SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                       ----------------------------------

                                   FORM 10-K/A



                        for annual and transition reports
                     pursuant to sections 13 or 15(d) of the
                         securities exchange act of 1934

      [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2000

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                         Commission file number 1-11871

                      Commodore Applied Technologies, Inc.
             (Exact Name of Registrant as Specified in Its Charter)

    Delaware                                              11-3312952
    (State or Other Jurisdiction of                       (I.R.S. Employer
    Incorporation or Organization)                        Identification No.)

    2121 Jamieson Street, Suite 1406
    Alexandria, Virginia                                  22314
    (Address of Principal Executive Offices)              (Zip Code)

Registrant's telephone number, including area code:  (703) 567-1284

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

         Title of Each Class           Name of Each Exchange on Which Registered
         -------------------           -----------------------------------------
Common Stock, par value $0.001 per                American Stock Exchange
share Redeemable Common Stock Purchase            American Stock Exchange
Warrants

Securities registered pursuant to Section 12(g) of the Act:  Not Applicable

<PAGE>

         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 (or for such shorter  period that the
registrant was required to file such reports),  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 be the best of  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. [ ]

         Non-affiliates  of the  registrant  held  shares of Common  Stock as of
March 15, 2001 with an aggregate market value of approximately $4,045,220 (based
upon the last sale price of the Common  Stock on March 15,  2001 as  reported by
the American Stock Exchange).

         As of March 15,  2001;  52,060,445  shares of the  registrant's  Common
Stock were outstanding.

                       ----------------------------------

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None



<PAGE>


                      COMMODORE APPLIED TECHNOLOGIES, INC.

                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>



<S>      <C>                                                                                                     <C>

PART 1............................................................................................................1
------
         ITEM 1.  BUSINESS........................................................................................1
                  General.........................................................................................1
                  Soil Decontamination--Commodore Solution Technologies, Inc......................................2
                  Environmental Insurance Claim Resolution - Dispute Resolution Management, Inc...................7
                  Environmental Management - Commodore Advanced Sciences, Inc.....................................8
                  Markets and Customers..........................................................................12
                  Raw Materials..................................................................................13
                  Backlog........................................................................................14
                  Research and Development.......................................................................14
                  Intellectual Property..........................................................................14
                  Competition....................................................................................15
                  Environmental Regulation.......................................................................17
                  Employees......................................................................................18
         ITEM 2.  PROPERTIES.....................................................................................18
         ITEM 3.  LEGAL PROCEEDINGS..............................................................................19
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................20

PART II..........................................................................................................21
-------
         ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................21
                  Market Information.............................................................................21
                  Dividend Information...........................................................................22
                  Recent Sales of Unregistered Securities........................................................23
         ITEM 6. SELECTED FINANCIAL DATA.........................................................................31
         ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........32
                  Overview.......................................................................................32
                  Results of Operations..........................................................................32
                  Liquidity and Capital Resources................................................................35
                  Net Operating Loss Carryforwards...............................................................41
                  Year 2000 Considerations.......................................................................41
                  Forward Looking Statements.....................................................................41
         ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................42
         ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................42
         ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........43

</TABLE>

<PAGE>
<TABLE>
<CAPTION>



<S>      <C>                                                                                                     <C>

PART III.........................................................................................................44
         ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................44
                  Executive Officers and Directors...............................................................44
                  Key Employees..................................................................................47
                  Board Committees...............................................................................48
                  Compensation of Directors......................................................................49
                  Compliance with Section 16(a) of the Exchange Act..............................................49
         ITEM 11.  EXECUTIVE COMPENSATION........................................................................50
                  Summary Compensation...........................................................................50
                  Stock Options..................................................................................52
                  Employment Agreements..........................................................................53
                  Compensation Committee Interlocks and Insider Participation....................................53
                  Report of the Compensation Committee on Executive Compensation.................................54
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................58
                  Security Ownership of Certain Beneficial Owners................................................58
                  Security Ownership of Management...............................................................60
                  Organization and Capitalization of the Company.................................................62
                  Services Agreement.............................................................................65
                  Sale of Company Common Stock by Environmental..................................................66
                  February 1998 Intercompany Note................................................................67
                  September 1997 Intercompany Convertible Note...................................................68
                  Sale of Series D Preferred Stock by Environmental..............................................69
                  License of SET Technology......................................................................69
                  Future Transactions............................................................................69

PART IV..........................................................................................................70
-------
         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................70

SIGNATURES.......................................................................................................77
----------
</TABLE>


<PAGE>

                                     PART I
                                     ------

ITEM 1.  BUSINESS
------   --------

GENERAL

         Commodore   Applied   Technologies,   Inc.   (the   "Company")   is  an
environmental solutions company providing a range of engineering, technical, and
financial  services to the public and private sectors related to (i) remediating
contamination in soils,  liquids and other materials and disposing of or reusing
certain  waste  by-products  by  utilizing  our  Solvated  Electron   Technology
("SET(TM)"),  (ii) the  settlement of complex,  long-tail  and latent  insurance
claims by utilizing a series of tools  including an  internally  developed  risk
modeling  program  ("FOCUS(TM)"),  and  (iii)  providing  services  related  to,
environmental management for on-site and off-site identification,  investigation
remediation and management of hazardous, mixed and radioactive waste.

         We believe  that SET is the only  patented,  non-thermal,  portable and
scalable  process that is currently  available for treating and  decontaminating
soils,  liquids  and  other  materials  containing  PCBs,  pesticides,  dioxins,
chemical weapons and warfare agents and other toxic  contaminants.  Furthermore,
we  believe  that the  proprietary  FOCUS  program  developed  by our 81%  owned
subsidiary  Dispute Resolution  Management,  Inc., ("DRM") is the only automated
risk management system that fully incorporates all of the variables necessary to
determine  accurately  the  liability  and  settlement  targeting  necessary  to
negotiate appropriate insurance recoveries.

         The  Company's   corporate   mission  is  to  serve  the  environmental
remediation market from two primary operating centers: (a) to profitably provide
government and industry with  engineering  and  remediation  solutions to legacy
waste  environmental  problems,  and  (b) to  profitably  negotiate  and  settle
complex,  long-tail  environmental claims domestically and internationally.  Our
strategy  will  focus  the  Company  on the  unique  and high  profit  niches of
environmental claims settlement and recovery, hazardous materials conversion and
waste remediation.

         Demand for our  environmental  technology  and  financial  services  is
anticipated to arise principally from the following sources:

o        the need for alternative  environmental  treatment and disposal methods
         for  toxic  substances  (such  as the SET  technology),  which  involve
         limited  safety risks with respect to air pollution and  transportation
         of hazardous  materials  and do not result in large volumes of residual
         waste that require further treatment prior to disposal;

o        the need to  obtain  available  insurance  recoveries  in a  negotiated
         manner  (utilizing  the FOCUS  process)  to  compensate  clients  for a
         portion of their  past,  current  and  anticipated  obligations,  while
         minimizing  the  costs  and time  associated  in a  litigated  recovery
         environment;

o        stricter legislation and regulations  mandating new or increased levels
         of air and water pollution control and solid waste management; and

o        the need to provide  appropriate  risk management  tools and mechanisms
         associated  with  present  and  future  remediation  risks on  impaired
         properties and facilities.

                                       1

<PAGE>


         Our business strategy is to expand  our  environmental  technology  and
         financial services businesses by:

o        implementing  the SET  technology  on  selected  niche  markets  within
         certain  strategic  environmental  market segments,  such as government
         mixed waste remediation and chemical weapons demilitarization, where we
         believe  SET  offers the  greatest  value and meets  pressing  customer
         needs;

o        focusing  DRM's  marketing   efforts  with  aggressive   joint  working
         alliances and marketing arrangements with established  associations and
         representatives of Fortune 1000 companies worldwide;

o        developing    strategic    insurance    brokerage    arrangements   and
         collaborations through joint venture or acquisition,  to further expand
         the business offerings and services of DRM to their existing and future
         clientele; and

o        establishing  additional  collaborative  joint  working  and  marketing
         arrangements  with established  engineering and  environmental  service
         organizations  to pursue  commercial  opportunities  in the  public and
         private sector.


         The  Company  has  identified  three  operating  segments.  These three
segments are as follows:  Commodore  Advanced  Sciences,  Inc.,  which primarily
provides various engineering,  legal, sampling, and public relations services to
Government agencies on a cost plus basis;  Commodore  Solutions,  Inc., which is
commercializing  technologies  to treat mixed and hazardous  waste;  and Dispute
Resolution  Management,  Inc.,  which  provides  a package of  services  to help
companies recover financial  settlements from insurance policies to defray costs
associated with environmental liabilities.  Additional information regarding the
business of each segment is set forth below,  and the  information in Note 18 to
the Company's  Consolidated  Financial Statements included in this Annual Report
on Form 10-K is incorporated into this Part I by reference.


         The Company was incorporated in Delaware in March 1996. As used in this
Annual Report, and except as the context otherwise requires, the "Company" means
Commodore Applied Technologies,  Inc. and its subsidiaries,  including Commodore
Solutions,  Inc.,  Commodore CFC  Technologies,  Inc.,  and  Commodore  Advanced
Sciences,  Inc. The Company's  principal  executive  offices are located at 2121
Jamieson  Avenue,  Suite 1406,  Alexandria,  Virginia  22314,  and its telephone
number at that address is (703) 567-1284.


SOIL DECONTAMINATION--COMMODORE SOLUTION TECHNOLOGIES, INC.

