AquaSource). Duquesne Light is party to a labor contract with the International Brotherhood of Electrical Workers, which represents 943 of Duquesne Light’s 1,297 employees. The contract expires September 30, 2003.

ENVIRONMENTAL MATTERS

Continuing Operations

In 1992, the Pennsylvania Department of Environmental Protection (DEP) issued Residual Waste Management Regulations governing the generation and management of non-hazardous residual waste, such as coal ash. Following the generation asset divestiture, Duquesne Light retained certain facilities which remain subject to these regulations. We have assessed our residual waste management sites, and the DEP has approved our compliance strategies. We expect the costs of compliance to be approximately $7.4 million with respect to sites we will continue to own. These costs are being recovered in the CTC, and the corresponding liability has been recorded for current and future obligations.

Duquesne Light owns the closed Warwick Mine, located along the Monongahela River in Greene County, Pennsylvania. This property had been used in the electricity supply business segment. Duquesne Light has been selling unused portions of the property and will continue to do so. Duquesne Light’s current estimated liability for closing the Warwick Mine, including final site reclamation, mine water treatment and certain labor liabilities, is approximately $30 million. A liability for this amount is recorded on the consolidated balance sheets.

Discontinued Operations

AquaSource’s water and water-related operations are subject to the federal Safe Drinking Water Act, which provides for uniform minimum national water quality standards, as well as governmental authority to specify treatment processes to be used for drinking water. AquaSource’s operations are also subject to the federal Clean Water Act, which regulates the discharge of pollutants into waterways. AquaSource is aware of various compliance issues at its water and wastewater facilities, and is communicating and working closely with appropriate regulators to correct those issues in a timely manner. We do not believe that any of these compliance issues will have a material effect on DQE’s financial position, results of operations or cash flows.

AquaSource is a party to consent agreements regarding environmental compliance in three states. In Indiana, AquaSource has entered parallel agreements with the Indiana Department of Environmental Management and the Indiana Utility Regulatory Commission to establish a schedule for completing upgrades and resolving certain historical compliance issues at two wastewater facilities. AquaSource has completed the scheduled wastewater system upgrades, and continues to improve the systems’ infrastructure. Neither agreement imposed any compliance-related penalties or sanctions. AquaSource entered into a consent order with the Florida Department of Environmental Protection regarding historical compliance issues. AquaSource planned certain capital improvements in connection with its acquisition of five wastewater facilities. AquaSource has met its commitments under the consent order, except for completing its abandonment plan for retired facilities. The abandonment phase is expected to be completed during the first quarter of 2003. AquaSource and the Texas Commission on Environmental Quality (TCEQ) have entered into a consent agreement under which

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AquaSource will correct compliance issues at approximately 160 water and wastewater systems over a four-year period. In lieu of any fines, penalties or other sanctions, AquaSource agreed to make approximately $30 million in capital improvements to upgrade these systems, $18.1 million of which have already been completed. An additional $7 million has been budgeted for capital improvements to these systems in 2003. AquaSource is capitalizing all of these expenditures, and will seek recovery of the charges through future rates, if appropriate. We may also recover a portion of these charges through the sale of AquaSource. (See Note 13.)

The United States Environmental Protection Agency has established new arsenic standards for public water supplies, which must be met beginning in January 2006. AquaSource does not believe these new standards will have a material impact on its financial position.

OTHER

Recent Accounting Pronouncements

In June 2001 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Specifically, this standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The entity is required to capitalize the cost by increasing the carrying amount of the related long-lived asset. The capitalized cost is then depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss. The standard is effective for fiscal years beginning after June 15, 2002. We do not believe that the adoption of SFAS No. 143 will have a significant impact on our financial statements.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, rather than at the time of the commitment to a disposal or exit plan. This statement also establishes that the initial measurement of the liability should be at fair market value. This statement is effective for exit or disposal activities initiated after December 31, 2002. Initial adoption of this statement should have no impact on our financial statements, but SFAS No. 146 may affect the accounting treatment of any future disposal or exit activities.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45), which requires that upon issuance of certain types of guarantees, the guarantor must recognize and account for the fair value of the guarantee as a liability. FIN 45 contains exclusions to this requirement, including the exclusion of a parent’s guarantee of its subsidiaries’ debt to a third party.

In the normal course of business, we and certain of our subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit and surety bonds. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries’ intended business purposes.

In addition, we have guaranteed a minimum defined yield to third-party investors, as part of our investment portfolio in seven affordable housing funds that afford favorable tax treatment. The guarantees will expire by 2015, and in the event the underlying properties do not generate the necessary minimum yield, we will make cash payments necessary to achieve that minimum yield. (See Note 12.)

FIN 45 is effective on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure provisions are effective for financial statements of interim and annual periods ending after December 15, 2002.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), which addresses the consolidation of variable interest entities (VIE’s) by business enterprises that are the primary beneficiaries. A VIE is an entity that does not have sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the enterprise with the majority of the risks or rewards associated with the VIE. FIN 46 applies immediately to VIE’s created after January 31, 2003 and to VIE’s in which an enterprise obtains an interest after January 31, 2003. For VIE’s created earlier, the consolidation requirements apply in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the VIE was established. Several of our subsidiaries are investors in entities, such as affordable housing partnerships, service agreements and structured lease transactions, which may be considered VIE’s. We do not believe that the adoption of FIN 46 will have a material impact on our consolidated financial position, earnings or cash flows.

Pending Litigation

Information regarding pending litigation is set forth in Item 3, “Legal Proceedings.”

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Non-Audit Services

Our independent public accountants provide non-audit, tax-related services, as approved by our Audit Committee.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports are available free of charge through our website (www.dqe.com) when they become available on the SEC website.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names, ages as of March 10, 2003, and positions during the past five years of our executive officers.

Morgan K. O’Brien, age 43. President and Chief Executive Officer since September 2001. Chief Operating Officer from August 2000 to September 2001. Executive Vice President—Corporate Development from January 2000 to August 2000. Vice President—Corporate Development from July 1999 to January 2000. Treasurer from November 1998 to July 1999. Vice President from October 1997 to July 1999. Controller from October 1995 to July 1999.

Frank A. Hoffmann, age 51. Executive Vice President since October 2001. President and Treasurer of AquaSource since July 2000. Vice President—Operations of DQE Systems from January 2000 to July 2000. Vice President of DQE Systems from May 1999 to January 2000. General Manager, Marketing and Sales of Duquesne Light from 1995 to May 1999.

Victor A. Roque, age 56. Executive Vice President since November 1998. General Counsel from November 1994 to October 2001. Secretary from May 2000 to October 2001. Vice President from April 1995 to November 1998. President of Duquesne Light since October 2001.

Philip J. Damiani, age 52. Senior Vice President—Unregulated Businesses since December 2002. At DQE Energy Services, Inc.: President since October 2001; Senior Vice President from December 2000 to October 2001; Vice President from March 1998 to December 2000. Also President of DQE Communications, Inc. since December 2002.

Maureen L. Hogel, age 42. Senior Vice President and Chief Administrative Officer since December 2002. At Duquesne Light: Senior Vice President and Chief Administrative Officer since December 2002. Senior Vice President—Human Resources and Administration from October 2001 through November 2002; Vice President—Development, Legal and Administrative Affairs from January 2001 through October 2001; Vice President—Legal from September 1999 through December 2000 and Assistant General Counsel from February 1996 to September 1999.

Joseph G. Belechak, age 43. Vice President—Operations and Customer Service since December 2002. At Duquesne Light: Senior Vice President—Operations and Customer Service since October 2001. Vice President, Asset Management & Operations from August 2000 to October 2001; General Manager, Asset Management—1999-2000; Best in Class Change Program Leader—1999-2000 and Manager, Substations & Telecommunications—1996-99.