         The Company,  through  Commodore  Solutions,  Inc.  ("Solutions"),  has
developed and is in the process of commercializing its patented process known as
SET.  Based on the results of its extensive  testing and  commercial  processing
activities, the Company believes that SET is capable of effectively treating and
decontaminating soils and other materials,  including sludges,  sediments,  oils
and other  hydrocarbon  liquids,  metals,  clothing  and porous  and  non-porous
structures and surfaces, by destroying PCBs,  pesticides,  dioxins,  chlorinated
substances  and other  toxic  contaminants  to an extent  sufficient  to satisfy


                                       2
<PAGE>

current federal environmental guidelines.  The Company also believes that, based
on the results of additional tests, SET is capable of neutralizing substantially
all  known  chemical  weapons  materials  and  warfare  agents,  explosives  and
concentrating certain radioactive wastes for more effective disposal.

         The SET process was  commercialized  during the calendar  year 2000. In
May 2000, the Company  mobilized its S-10 system to Harrisburg,  Pennsylvania to
begin processing PCB contaminated soils at the Pennsylvania Air National Guard's
base located at the Harrisburg  International  Airport (the "Initial  Harrisburg
Contract").  The  Company  substantially  completed  the base  contract in 2000,
remediating   approximately  260  tons  of  excavated  soils  to  levels  deemed
unregulated  for  disposal  by the U.S.  Environmental  Protection  Agency  (the
"EPA"). The contract has since been modified to add another 50 tons of soils. In
November  2000,  the  Company  demonstrated  the S-10  system  to the EPA at the
Harrisburg site, and has been advised informally by an EPA  representative  that
the  system  will be  added  to our  existing  nationwide  permit  for  chemical
destruction of PCBs. This is the Company's fourth system to be so permitted.

         In February  2001,  the Company  announced a multi-year  contract  with
Waste Control  Specialists,  LLC (the "WCS Contract") for the establishment of a
fixed  facility  utilizing  the SET  technology  and  the  S-10  system  for the
treatment of radioactive  mixed waste.  SET safely and effectively  treats mixed
wastes, a mixture of radioactive  materials and hazardous  wastes, by destroying
the hazardous elements. The Company utilizes SET to remove Resource Conservation
and Recovery Act ("RCRA") and Toxic  Substances  Control Act ("TSCA")  regulated
compounds from low-level mixed wastes,  making the waste  acceptable for on-site
disposal.  Waste Control  Specialists,  LLC ("WCS") operates a broad-based waste
treatment,  storage and  disposal  facility in Andrews  County,  Texas.  The WCS
facility  includes 11.2 million  cubic yards  permitted  disposal,  a 5,000-drum
capacity  warehouse,  a  150-bin  container  storage  building,  truck  and rail
unloading capabilities and laboratory facilities.  The Company believes that the
WCS  facility  will be one of the premier  mixed waste  treatment  and  disposal
facilities in the country.

         The initial term of the WCS Contract is for a  three-year  period.  The
Company  is paid on each  pound  of  conforming  mixed  waste  material  that is
processed   through  the  S-10  system.   The  WCS  Contract  will  be  extended
automatically  for five  consecutive,  two-year options unless WCS elects not to
extend  by  issuing  the  Company  written  notice  sixty  days  prior  to  such
extension(s).  The  Company  has the first  right of refusal on  processing  any
conforming  mixed waste materials that flow through the WCS site.  Additionally,
the Company  reserves the right of refusal to process any conforming mixed waste
materials at less than $2.00 per pound.  There are no minimum or maximum volumes
of  conforming  mixed  waste  materials  that  are to be  processed  by the  WCS
Contract.  WCS may cancel the WCS contract  with 180 days notice to the Company.
The Company may cancel the WCS contract with 365 days notice to WCS.

         Additionally,  the Company performed several  treatability  studies for
third party  customers  during 2000, as well as continued  internal  testing and
process  development.  At  Envirocare  of Utah,  ("Envirocare")  the SET process
successfully  treated water treatment sludge from a waste stream provided by the
Brookhaven National Laboratory (the "Envirocare Study"). Under current treatment
processes  at  Envirocare,  this waste  could not be  treated  to land  disposal
regulation  requirements.   The  waste  stream  was  a  laboratory  mixed  waste
(radioactive)  sludge,  contaminated  with lead and high levels of RCRA  organic
compounds.  The Envirocare Study waste contained the hazardous waste codes F001,
F003,  F005,  and D008.  The  Envirocare  Study waste stream also contained high
water content,  approximately 75%. The Company successfully treated the material
such that it was suitable for land disposal. The results of the Envirocare Study
were presented to the participants of the Waste Management Conference in Tucson,
Arizona in  February  2001.  In the case of third  party  treatability  studies,
customer location processing and new patent data set construction, all tests and

                                       3
<PAGE>

processing results were verified by independent  laboratories agreed upon by the
Company and/or the respective  client.  In the case of internal  Company process
development  testing,  results  were  verified  with  Company  owned  analytical
equipment in addition to periodic independent off-site testing.

The SET Technology

         The SET technology,  which is based upon solvated  electron  chemistry,
mixes  anhydrous  liquid  ammonia  and/or other  similar  solvents with reactive
metals  and  contaminated  elements  to  effect  the  selective  destruction  or
neutralization of organic compounds (such as PCBs, pesticides and dioxins).  The
Company  has  demonstrated  that SET can  achieve  consistently  high  levels of
contaminant destruction when working with PCBs, dioxins and pesticides.  SET has
treated soils containing up to 10,000 ppm of  contaminants,  and oils containing
up to 250,000 ppm, leaving residual soils and oils with contamination  levels of
less than one ppm.  In  addition,  SET has been  successfully  applied  to other
PCB-contaminated  surfaces  such as  concrete.  The SET  process  can be used in
conjunction  with selected  post-treatment  processes  such that no hazardous or
toxic  residues  will  result  from the use of SET,  nor will there be any toxic
emissions  into the air,  water,  soils or other  surfaces.  For  example,  most
contaminated  soils  treated  with  SET  can  (subject,  in some  instances,  to
re-blending the soil with organic matter) be used  subsequently  for planting or
for any other use for which non-contaminated soils are appropriate.

         Equipment  utilized  in the SET process  consists  of tanks,  pumps and
piping to handle anhydrous ammonia and other solvents in liquid and vapor forms,
and  treatment   vessels  for  holding   contaminated   materials  and  for  the
introduction  of solvating  solutions.  The system can be  transported  to field
sites and configured in numerous sizes.

         The SET process  requires  placing the  contaminated  materials  into a
treatment  vessel  where they are mixed with a solvent and  charged  with a base
metal (e.g. sodium).  The chemical reaction produces metal salts such as calcium
chloride,  calcium  hydroxide and  non-halogenated  inert organics.  The ammonia
within the treatment vessel is then removed to a discharge tank for later reuse.
The  materials  are  removed,  sampled  for  residual  traces  of PCB  or  other
halogenated  organic  compounds,  and placed in storage  for  disposal.  In many
cases,  the  decontaminated  soil and metals can be replaced  in their  original
location,  recycled or reused.  The solvents do not enter the chemical reaction,
but merely serve as dissolving liquids for the solvated electron solution.

         Operational Characteristics.  Substantially all existing systems in use
for the destruction of PCBs and other halogenated compounds involve incineration
or other  thermal  processes,  and either the permanent  installation  of highly
complex and expensive  incinerators and waste disposal equipment at the affected
site,  or the removal of  contaminated  materials  to off-site  facilities.  The
Company   believes  that  SET  represents  an  approach  to  resolving   serious
environmental remediation issues that does not create or entail the safety risks
of air pollution and transportation of hazardous materials. The Company believes
that SET is more effective than incineration and other destruction processes for
toxic substances in that:

o        SET does not emit toxic fumes into the atmosphere,  as is sometimes the
         case with thermal or incineration methods;

o        SET is portable  and can be moved  directly to the  contaminated  site,
         thereby reducing the risk of off-site contamination;


                                       4
<PAGE>

o        SET  equipment  can be customized  and  configured  to address  various
         treatment applications;

o        SET's  reaction  time is  substantially  less than that of  alternative
         processes,  such as thermal  destruction  and other  forms of  chemical
         treatment;

o        SET  equipment can be installed and operated  inside  industrial  plant
         facilities to treat  hazardous  wastes on line as a continuation of the
         manufacturing process;

o        SET, when used to treat soils, yields  nitrogen-enriched soils that can
         be reused on-site, avoiding replacement and the post-treatment costs of
         off-site disposal; and

o        SET has been  shown to  neutralize  or  destroy  all  chemical  weapons
         material  and  warfare  agents  in the  United  States  stockpile,  and
         Lewisite (the primary  chemical  weapons  material and warfare agent of
         the  former  Soviet  Union),  in  tests  conducted  by an  independent,
         federally certified surety laboratory.

         The  Company  believes  that  SET  is  the  only  technology  currently
available that possesses all of these features and is capable of treating a wide
variety  of  contaminants.   The  above  characteristics  (non-thermal,  no  air
emissions,  mobile) are  particularly  applicable when dealing with mixed waste.
Wastes that contain  radioactive  material and hazardous waste regulated by RCRA
and TSCA are particularly difficult to treat and have extremely limited disposal
options.  By applying  the SET  process to remove the RCRA and TSCA  components,
leaving only radioactive waste material,  disposal options expand.  SET not only
removes the hazardous  components but also does so by an efficient,  non-thermal
process that can control and contain the radioactive material so that it remains
in the treated  material and does not enter the  environment in an  uncontrolled
fashion.

         EPA Nationwide  Permit. In order to treat PCBs within the United States
on all non-Superfund sites, a treating entity must obtain a permit from the EPA.
Most EPA permits  granted to date for PCB destruction are solely for single-site
incineration  treatment centers. In August 1995, SET was demonstrated to the EPA
in order to obtain the  Nationwide  Permit,  which was issued to the  Company in
March 1996. The Nationwide Permit allows the Company to use SET on-site to treat
PCB-contaminated  soil at any location in the United States. In addition to soil
treatment,  the Nationwide  Permit allows the Company to treat PCB  contaminated
metallic  surfaces and waste oils,  as well as  wastewater  (the  wastewater  is
treated by a non-SET process).  The Company has also  successfully  demonstrated
SET as a  treatment  process for organic  materials  contaminated  with PCBs and
radionuclides  and has received a draft  revised EPA permit for these  matrices.
This  permit  revision  covers the  destruction  of PCBs in soils,  waste  oils,
organic materials, water, and on metallic surfaces. Additionally, the Company is
in the process of obtaining a permit  revision for its commercial SET processing
system,  the S-10.  The S-10  system is capable of  processing  up to 10 tons of
contaminated  material  daily.  Various  revisions to the  equipment and process
parameters are being made to the existing permit. The revised permit is expected
to be issued by September 15, 2001.