William F. Fields, age 52. Vice President and Treasurer since December 2002. At DQE Financial Corp.: President since April 2000; Vice President and Treasurer from August 1999 to March 2000; Treasurer from December 1997 to June 2001. At Duquesne Light: Vice President and Treasurer since December 2002; Assistant Treasurer from June 1991 to November 1998.

Stevan R. Schott, age 40. Vice President and Controller since October 2001. Vice President of Duquesne Light from August 1999 to October 2001. Controller of DQE Financial from September 1998 to August 1999. Senior Manager, Public Utilities Specialist at Deloitte & Touche LLP from September 1993 to September 1998.

James E. Wilson, age 37. Vice President—Corporate Development and Rates since December 2002. Vice President—Corporate Development from October 2001 to December 2002. Vice President and Controller from March 2000 to October 2001. Controller from July 1999 to March 2000. Assistant Controller from 1996 to July 1999.

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ITEM 2. PROPERTIES.

Continuing Operations

Our principal properties consist of Duquesne Light’s electric transmission and distribution facilities and supplemental properties and appurtenances, located substantially in Allegheny and Beaver counties in southwestern Pennsylvania. Substantially all of the electric utility properties are subject to a lien under the Indenture of Mortgage and Deed of Trust dated as of April 1, 1992.

In April 2000, Duquesne Light sold its generation assets. Duquesne Light owns 9 transmission substations and 561 distribution substations (367 of which are located on customer-owned land and are used to service only that customer). Duquesne Light has 592 circuit-miles of transmission lines, comprised of 345,000, 138,000 and 69,000 volt lines. Street lighting and distribution circuits of 23,000 volts and less include approximately 16,420 circuit-miles of lines and cable. These properties are used in the electricity delivery business segment.

Our total investment in property, plant and equipment (PP&E) and the related accumulated depreciation balances for major classes of property at December 31, 2002 and 2001 are as follows:

PP&E and Related Accumulated Depreciation

Electric delivery PP&E includes: (1) distribution poles and equipment; (2) lower voltage distribution wires used in delivering electricity to customers; (3) substations and transformers; (4) high voltage transmission wires used in delivering electricity from generating stations to substations; (5) internal telecommunication equipment, vehicles and office equipment; and (6) meters and automated meter reading assets, all used in our electricity delivery business segment. The other PP&E is comprised of energy facilities used in our Energy Services business segment, telecommunications facilities and property related to our DQE Communications business (reported in the “all other” category), and landfill gas recovery equipment used in our Financial business segment.

Discontinued Operations

AquaSource owns and operates over 450 investor-owned water and wastewater systems and performs contract services for over 130 additional systems. These systems are comprised of distribution and collection lines, pump stations, treatment plants, storage tanks, reservoirs and related facilities. Properties are adequately maintained and units of property are replaced as and when necessary. AquaSource owns a substantial acreage of land, the greater part of which is located in watershed areas and used for the discharge of treated effluent, with the balance being principally sites of pumping and treatment plants, storage reservoirs, tanks and standpipes. These properties are used in our water distribution business. The net investment as of December 31, 2002, and 2001 was $154.6 million, and $216.4 million. These amounts are not included in the above table.

ITEM 3. LEGAL PROCEEDINGS.

Shareholder Class Action. In October and November 2001, a number of putative class action lawsuits were filed by purported shareholders of DQE against DQE and David Marshall, DQE’s former chairman, chief executive officer and president, in the United States District Court for the Western District of Pennsylvania. These cases were consolidated under the caption In re DQE, Inc. Securities Litigation, Master File No. 01-1851 (W.D. Pa.), and the plaintiffs filed a second consolidated amended complaint on April 15, 2002. The complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and Section 12(a)(2) of the Securities Act of 1933 (the “Securities Act”). The complaint alleges controlling person liability under Section 20(a) of the Exchange act and Section 15 of the Securities Act. The complaint alleges that between December 6, 2000, and April 30, 2001, the defendants issued a number of materially false and misleading statements concerning investments made by our subsidiary, DQE Enterprises, and the impact that these investments would have on our current and future financial results.