         Based on currently  published lists of EPA national  operating permits,
the Company  believes  that it  possesses  the only  non-thermal  PCB  treatment
technology  for  multiple  applications  permitted  under  the  EPA's  Alternate
Destruction  Technology Program. EPA regulations  governing permitting have been
in effect for more than 15 years, and according to the latest EPA published list

                                       5
<PAGE>

of  non-thermal  destructive  processes,  only  seven  companies  have met EPA's
stringent  requirements for commercial operation.  Of these, only the Company is
permitted for the chemical  destruction of such a wide range of PCB contaminated
materials.  The EPA's Alternative  Destruction Technology Program is designed to
encourage remediation technologies as an alternative to incineration.

         The  Nationwide  Permit  expires in September  2001, and may be renewed
subject to providing any requested additional information to the EPA at the time
of renewal. The Nationwide Permit imposes certain continuing  obligations on the
Company,  including notification of all job sites, periodic reporting to the EPA
as to activities at the job sites, prior notification to and approval by the EPA
with  respect  to any  single-site  centralized  remediation  facility  that the
Company may seek to  establish,  and  certain  restrictions  on the  disposal of
by-products  from the use of SET. The Nationwide  Permit further  specifies that
the Company must continue to comply with all otherwise applicable federal, state
and local laws regarding the handling and  disposition of hazardous  substances.
There can be no  assurance  that the  Company  will be able to  comply  with the
conditions to maintain and/or secure renewal of the Nationwide Permits.

         Test Results.  In more than 1,500 tests using SET,  various high levels
of   contaminants,   including   PCBs,   were  reduced  to  levels   approaching
non-detectable  with the destruction  process  occurring in a matter of minutes.
The following table lists selected results of these tests.

         These  tests were  conducted  on  limited  quantities  of  contaminated
material,  and there can be no assurance  that SET will be able to replicate any
of these  test  results on a  large-scale  commercial  basis or on any  specific
project.

<TABLE>
<CAPTION>

--------------------- ----------------------- --------------------- ------------------ ------------------
                                                                                          Destruction
                                                                     Post-Treatment       Efficiency
      Analyte             Material Type       Pre Treatment (ppm)        (ppm))               (%)
--------------------- ----------------------- --------------------- ------------------ ------------------
<S>                   <C>                     <C>                   <C>                <C>
PCB**                 Sand, clay              777                   <1.0               99.87
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Sand, silt, clay        77                    <2.0               97.41
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Sand, silt              1250                  <2.0               99.9
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB**                 Volcanic soil           102                   0.2                99.8
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Activated carbon        512                   0.93               99.8
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Solid resin             1212                  0.5                99.96
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Sludge                  32,800                1.3                99.996
--------------------- ----------------------- --------------------- ------------------ ------------------
Dioxin                Sludge                  .04                   ND                 99.99
--------------------- ----------------------- --------------------- ------------------ ------------------
DDD                   Clay                    15                    <0.02              99.87
--------------------- ----------------------- --------------------- ------------------ ------------------
TCE**                 Corn cob*               6,400                 <0.5               99.992
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB**                 Metal capacitors*       5.6                   <0.2               96.5
--------------------- ----------------------- --------------------- ------------------ ------------------
RDX                   Soil                    3850                  <1.0               99.98
--------------------- ----------------------- --------------------- ------------------ ------------------
TCE                   Soil*                   48,000                0.5                99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Used motor oil          23,339                <1.0               99.996
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Transformer oil         509,000               20*                99.996
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Mineral oil             5000                  <0.5               99.99
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Hexane                  100,000               0.5                99.995
--------------------- ----------------------- --------------------- ------------------ ------------------
Freon 113**           Aqueous sludge*         276                   ND                 99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
TCE**                 Aqueous sludge*         262                   ND                 99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
CCl4**                Oil*                    200,000               <0.5               99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
R 23                  Refrigerant             999,999               ND                 99.99
--------------------- ----------------------- --------------------- ------------------ ------------------
Dioxin                Oil                     0.4                   .000002            99.99
--------------------- ----------------------- --------------------- ------------------ ------------------
Malathion             Oil                     900,000               ND                 99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
</TABLE>

                                       6
<PAGE>

* Material was low-level radioactive waste
** Commercial quantities treated on site


ENVIRONMENTAL INSURANCE CLAIM RESOLUTION-DISPUTE RESOLUTION MANAGEMENT, INC.

         The  Company,  through  DRM,  provides  guidance to an  environmentally
impacted Company through the strategic tactical and  implementation  issues that
are inherent to an insurance recovery effort. DRM has identified issues that are
important to insurers and it  understands  the process  insurers use to evaluate
environmental   claims.   DRM  operates   five  offices   domestically   and  an
international  office  in  London  and has five  primary  business  areas/profit
centers. The five areas include (1) U.S. and foreign  environmental and asbestos
claims,  including claims to insolvent London Market insurers; (2) environmental
and asbestos reinsurance claims; (3) business  interruption claims; (4) products
liability; and (5) Y2K remediation claims. Currently, DRM generates about 85% of
its revenue from environmental claims, 5% from Y2K claims, and 10% from products
liability.

         DRM  was  founded  as  a  division  of  the  KPMG  Peat  Marwick,   LLP
Environmental Management Group in 1994 and purchased by the principals of DRM in
December  1996.  The  Company  purchased  81% of DRM on  August  30,  2000.  The
Company's  consolidated  financial  statements  include  operations of DRM since
August 30, 2000. The principals of DRM retain the remaining 19%. DRM and Dispute
Resolution  Management UK Limited  ("DRM UK") are  management  consulting  firms
specializing in business-oriented, non-litigious solutions for the settlement of
complex, long-tail and latent insurance and other claims.

         DRM   represents   policyholders,    typically   large   multi-national
corporations,  in the non-litigated  resolution of large insurance  claims.  DRM
facilitates  the  settlement  of claims  by  utilizing  a series of  proprietary
systems to perform  insurance policy  archeology,  policy coverage  analysis and
prioritization,  claim  documentation,  coverage trigger allocation,  settlement
value  targeting,  risk  allocation  modeling  and  settlement  structuring  and
documentation. DRM commits to manage the entire settlement process, typically in
exchange for a monthly retainer and/or a percentage success fee payable when the
insurers enter into a settlement agreement with its client.

         DRM  offers  a  bundle  of  services  to  its  clients  which  include:
construction  of historical  coverage  flowcharts  derived  through old and lost
policy archaeology, insurance coverage analysis and prioritization,  compilation
of all necessary  claims data and computer  assisted risk exposure  modeling and
quantification.  DRM accepts  engagements  to design and  execute  non-litigated
insurance recovery projects in the context of environmental, products liability,
Y2K,  business  interruption  and insolvency  claims.  DRM commits to manage the
entire  settlement  process in  exchange  for a lump sum success fee (4% to 22%)
when the  insurers  settle with the client (In most cases,  DRM also  receives a
monthly retainer during the process).  DRM avoids the litigation track, although
it may work in tandem with litigators.  The settlement  typically  involves less
time and resources than  litigation  with  insurers.  DRM manages all aspects of
developing the settlement proposal and negotiating it with insurers.  The client
relationship is based upon (1) DRM's  knowledge of the insurers'  procedures and
needs, (2) DRM's history of successfully  concluding claims negotiations and (3)
DRM's commitment to business solutions in lieu of litigation to conclusion.

                                       7
<PAGE>

         DRM has handled  many complex  insurance  claim  negotiations  with the
majority of the major property/casualty  carriers,  resulting in several hundred
million  dollars in recoveries  for its clients,  primarily on a contingent  fee
basis. DRM enhances its marketing and client service capabilities by employing a
multi-disciplinary  team of settlement  experts drawn from both the policyholder
sector and from the claims  departments of the major carriers.  The DRM team has
over 100 years of combined claims  settlement  experience.  DRM has 18 full-time
employees  comprised of attorneys,  MBAs and former insurance claim managers and
professionals.

         The  Company   anticipates   that  it  will  be  able  to  combine  our
environmental-related   management,   engineering  and  technological   services
experience with DRM's consulting  expertise and pursue opportunities where there
exists:

o        the need for financial  solutions to a company's or  quasi-governmental
         group's environmental and other long-tail liabilities;

o        the need for  cost-effective and safe solutions to the on-going dangers
         posed by toxic and radioactive waste;

o        environmentally  impacted or distressed properties where a "Brownfield"
         environmental clean-up is warranted; and

o        the urgent need to prevent proliferation of weapons of mass destruction
         by efficiently  converting existing,  terrorist-vulnerable  nuclear and
         chemical components into energy and benign materials.

         In addressing these opportunities, target markets will include:

o        industrial  companies in North  America and Europe who have  maintained
         comprehensive  general liability  insurance coverages with potential or
         demonstrated long-tail liabilities;

o        mixed-waste  (radioactive  with  hazardous  and/or toxic  content) U.S.
         governmental and international nuclear waste streams;

o        governmental entities that are named as additional insureds on historic
         general liability coverages;

o        spent nuclear fuel and the drying and dehydriding of nuclear fuel rods;

o        U.S. governmental nuclear utilities;

o        companies that require specialty  environmental cost capping and finite
         risk insurance products; and

o        U.S.  governmental  programs  for  neutralizing  nuclear  and  chemical
         weapons and explosives.



ENVIRONMENTAL MANAGEMENT--COMMODORE ADVANCED SCIENCES, INC.



                                       8
<PAGE>

         The Company,  through  Commodore  Advanced  Sciences,  Inc.  ("Advanced
Sciences"),  provides specialized  technical and project management products and
services primarily to  government-sector  customers,  including the DOE and DOE,
and also to private-sector  domestic and foreign industrial customers.  Advanced
Sciences engages in all aspects of environmental  regulation and compliance,  as
well as access to leading  technologies  and  innovative  skills  related to the
identification,  investigation,  remediation and management of hazardous,  mixed
and radiological waste sites.  Advanced Sciences currently operates a network of
six offices located in four states, with its principal executive offices located
in Albuquerque, New Mexico.

         The  Company's   strategy  in  acquiring   Advanced   Sciences  was  to
incorporate  its process  technology  into the products and services  offered to
Advanced Sciences' customers, with a view to increasing the quality and scope of
services  offered and providing the Company with a broader customer base for its
technology.

Services

         Environmental  Services.  Advanced  Sciences'  analytic and  scientific
abilities enable it to become involved in  environmental  issues and problems at
their outset.  Initially,  Advanced Sciences provides its customers with a broad
outline of the types of  environmental  problems,  health risks and  liabilities
associated  with  a  particular   activity.   Advanced  Sciences  also  conducts
environmental   audits   and   assessments,   underground   storage   tank  site
investigations,   remedial   investigations/feasibility  studies,  environmental
impact  assessments,  and  statements  and  studies to  identify  any  potential
environmental hazards.

         Remediation  Services.  Having already established a competitive market
position in the consulting and front-end  analysis phase,  Advanced Sciences has
been  able  to  follow  market  demand  into  remediation  services.   After  an
environmental  problem  is  identified,  Advanced  Sciences  offers  alternative
remediation  approaches that may involve  providing on-site waste containment or
management of on-site/off-site  remediation and waste removal. Advanced Sciences
can also  redesign  its  customers'  ongoing  production  processes  and develop
engineering  plans and  technical  specifications  to minimize or eliminate  the
generation of hazardous  waste.  The Company  believes  that Advanced  Sciences'
integration  of  engineering  and  environmental  skills,  plus  its  access  to
innovative technologies,  provide Advanced Sciences with a competitive advantage
in redesigning production processes.

         Technical  Services.  New technologies play a critical role in both the
remediation of existing  waste sites and in the reduction of waste  generated by
ongoing production processes.  Commodore Advanced Sciences has access to the SET
technology and all its derivatives.  Additionally,  Advanced Sciences has access
to the  Supported  Liquid  Membrane  ("SLiM(TM)")  technology  held by Commodore
Separation Technologies, Inc. ("Separation"). This technology has the ability to
selectively  extract  heavy  metals and  radioactive  nuclides  from liquids and
gasses.  The SLiM  technology  is held in an 87% owned  subsidiary  of Commodore
Environmental Services, which owns 16.58% of the Company.  Advanced Sciences has
also retained what it believes are among the most qualified professionals in the
environmental   consulting   business.   Advanced   Sciences'   scientists  have
participated on national boards for risk assessment and quality assurance,  were
instrumental in the development of environmental  regulations for the Department
of Energy  ("DOE") and the  Department  of Defense  ("DOD"),  and have served as
expert witnesses before the U.S. Congress and the Nuclear Regulatory Commission.
To maintain its competitive  position,  Advanced Sciences intends to continue to
develop  viable  remediation  technologies  and  attract  and  retain  qualified
personnel.



                                       9
<PAGE>


Contracts

         Rocky Flats Contract: Under a basic ordering agreement from Kaiser-Hill
Company,  LLC, the site  operating  contractor,  Advanced  Sciences is currently
providing  technical,  engineering and scientific  support for the closedown and
cleanup  of the  DOE  facility  at  Rocky  Flats,  Colorado  (the  "Rocky  Flats
Contract").  Pursuant to the Rocky  Flats  Contract,  approximately  40 Advanced
Sciences' personnel are involved in activities such as environmental monitoring,
health monitoring,  engineering design and documentation support with respect to
the facility.  The Rocky Flats  Contract,  which extends through the end of June
2003, is  structured  as a time and  materials  contract that provides for a fee
averaging  5.5% of costs.  Advanced  Sciences'  billings  under the Rocky  Flats
Contract are approximately $400,000 per month.

         Tetra Tech Contract:  In November 1998, Advanced Sciences was awarded a
five-year  subcontract  under Tetra  Tech's $20 million  contract  with  Bechtel
Jacobs Co, LLC for general engineering support on environmental  management work
at the U.S.  DOE's Oak Ridge,  TN site.  Advanced  Sciences  estimates that this
subcontract  may  have an  estimated  value  of $3 to $5  million  over a 5-year
period.

         General Services Administration  Contract: In January 2000, the Company
was awarded a 5-year  contract for  environmental  services by the GSA's Federal
Supply  Service.  This  contract  has an  estimated  value of $15  million.  The
environmental  advisory services contract includes;  providing  expertise in the
areas  of  environmental  planning  services  and  documentation,  environmental
compliance  services,  environmental/occupational  training services,  and waste
management services.

         American  Technologies  Incorporated (ATI) Contract:  In November 1999,
the Company  was  awarded a 3-year  sub-contract,  with two 1-year  options,  to
provide facility  maintenance,  surveillance and inspection services for Bechtel
Jacobs Company,  LLC, in support of the East Tennessee Technology Park (ETTP) at
Oak Ridge,  Tennessee.  This  contract has an  estimated  value of $2.8 over the
5-year  life of the  contract,  if the two 1-year  options  are  exercised.  The
environmental  advisory services contract  includes  providing  expertise in the
areas of engineering and document control services for ATI.

         Waste  Isolation  Pilot Plant (WIPP)  Contract  Extension:  In November
1998,  Advanced  Sciences  was  awarded a two-year  extension  by the DOE on its
existing Carlsbad Area Office Technical Assistance  Contract.  Advanced Sciences
provided  technical  assistance to the DOE's  Carlsbad Area Office in support of
the  permitting  and operation of the Waste  Isolation  Pilot Plant  ("WIPP") in
Carlsbad, New Mexico.  Pursuant to the WIPP Contract,  Advanced Sciences managed
the  efforts of  approximately  85  full-time  equivalent  (FTE)  personnel  who
provided support covering functional areas such as regulatory  assurance,  waste
packaging and  transportation,  and facility  operations.  The WIPP Contract was
structured  as a cost  plus  5.25% fee  agreement.  Advanced  Sciences  achieved
revenues of  approximately  $10 million in 2000 as a result of the  extension of
the contract. The contract ended December 31, 2000.

Joint Ventures

         Teledyne   Environmental  Joint  Venture.  In  August  1996,  Commodore
Government  Environmental  Technologies,  Inc.  ("Government  Technologies"),  a
wholly-owned  subsidiary of the Company,  entered into a joint venture agreement
with Teledyne Environmental,  Inc. ("Teledyne  Environmental"),  a subsidiary of
Allegheny Teledyne,  Inc., as the exclusive means by which each party (and their
affiliates)  will pursue the chemical weapons  destruction and  demilitarization
market on a  worldwide  basis.  Teledyne  Environmental  is a major  provider of
contract services to the Department of Defense (the "DOD") and the Department of

                                       10
<PAGE>

Energy   (the   "DOE").   The   purpose   of  the   joint   venture,   known  as
Teledyne-Commodore,  LLC (the  "LLC"),  a Delaware  limited  liability  company,
encompasses all phases of chemical weapons  demilitarization  including  design,
engineering,  field  work,  ordinance  and  residue  (heel)  neutralization  and
demilitarization,  disposal and  reclamation  through the use,  application  and
commercialization of the SET process.

         The LLC was selected to participate in the Assembled  Chemical  Weapons
Assessment  Program  ("ACWA"),  created  in  December  1996,  a  congressionally
mandated program to examine  alternative  technologies in place of the US Army's
baseline incineration technology. When the LLC was formed in 1996, the principal
objective  was to  achieve  a  level  of  maturity  with  the  SET  process  for
demilitarization  and destruction of chemical  warfare agents that would make it
competitive within the ACWA program.  The LLC was selected to participate in the
ACWA program.  Fourteen technologies were submitted and seven were down-selected
in October of 1997.  The LLC's SET  technology was one of the seven included for
further evaluation.

         During 1998,  the LLC optimized the SET process for the  destruction of
chemical warfare agents.  In government  approved surety  laboratories,  the SET
process successfully  destroyed over three liters of chemical agents,  including
samples of all US stockpiled  chemical  warfare  agents.  Additionally,  the LLC
demonstrated a patented fluid jet cutting and extraction  system at the Redstone
Arsenal.   The  fluid  jet  cutting  and  extraction   technology   successfully
deactivated  39 M60 rockets  and  several  Howitzer  (150mm)  shells.  A further
down-selection  to six  technologies  was made on May 4,  1998.  The  LLC's  SET
process was one of the  technologies  selected.  The U.S.  Army briefed the U.S.
Congress and the chemical weapons  community that all six technologies  would be
demonstrated in the spring of 1998.

         On July 30, 1998, the U.S. Army  announced that there was  insufficient
funding for all six  technologies to be  demonstrated.  The US Army stated there
was funding to demonstrate three  technologies and that additional funding would
be procured for the other three  technologies  to be tested.  The Army chose the
three  technologies  least expensive to demonstrate  (these three were ranked on
technical merit 2nd, 5th, and 6th by the US Army). The LLC's SET process was not
selected  for  demonstration.  The  Company  filed a  formal  protest  with  the
Government  Accounting  Office (the "GAO") on August 12,  1998.  The protest was
denied on September 16, 1998 on the basis that the GAO did not have jurisdiction
to review the case.  Upon the LLC's  application  for  reconsideration,  the GAO
reinstated the protest on November 25, 1998. The GAO denied the protest on March
10,  1999.  An  effort by  certain  members  of the U.S.  Congress  has  secured
additional funding for the Company's technology to be demonstrated.