More particularly, the complaint alleges that DQE and Marshall stated their expectation that certain companies in which DQE Enterprises had invested would undertake initial public offerings of their shares, with the result that our earnings would be positively impacted by the public market valuation of DQE Enterprises’ interests in these companies, but failed to disclose allegedly adverse facts that made the possibility of successful public offerings of the securities of these companies unlikely. The complaint seeks an award of

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unspecified compensatory damages, and an order permitting class members who purchased DQE shares through a dividend reinvestment plan to rescind those purchases, pre- and post-judgment interest, attorneys’ fees and expenses of litigation and unspecified equitable and injunctive relief.

On December 12, 2002, the lead plaintiffs asked the court to certify the class action. We filed our opposition to this motion on March 10, 2003. The motion is scheduled to be argued before the court on April 7, 2003. Since December 2002, we and the plaintiffs have been in pre-trial discovery. The court has directed that this phase be concluded by September 30, 2003, followed by an expert discovery period through December 31, 2003.

No trial date has yet been scheduled, and we would not anticipate one to be set before the first quarter of 2004.

Although we cannot predict the ultimate outcome of this case or estimate the range of any potential loss that may be incurred in the litigation, we believe that the lawsuit is without merit, strenuously deny all of the plaintiffs’ allegations of wrongdoing and believe we have meritorious defenses to the plaintiffs’ claims. We are vigorously defending this lawsuit.

Fresh Kills. GSF Energy, L.L.C., a DQE Financial subsidiary, has a 20 year concession agreement for the gas rights to New York City’s Fresh Kills landfill. GSF also maintains an investment in a gas processing facility at the landfill and was constructing additional processing capacity when the World Trade Center tragedy occurred. The debris from the World Trade Center was transported to the Fresh Kills landfill and currently rests on top of the landfill’s largest hill. During 2002, GSF suffered reductions in available gas due to the continued effects of the World Trade Center debris as well as other actions taken by the New York City Department of Sanitation resulting in further damage to its gas collection system. On January 16, 2003, GSF initiated litigation against the City of New York acting by and through its Department of Sanitation in the United States District Court for the Southern District of New York. Concurrently, GSF tendered notice of its intent to surrender the concession agreement in 180 days as permitted by the concession agreement.

The complaint seeks rescission of the concession agreement and related relief and seeks an injunction to prevent the Department of Sanitation from taking any action to declare an event of default under the concession agreement, accelerate payment under a promissory note or draw on letters of credit supporting GSF’s obligations thereunder. On that same date, GSF filed a notice of claim with the New York City Comptroller seeking monetary relief as an alternative to its rescission and other claims set forth in the complaint. The 180-day surrender period has been extended until September 13, 2003 on a consent as part of the parties’ effort to determine whether the litigation can be settled.

Other. In the fourth quarter of 2002, we settled the AquaSource minority shareholder litigation discussed in Note 13. We are involved in various other legal proceedings and environmental matters. We believe that the resolution of such proceedings and matters, in total, will not have a materially adverse effect on our financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

Information relating to the market for our common stock and other matters related to our holders is set forth in Note 5 and in Note 20 hereto, and incorporated here by reference.

Our board declared quarterly dividends on our common stock totaling $1.34 per share in 2002. (See “Dividends” discussion at Item 7.) At March 10, 2003, there were approximately 53,225 holders of record of our common stock. Our common stock is listed and traded on the New York, Philadelphia and Chicago Stock Exchanges.

On October 7, 2002, we issued 60,000 shares of our Preferred Stock, Series A (Convertible), having an aggregate liquidation value of $6 million, in connection with the settlement of the AquaSource minority shareholder litigation discussed in Note 13. Each recipient of preferred stock also received an option to sell all the shares to us on the earlier to occur of (i) our sale of all or substantially all the stock or assets of AquaSource or (ii) October 7, 2004. The purchase price will be the $100 per share liquidation value, payable in cash or common stock at our election. These shares were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.

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ITEM 6. SELECTED FINANCIAL DATA