         The LLC was notified in 1999 that additional funding was secured by the
US  Congress  to test its  technology  under  its  ACWA  contract.  Testing  was
initiated  during the first half of 2000 at Dugway  Proving  Grounds and CAMDUS.
The LLC's SET process and the ammonia jet cutting  system was unable to complete
the program of testing at either site under the time and  financial  constraints
under the ACWA program.  Accordingly,  in August 2000, the LLC was notified that
its SET  process and ammonia jet  cutting  system  would not be  considered  for
further testing and/or development under the ACWA program.

         Government Technologies and Teledyne Environmental each owns 50% of the
equity,  profit and  losses of the LLC and have made  capital  contributions  of
approximately  $4.58 million as of December 31, 2000. The Company contributed an
additional  $176,500 in February 2000. From inception of the LLC to February 29,
2000, the Company has made capital  contributions of approximately $4.8 million.
Additional  capital  contributions  may be required from time to time in amounts
approved by the LLC's board of  managers.  Under the terms of the joint  venture


                                       11
<PAGE>

agreement,  Government  Technologies'  role concentrates on engineering and site
operations  relating  to  the  SET  process  and  related  equipment.   Teledyne
Environmental  is  primarily   responsible  for  site  development,   facilities
engineering,  facilities  construction  and  maintenance,  utility  connections,
materials  recovery,  transportation,  waste  management  and transport and site
decommissioning.

         In consideration for the Company's  interest in the joint venture,  the
Company  licensed  SET and  corresponding  know-how  to the joint  venture.  The
Company  also  licensed the SET process and  corresponding  know-how to Teledyne
Brown Engineering,  Inc. ("TBE"), a subsidiary of Allegheny  Teledyne,  Inc. for
use in TBE's existing  United States  Department of Army Small Burials  Contract
(the "Small  Burials  Contract").  TBE's Small  Burials  Contract is an existing
contract covering demilitarization of non-stockpile caches of chemical munitions
at up to 25 sites to be designated by the United States Army. Under the terms of
such  license,  the Company is due to receive a royalty equal to 8% of TBE's net
sales  revenues  derived  from the Small  Burials  Contract.  There have been no
royalties received through December 31, 2000.


MARKETS AND CUSTOMERS


General

         The Company markets its services and  technologies to governmental  and
industrial  customers  throughout the United  States.  The Company also plans to
target customers in markets abroad,  particularly in the Far East. A majority of
the  Company's  sales are technical in nature and involve  senior  technical and
management  professionals,  supported by the Company's marketing groups.  During
the year ended December 31, 2000,  sales of  approximately  27% of the Company's
environmental  management services were to private sector customers and sales of
approximately 73% were derived from contracts with federal,  state and municipal
government agencies.  Contracts to private sector customers generally may not be
terminated at the option of the customer.  Contracts with governmental customers
generally  may be  terminated  at any time at the  option of the  customer.  DRM
settlements and retainage  accounted for 22% of the Company's  revenues in 2000.
DRM's final settlement success fees were derived from a series of clients as the
result of 18 to 24 months of  negotiated  settlements  with  insurers.  In 2000,
Advanced  Sciences'  WIPP  Contract  and  Rocky  Flats  Contract  accounted  for
approximately 52% and 17%, respectively of the Company's sales. No other project
accounted for more than 10% of the Company's sales for such period.  The Company
benefits  substantially  from  its  long-term  relationships  with  many  of its
customers that result in a significant amount of repeat business.


Soil Decontamination

         The  Company   anticipates  that  the  initial  market  for  commercial
applications  of SET  will be the  hazardous  and  mixed  waste  and  industrial
by-products treatment and disposal market. Mixed waste is material that contains
both a hazardous and radioactive component. The most common methods of treatment
and disposal of hazardous wastes and industrial by-products include landfilling,
chemical  and  biological  treatment  and  incineration.  Most  of  the  current
treatment and disposal methods entail air pollution and transportation risks. In
a mixed waste,  both hazardous and nuclear  regulations  apply,  making disposal

                                       12
<PAGE>

difficult,  if not  impossible.  Currently,  there exist very  limited  disposal
options  and  these may not  provide  a  permanent  solution.  Certain  of these
treatment and disposal methods result in large volumes of residual waste,  which
may require further treatment prior to disposal.  As a result, a number of these
methods  are  encountering  increased  public  resistance  and added  regulatory
oversight.

         As  with  any  new  technology  or  process,  there  has  been  initial
resistance to the use of SET on a large scale,  especially in connection  with a
strong vested  interest on the part of the U.S.  Military  (based on substantial
expenditures  and  commitments  previously  made)  to use  incineration  for the
destruction of weapons. In addition,  other prospective projects for the Company
have already been committed to other forms of destruction technology,  including
incineration,  plasma arc,  vitrification,  molten metal,  molten salt, chemical
neutralization,  biological treatment,  catalytic  electrochemical oxidation and
supercritical wet oxidation.  The Company, and its collaborative  partners, have
been  attempting  to overcome such  competition  by  introducing  SET in smaller
clean-up   projects   and  through   feasibility   studies   demonstrating   its
applicability to larger projects,  such as the Initial  Harrisburg  Contract and
the  WCS  Fixed  Facility  Processing  Contract.  The  SET  process  provides  a
significant  advantage by allowing the processed material to be disposed of as a
non-mixed waste by destroying the hazardous component.

         It may also be anticipated  that, over an extended  period,  the market
for  decontamination  of hazardous  materials  will  continue to decline as past
environmental  degradation  is corrected,  and as the private and public sectors
limit further  pollution  through  prohibitions on production and use of a broad
range  of  hazardous   materials  and  through  the  modification  and  improved
efficiency of various manufacturing  processes. The mixed waste market is one of
the few areas that shows growth and has limited competition when compared to the
general hazardous waste market.  The SET process brings a unique solution to the
problem of remediating mixed waste.

Environmental Management

         Based on market data compiled by Advanced Sciences,  the largest market
for  environmental   services  today  within  the  United  States  is  the  U.S.
Government. Government wide spending levels exceed $10 billion per year. The DOD
and DOE are expected to account for  approximately  66% of such expenditures and
together  expect to spend in  excess of $200  billion  for  environmental  work.
Advanced Sciences has a long-term record for providing environmental services to
the U.S. Government with the DOD and DOE being its primary customers.

RAW MATERIALS

         The Company has  historically  experienced  no  difficulty in obtaining
components  used in the SET  process  for which it  relies  on a broad  range of
suppliers. Nevertheless,  business disruptions or financial difficulties of such
suppliers,  shortages  or other  causes  beyond  the  Company's  control,  could
adversely  affect the Company by  increasing  the cost of goods sold or reducing
the  availability  of such  components.  If the Company  were unable to obtain a
sufficient supply of required components, it could experience significant delays
in the furnishing of components  used in the SET process,  which could result in
the loss of orders and customers and could have a material adverse affect on the
Company's business,  financial condition and results of operations. In addition,
if the cost of finished  components were to increase,  there can be no assurance
that the Company  would be able to pass such increase on to its  customers.  The
use of outside suppliers also entails risks of quality control and disclosure of
proprietary information.


                                       13
<PAGE>


BACKLOG

         At  December  31,  2000,  total  possible  backlog  for the Company was
approximately  $25,000,000  as compared  with  approximately  $50,000,000  as of
December 31, 1999.  Approximately  $18,000,000  of the total backlog  represents
work for which the Company has entered into a signed agreement or purchase order
with  respect  thereto or has  received  an order to  proceed  with work up to a
specified  dollar  amount.  The remaining  backlog of  approximately  $7,000,000
represents  the Company's  current  estimate of work,  for which the Company has
been notified that it has been chosen for a project but where a contract has not
yet been finalized.  The Company estimates that approximately  $5,000,000 of the
total  backlog  represents  work that will be  completed  in the next 12 months.
Backlog amounts have historically  resulted in revenues;  however,  no assurance
can be given that all amounts  included in backlog will  ultimately be realized,
even if covered by written contracts or work orders.

RESEARCH AND DEVELOPMENT

         Research and  development  activities are ongoing and utilize  internal
technical staff, as well as independent  consultants retained by the Company and
its  subsidiaries.  All such  activities  are  company-sponsored.  Research  and
development  expenditures  for the Company and its  subsidiaries  were $993,000,
$1,145,000  and 2,722,000 for the years ended  December 31, 2000,  1999 and 1998
respectively.

INTELLECTUAL PROPERTY

         The Company  currently has  thirty-five  (35) issued,  U.S. and foreign
patents.  Additionally,  the Company has  sixty-eight  (68) patent  applications
currently on file and pending in the U.S. and in foreign countries.  The average
life  expectancy  for the currently  issued  patents is 14.25 years.  As patents
issue,  the U.S.  Patent and Trademark  Office assigns the Company a twenty (20)
year patent-life for each patent issued.

         The Company believes that its patent portfolio provides the Company the
necessary "proprietary turf" in which it can market, distribute, and license the
full range of the SET technology and all of its derivatives.  Additionally,  the
Company's  strength of its patent portfolio may operate as an effective "barrier
to entry" in several of the markets in which the Company is presently conducting
business.

         To  protect  its  trade   secrets  and  the   un-patented   proprietary
information in its development  activities,  the Company requires its employees,
consultants  and  contractors  to  enter  into  agreements   providing  for  the
confidentiality  and the  Company's  ownership  of such trade  secrets and other
un-patented  proprietary  information  originated  by such persons  while in the
employ  of the  Company.  The  Company  also  requires  potential  collaborative
partners to enter into confidentiality and non-disclosure agreements.

         There  can be no  assurance  that any  patents  that may  hereafter  be
obtained, or any of the Company's confidentiality and non-disclosure agreements,
will provide meaningful protection of the Company's  confidential or proprietary
information in the case of unauthorized  use or disclosure.  In addition,  there
can be no  assurance  that the  Company  will not  incur  significant  costs and
expenses,  including the costs of any future litigation, to defend its rights in
respect of any such intellectual property.


                                       14
<PAGE>

COMPETITION

Soil Decontamination

         The Company  anticipates that the initial market for commercial private
sector  applications  of SET will be the hazardous and  non-hazardous  waste and
industrial   by-products   treatment  and  disposal   market.   This  market  is
characterized by several large domestic and international companies and numerous
small companies,  many of whom have  substantially  greater  financial and other
resources  than the Company.  The Company  primarily  competes in the  hazardous
waste  treatment  market in the U.S.,  a market  valued at over $3.9 billion for
2001. The top ten  competitors in this market account for over 70 percent of the
revenues for this market sector.  The dominant  companies in this sector include
URS, The IT Group,  Inc.,  Tetra Tech,  Inc. and CH2M Hill,  Inc. The  Company's
revenues  for 2000  account for less than 1 percent of the dollar  volume of the
hazardous waste market. Although the Company believes that it possesses the only
Nationwide  Permit  for  destroying  PCBs,  any  one or  more  of the  Company's
competitors or other  enterprises not presently  known may develop  technologies
which are superior to the  technologies  utilized by the Company.  To the extent
that the Company's  competitors are able to offer  comparable  services at lower
prices or of higher quality,  or more cost-effective  remediation  alternatives,
the Company's ability to compete effectively could be adversely affected.

         The domestic and international governmental public sector of the market
is dominated by many large multinational  corporations who are presently engaged
in providing incineration and other conventional technologies in decontaminating
chemical  weapons and warfare  agents,  concentration  of nuclear wastes and the
decontamination  of  military  vessels  and other  hardware.  These  competitors
include Raytheon  Corporation  (the current general  contractor for the Johnston
Atoll  incinerator),  EG&G,  Inc.  (the general  contractor  for the Tooele Army
Depot),  Mason and Hanger (the  general  contractor  for the Newport  News Naval
Facility),  Waste  Management  Corporation (a bidder for domestic "large burial"
stockpile  weapons  decontamination),   and  others,  including  Browning-Ferris
Industries,  Inc.,  Jacobs  Engineering,  Inc.,  Fluor  Daniel  Corporation  and
Lockheed  Martin  Marietta   Corporation.   All  of  these   corporations   have
substantially greater financial, personnel and other resources than the Company.
In addition,  many prospective users of SET have already  committed  substantial
resources  to other forms of  environmental  remediation  technology,  including
incineration,  plasma arc,  vitrification,  molten metal,  molten salt, chemical
neutralization,   catalytic  electrochemical  oxidation  and  supercritical  wet
oxidation.

         The Company believes that its ability to compete in both the commercial
private and governmental  public sectors is dependent upon SET being a superior,
more cost-effective method to achieve decontamination of a variety of materials.


Environmental Insurance Claim Resolution.

         DRM has been  primarily  engaged in providing  environmental  insurance
recovery  services to corporations and entities within the United States.  Based
on market data compiled by DRM, the largest market for  environmental  insurance
recovery  services  today is the  United  States  industrial  and  manufacturing
sector. DRM estimates that there are insurer's reserves in excess of $30 billion
for environmental clean-up insurance claims in the U.S. DRM currently occupies a
position in the negotiated  insurance  recovery  services arena by virtue of its
long-term record for providing these services to over 100 industrial  clients to
date.


                                       15
<PAGE>

         Insurance  companies  have long relied on computer  based risk modeling
and allocation  programs to develop  desired  settlement  criteria.  DRM's FOCUS
replicates  the  insurer's   computer   analysis  and  provides  a  three-tiered
probability structure for potential allocation and settlement. DRM believes that
the  FOCUS  product  provides  a  significant  performance  advantage  over  its
competition in this industry.

         The market for DRM's  consulting  services is highly  competitive,  and
they face  competition from many other providers of consulting  services.  DRM's
competitors range from large  organizations,  such as national  accounting firms
and the  large  management  consulting  companies  that  offer a full  range  of
consulting  services,  to small firms and independent  contractors  that provide
only one specialized service.  Some of DRM's competitors have significantly more
financial and marketing resources, larger professional staffs or are more widely
recognized.  There are few barriers to entry into the consulting business. DRM's
competitors include such firms as Arthur Anderson  Consulting,  Risk Management,
the Peterson  Group (a division of Navigant)  and  Dickstein  Shapiro  Morin and
Oshinsky, LLP.


Environmental Management

         Advanced Sciences has been primarily engaged in providing environmental
engineering  and  scientific   support  services  to  United  States  government
agencies,  such as the DOE and DOD.  Based on market  data  compiled by Advanced
Sciences,  the largest  market for  environmental  services  today is the United
States  government,  which is  expected  to  continue  its  spending  level  for
environmental services at approximately $10 to $11 billion for 2000. The DOE and
DOD are expected to account for approximately 66% of such expenditures. Advanced
Sciences currently occupies a position in the waste management and environmental
services  arena by virtue of its long-term  record for  providing  environmental
services to the United States government.

         External  developments and forces affecting  Advanced  Sciences include
competition  from its  competitors,  as well as,  demographic and  technological
trends that  influence  the  composition  and needs of its customer base and the
usefulness and competitive  position of its services.  In addition,  in order to
maintain its position in its market,  Advanced  Sciences must be able to respond
to  economic  trends and  regulatory  actions  that  affect the  usefulness  and
accessibility of its services and control its costs of doing business.

         In  the  hazardous  waste   management   market,   Advanced   Sciences'
competitors  include such firms as Roy F. Weston,  Jacobs  Engineering,  Science
Applications  International Corp., CH2M Hill and CDM. In providing environmental
impact assessment  services,  Advanced Sciences'  principal  competition in this
market  sector  includes  Tetra  Tech,  The  Earth  Technology  Corp.,  URS  and
Woodward-Clyde.  Primary factors affecting Advanced Sciences' competitiveness in
this  market  are its  ability to  continue  to  attract  and  retain  qualified
technical and professional staff with quality project performance records and to
control its costs of doing business.

         In an effort to maintain its competitive  position,  Advanced  Sciences
believes  that it has  developed  a solid  infrastructure,  acquired a qualified
professional  staff, and developed  aggressive  marketing  objectives to provide
hazardous  waste  management  and  environmental  sciences to the United  States
government and private sector  industrial  customers.  The Company  believes its
competitive  position  with the United  States  government  is  enhanced  by the

                                       16
<PAGE>

physical  proximity  of  Advanced  Sciences'  plants to DOE and DOD  sites,  its
skilled  professional  staff,  prior project  experience  with the United States
government,  numerous  existing  multi-year  contracts  with the  United  States
government, integrated services and high quality performance.

ENVIRONMENTAL REGULATION

         The  environmental  legislation and policies which the Company believes
are applicable to SET in the United States primarily include TSCA, RCRA, and the
Comprehensive  Environmental  Response,  Compensation  and Liability Act of 1980
("CERCLA"),  as amended by the Superfund  Amendments and  Reauthorization Act of
1986 ("SARA"),  and may include,  on a case by case basis,  the Clean Air Act of
1970, as amended (the "Clean Air Act").  These laws regulate the  management and
disposal of toxic and hazardous  substances,  provide for the protection of land
and groundwater resources, and control the discharge of pollutants into the air.
Many of these laws have international  counterparts,  particularly in Europe and
elsewhere in North America.

         TSCA  regulates  the  manufacture,  distribution,  and sale of chemical
substances,  and  requires  testing  of new  chemicals  and new  uses  of  known
chemicals  that may  present  an  unreasonable  risk of  injury to health or the
environment.  The EPA, through TSCA, has adopted  comprehensive  regulations for
PCB's and other  halogenated  substances,  as part of a vast regulatory  program
covering thousands of chemicals.

         RCRA was enacted in 1976 with the primary  objective  to protect  human
health  and  the  environment  and to  conserve  valuable  material  and  energy
resources.   The  most  important  aspect  of  RCRA  is  its   establishment  of
"cradle-to-grave"  management and tracking of hazardous waste, from generator to
transporter, to treatment, storage, and disposal.

         CERCLA  and  subsequent   amendments  under  SARA  (often  referred  to
collectively as Superfund) impose strict, retroactive liability upon persons who
generated,   transported,  or  arranged  for  the  transportation  of  hazardous
substances  or owned  or  operated  the  vessels  or  facilities  at which  such
substances were disposed.  CERCLA provides for the investigation and remediation
of  hazardous  substance  sites  and  mandates  that  any  hazardous  substances
remaining on-site must meet certain regulatory  requirements,  with a preference
for innovative technology.  These program regulations may create an incentive to
utilize environmental-friendly  technologies such as SET, which destroy targeted
wastes without  creating  additional  residual waste product.  Moreover,  to the
extent hazardous substances are effectively  destroyed,  potential liability can
be eliminated or significantly reduced.

         The Clean Air Act empowered  the EPA to establish  and enforce  ambient
air quality  standards  and  limitations  on  emissions of air  pollutants  from
specific  facilities.  In 1987, the EPA began to enforce stricter  standards for
incineration  emissions.  With more  stringent  regulations  on waste  reduction
technologies,  the Company believes that SET could obtain a desired market share
since, in most cases, it produces little or no air emissions.


                                       17
<PAGE>

         CERCLA  imposes  strict,  joint and  several  liability  upon owners or
operators  of  facilities  when a release or  threatened  release of a hazardous
substance has occurred,  upon parties who generated  hazardous  substances  that
were  released  at  such  facilities  and  upon  parties  who  arranged  for the
transportation  of  hazardous  substances  to  and  from  such  facilities.  The
Company's  plans to own and  operate  SET at  on-site  installations  expose the
Company to potential liability under CERCLA for releases of hazardous substances
at those  sites.  In the event that  off-site  treatment,  storage  or  disposal
facilities  utilized by the Company for final  disposition  of residues from SET
are targeted for  investigation  and clean-up  under  CERCLA,  the Company could
incur liability as a generator of such materials or by virtue of having arranged
for their transportation and disposal.

         In light of such potential liability,  the Company has designed the SET
technology to minimize the potential  for release of hazardous  substances  into
the environment. In addition, the Company has developed plans to manage the risk
of  CERCLA  liability,  including  training  of  operators,  use of  operational
controls and structuring of its relationships with the entities  responsible for
the handling of waste  materials  and  by-products.  The Company also  maintains
insurance  with  respect  to  environmental  claims,  although  there  can be no
assurance that such insurance will be adequate.

         The Clean Air Act  Amendments of 1990 impose strict  requirements  upon
owners  and  operators  of  facilities   that  discharge   pollutants  into  the
environment.  These  amendments  may require that  certain air emission  control
technology  be  installed  on the SET  systems  in the event  that  there is any
discharge of  non-recovered  gases into the  environment.  Such  additional  air
emission  controls  can be costly and  require an air  permit to  construct  and
operate.

         The Company was selected to participate in the Rapid  Commercialization
Initiative   ("RCI")  program  in  1996.  A  direct  result  of  this  temporary
administrative  program was a SET process  demonstration  for the destruction of
PCBs at the Port Hueneme  naval base in Port Hueneme,  California  in 1997.  The
Company's SET technology  successfully  destroyed the PCBs in the test materials
provided,  results  were  verified by  independent  laboratories,  and a closure
report was prepared by the various  associated  agencies  involved with the RCI.
The RCI no longer is in a functioning  office having served its primary  mission
of streamlining the  demonstration  and evaluation of various  technologies into
government sectors. The Company believes that its recent contract in Hawaii, the
subject of a press release and disclosure in the business description section of
various subsequent SEC filings, was partially the result of its participation in
the RCI program.

         The Company  possesses a Nationwide  Permit issued by the EPA under the
Alternative  Destruction Technology Program that allows it to use SET on-site to
treat  PCB-contaminated  soils and  metallic  surfaces.  The  Nationwide  Permit
contains numerous conditions for maintaining the Nationwide Permit and there can
be no assurance that the Company will be able to comply with such  conditions to
maintain  and/or  secure  renewal of the  Nationwide  Permit.  In  addition,  if
environmental  legislation or  regulations  are amended,  or are  interpreted or
enforced differently,  the Company may be required to meet stricter standards of
operation and/or obtain additional  operating  permits or approvals.  Failure to
obtain such permits or otherwise comply with such regulatory  requirements could
have a material adverse effect on the Company and its operations.

EMPLOYEES

         As of April 30,  2001,  the  Company  (including  all of its direct and
indirect  subsidiaries) had a total of 68 full-time and 19 part-time  employees,
of  which  approximately  35  are  engineers,   scientists,  lawyers  and  other
professionals.  None of such  employees  are  covered by  collective  bargaining
agreements  and the  Company's  relations  with its employees are believed to be
good.

ITEM 2.  PROPERTIES.
------   -----------

                                       18
<PAGE>


         The Company's  principal  executive  offices are located in Alexandria,
Virginia.  Since April 2000,  the Company has leased  approximately  1600 square
feet of space from Shelby T.  Brewer,  a director and  executive  officer of the
Company, on a month-to-month  basis, for a rental payment in the amount of $2300
per month.

         In addition to the Alexandria,  Virginia facilities, the Company leases
approximately 2,000 square feet of office space in New York from an affiliate of
Bentley J. Blum, a director and principal  stockholder  of  Environmental  and a
director of the Company,  Solution,  Separation,  Advanced  Sciences and certain
other subsidiaries and affiliates of the Company.  Such space also serves as the
principal  executive  offices of  Environmental  and certain of its  affiliates.
Although  the  Company's  lease for the New York City space  expired in December
1998,  the Company  has been  permitted  to use the New York City  office  space
during  1999,  2000 and 2001 on a  rent-free  basis.  The Company is charged for
direct labor,  office  supplies and third party vendor services that the Company
generates in its  activities  in the New York City  offices.  Also,  the Company
provides  director and officer  insurance to Environmental  and Separation under
its policy at no charge to Environmental and Separation.

         As of the first quarter of 2000,  the Company had leased  approximately
5000 square feet of space in Marengo, Ohio, for testing, additional research and
development,  equipment demonstration and assembly, and executive offices. Under
a month-to-month  leasing  arrangement,  the Company paid rental payments in the
amount of $2500 per month for the use of Marengo space. In February 2000,  after
the Company closed the Marengo facility,  the Company transferred all laboratory
research and  development  functions  to  Albuquerque,  New Mexico.  The Company
leases approximately 10,800 square feet of laboratory,  office and storage space
at Kirtland Air Force Base in Albuquerque, New Mexico for rental payments in the
amount of $3800 per  month,  pursuant  to a lease that will  expire in  February
2002.

         Advanced Sciences' principal  executive and administrative  offices are
located in Albuquerque,  New Mexico. Advanced Science leases approximately 7,500
square feet of space for rental payments in the amount of $8,000 per month under
a lease that will expire in November 2001. Advanced Sciences also leases various
spaces for field operations in Carlsbad and Los Alamos,  New Mexico,  Oak Ridge,
Tennessee, and Lakewood, Colorado.

         DRM's  principal  executive and  administrative  offices are located in
Salt Lake City,  Utah. DRM leases  approximately  4,700 square feet of space for
rental payments in the amount of $5,300 per month under a lease that will expire
in March 2005.

         DRM's  principal  sales and  marketing  offices  are located in Denver,
Colorado.  DRM  leases  approximately  2,650  square  feet of space  for  rental
payments  in the  amount of $4,100 per month  under a lease that will  expire in
November 2001.  DRM also leases  various  spaces for field  operations in Cherry
Hill, New Jersey, Houston, Texas, Portland, Oregon, and Annapolis, Maryland.

         The Company  believes  that the foregoing  properties  will satisfy the
business  and  operational  needs of the  Company  and its  subsidiaries  in the
present and in the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS
------   -----------------
                                       19
<PAGE>

Indemnification Matters
-----------------------

         The  Company,  along  with  several  other  entities,  in a prior  year
guaranteed a performance  bond of  Separation  relating to the Port of Baltimore
contract. The Company was notified on June 28, 2000 that the performance bond is
being called.  It is not known, at this time, the amount,  if any, the Company's
share will be.

         As of April 30, 2001, no litigation has been filed against the Company,
Separation,   or  any  of  the  Company's  subsidiaries  with  respect  to  this
indemnification  issue.  The  Company  is  currently  investigating  all  of the
relevant facts and circumstances in connection with the Surety's potential claim
or cause of action.  In the event that the Company is obligated to indemnify the
Surety,  the Company estimates that its liability will not exceed  approximately
$390,000.


Incidental Matters
------------------

         As of April 30, 2001, the Company and its  subsidiaries are involved in
ordinary,  routine  litigation  incidental  to the  conduct  of their  business.
Management  believes  that  none  of  this  litigation,  individually  or in the
aggregate,  is  material  to the  Company's  financial  condition  or results of
operations.

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

         On August 30, 2000,  the Company  conducted its 2000 Annual  Meeting of
Stockholders  (the  "Annual  Meeting").  As of the record date of July 28, 2000,
there were 32,328,100 shares of Common Stock of the Company eligible to vote. Of
the shares  eligible  to vote,  31,072,212  shares,  constituting  96.11% of all
eligible  shares,  were  represented  either in person or by proxy at the Annual
Meeting.  The Company  submitted the  following  matters to a vote at the Annual
Meeting with the following results:

(a)      Election of Directors:  An affirmative  vote of a minimum of 30,752,435
         shares, constituting 95.14% of all eligible shares, elected each of the
         following nominees to the Board of Directors of the Company: Bentley J.
         Blum, Shelby T. Brewer, Paul E. Hannesson, David L. Mitchell, Edward L.
         Palmer and William R. Toller. Stockholders holding a maximum of 314,777
         shares withheld,  and no stockholder  abstained from, the vote of their
         shares with respect to the election of each of the foregoing  nominees.
         No shares were represented as "broker non-votes."

(b)      Ratification  of  Independent  Auditors:  By  an  affirmative  vote  of
         30,811,158  shares,  constituting  95.30% of all eligible  shares,  the
         stockholders of the Company ratified the appointment of Tanner + Co. as
         the Company's  independent auditors for the fiscal year ending December

                                       20
<PAGE>

         31,  2000.  Stockholders  holding  237.584  shares voted  against,  and
         stockholders holding 23,470 shares abstained from, the approval of this
         proposal. No shares were represented as "broker non-votes."

         On  November  17,  2000,  the Company  conducted  a special  meeting of
stockholders.  As of the record date of October 2, 2000,  there were  38,526,172
shares of the  Common  Stock of the  Company  eligible  to vote.  Of the  shares
eligible to vote,  23,953,443 shares constituting 62.12% of all eligible shares,
were  represented  either  in  person or by proxy at the  special  meeting.  The
Company  submitted the following  matters to a vote at the special  meeting with
the following results:

(a)      Amendment of the Certificate of  Incorporation:  By an affirmative vote
         of 23,554,063 shares,  constituting  61.14% of all eligible shares, the
         stockholders  of the Company  ratified an  amendment  to the  Company's
         Certificate of Incorporation increasing the authorized number of shares
         of common stock from 100,000,000 to 125,000,000.  Stockholders  holding
         398,380 shares voted against,  and shareholders holding 1,000 abstained
         from,  the adoption of this  proposal.  No shares were  represented  as
         "broker non-votes."

(b)      Approval and Acquisition:  By an affirmative vote of 23,909,043 shares,
         constituting  62.06% of all eligible  shares,  the  stockholders of the
         Company approved the acquisition of Dispute Resolution Management, Inc.
         Stockholders holding 43,400 shares were voted against, and stockholders
         holding 1,000 shares abstained from, the adoption of this proposal.  No
         shares were represented as "broker non-votes."

                                     PART II
                                     -------

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
------   ----------------------------------------------------------------------

MARKET INFORMATION

         On June 28,  1996,  the Company  issued  common  stock and  warrants at
initial  public  offering  prices of $6.00 per share and $0.10 per warrant.  The
Company's  common stock and warrants are traded on the American  Stock  Exchange
("Amex") under the symbols CXI and CXI.WS,  respectively.  As of April 30, 2001,
there  were 181  record  holders  of the  Company's  common  stock and 45 record
holders of the Company's warrants.

         The following table sets forth,  for the fiscal periods shown, the high
and low sale prices (rounded to the nearest cent) for the Company's common stock
and warrants as reported on the Amex.

<TABLE>
<CAPTION>


                                                                              Common Stock                Warrants
                                                                            ------------------        ------------------
                                                                            High         Low          High         Low
                                                                            ----         ---          ----         ---
<S>                                                                         <C>           <C>          <C>          <C>

Fiscal 2000
      First Quarter..................................................       $2.75         0.88         0.44         0.19
      Second Quarter.................................................        1.94         0.75         0.31         0.13
      Third Quarter..................................................        1.63         0.81         0.34         0.13
      Fourth Quarter.................................................        0.94         0.19         0.19         0.15

Fiscal 1999
      First Quarter..................................................        0.44         0.38         0.16         0.03
      Second Quarter.................................................        0.38         0.19         0.02         0.02
      Third Quarter..................................................        1.50         0.25         0.63         0.02
      Fourth Quarter.................................................        1.44         0.63         0.38         0.02

</TABLE>

                                       21
<PAGE>

         Since 1997, the Company,  through Teledyne Commodore,  LLC (the "LLC"),
has  participated in the ACWA  technology  program using a derivative of the SET
technology.  The ACWA technology program short-listed the SET technology in 1997
along with five other technologies.  Throughout 1997 and the summer of 1998, the
LLC  demonstrated  the  efficacy of the SET  technology  to the ACWA  assessment
board, and the ACWA program  provided funds in the amount of  approximately  1.8
million  dollars  to the  LLC in  anticipation  of  further  testing  of the SET
technology.  In July 1998,  after the ACWA program did not select the  Company's
SET  technology  for  further  demonstration,  the market  reacted  strongly  as
evidenced by the decreased value of the Company's common stock.

         In the fiscal  last  quarter of 1999,  the same ACWA  assessment  board
announced in a written report that it planned to test the  technologies  that it
had failed to test in 1998. In February 2000, the ACWA assessment board notified
the LLC that the Company's SET  technology  would be tested  further in the ACWA
demonstration  program.  The ACWA awarded a $7.9 million contract to the LLC for
this  purpose in March  2000.  On August 27,  1999,  the  "Defense  Cleanup,"  a
publication that reports contracting and general news concerning the DOD, stated
that the DOD had  agreed to spend an  additional  $40  million to test the three
remaining technologies in the ACWA program. The Company's SET technology was one
of the three remaining  technologies  awaiting this additional  funding from the
DOD for test completion.

         On or about July 29,  1998,  the price of the common  stock was $0.5625
per share. After the "Defense Cleanup"  published the article,  the common stock
traded at a price of $1.00  per  share.  Although  at the time the  article  was
published, the DOD had not awarded any funds to the ACWA program or the LLC, the
article  indicated a strong  likelihood  that the DOD would award such funds for
further  testing of the SET  technology  under the ACWA  program.  On August 30,
2000, the Company issued a press release  announcing that the SET technology was
no longer being considered under the ACWA program.

         Although the Company  released  other press  releases  during this time
period concerning other aspects of its business, management believes the loss of
the ACWA  program  was the  primary  reason for the  decline in the value of the
Company's common stock since the end of the first quarter of fiscal 2000.

DIVIDEND INFORMATION

         Series A Preferred Stock
         ------------------------

         The holders of the Company's Series A Convertible  Redeemable Preferred
Stock,  par value  $0.001  per share  (the  "Series A  Preferred  Stock"),  were
entitled  to  receive  cumulative  dividends  at the rate of $7.00 per share per
annum,  payable at the time of conversion,  either in cash or at the election of
the Company by delivery of shares of Common  Stock at the  effective  conversion
price if the Board of Directors of the Company declared the payment of dividends

                                       22
<PAGE>

and from the funds  legally  suitable for the payment.  As of December 31, 1998,
the Company had issued a total of 15,173  shares of common stock as dividends in
kind with  respect to the Series A Preferred  Stock,  the total  dollar value of
which is  approximately  $37,318.  [Of this total  amount,  6,252  shares of the
Company's  Common  Stock  were  issued  in  1998,  the  total  value of which is
approximately  $14,000.]  As of December 31,  1998,  all of the shares  Series A
Preferred  Stock were converted to the common stock of the Company.  See "Recent
Sales of  Unregistered  Securities -- August 1997 Private  Placement of Series A
Preferred Stock."

         Series E Preferred Stock
         ------------------------

         The holders of the Company's Series E Convertible  Preferred Stock, par
value  ($0.001)  per share (the "Series E Preferred  Stock"),  are entitled to a
variable rate  dividends  beginning at 12% and averaging  8.15% over the term of
the  securities.  As of December 31, 2000, the Company had paid $134,000 in cash
dividends on the shares of Series E Preferred Stock, and the Company has accrued
an  additional  $250,000  in  dividends.  The  Company has the option to pay the
dividends  accrued in all periods after April 30, 2000 in the  Company's  common
stock rather than cash. See "Recent Sales of Unregistered Securities -- November
1999 Private Placement of Series E Preferred Stock."


         Series F Preferred Stock
         ------------------------

         The holders of the Company's Series F Convertible  Preferred Stock, par
value  ($0.001)  per share (the "Series F Preferred  Stock"),  are entitled to a
variable rate dividend beginning at 12% and averaging 8.15% over the term of the
securities.  As of December 31, 2000,  the Company had paid $91,500 in dividends
on the shares of the Series F  Preferred  Stock,  and the Company has accrued an
additional  $158,000  in  dividends.  The  Company  has  the  option  to pay the
dividends  accrued in all periods  after  September  31,  2000 in the  Company's
common stock rather than cash. See "Recent Sales of  Unregistered  Securities --
March 2000 Private Placement of Series F Preferred Stock."

         The  Company has never paid cash  dividends  on its common  stock.  Any
future  determination  by the Board of  Directors of the Company with respect to
the payment of cash  dividends on the common stock of the Company will depend on
the  ability  of the  Company  to  service  its  outstanding  indebtedness,  the
Company's future earnings, capital requirements,  the financial condition of the
Company and such other factors as the Company's Board of Directors may consider.
The Company  currently  intends to retain its earnings to finance the growth and
development  of its business,  to repay  outstanding  indebtedness  and does not
anticipate paying cash dividends on its common stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

         In September 2000, the Company  completed  $500,000 in financing in the
form of a loan  (the  "Brewer  Note")  from S.  Brewer  Enterprises,  Inc.  ("SB
Enterprises"),  which is owned by one of its officers and  directors,  Shelby T.
Brewer.  The Brewer Note bears a 9.75% interest rate,  payable  monthly,  with a
balloon  principal  payment at the end of the term. The note was due and payable
on March 15, 2001 and was  extended  under the same terms and  conditions  until
December  31,  2001.  The Brewer Note is  convertible  into Common  Stock at the
market price up through December 31, 2001.

         On March 15,  2001,  SB  Enterprises  executed an Amended and  Restated
Promissory Note (the "Restated  Brewer Note"),  which extended the maturity date
of the note until December 31, 2001. Additionally, the conversion feature of the
Restated  Brewer  Note was  changed to the 5-day  average  closing  price of the
Company's  common  stock  prior to a  conversion  notice.  On April 9, 2001,  SB
Enterprises issued a conversion notice for $250,000 of the outstanding principal
of the Brewer Restated Note. The conversion price was calculated by the previous
5-day  average  of the  closing  price of the  Company's  common  stock  and was
converted into 1,041,667 shares. See "MD&A - Liquidity and Capital Resources."

         In November  2000, the Company  completed  $500,000 in financing in the
form of a loan (the "Weiss Group Note") from a group of four investors;  $75,000
of which was borrowed from the son of Paul E.  Hannesson,  our former  President
and Chief Executive  Officer,  and $25,000 of which was borrowed from Stephen A.
Weiss,  a  shareholder  of  Greenberg  Traurig,  LLP, our former  corporate  and
securities  counsel.  The Weiss Group Note bears interest at 12% per annum,  was

                                       23
<PAGE>

due and payable on February  12, 2001,  and is secured by the first  $500,000 of
loans or dividends that the Company may receive from DRM. As  consideration  for
such loan,  Environmental,  one of the Company's  principal  stockholders owning
approximately  16.58% of the Common Stock,  transferred to the investors a total
of  1,000,000  shares of Common  Stock.  Three of the holders of the Weiss Group
Note have granted payment  extensions until June 30 and July 31, 2001, while the
fourth  holder of the Weiss Group Note has extended  only until May 1, 2001.  If
the fourth holder of the Weiss Group Note declares a default on May 1, 2001, the
other three  holders of the Weiss Group Note will also be permitted to declare a
default.  As of May 4, 2001 the  Company has not been  notified of the  holder's
intent to declare a default on the Weiss Group Note.

         Effective  April 5, 2001,  the  Company  issued  warrants  to  purchase
500,000  shares of its common stock at an exercise price of $0.22 per share (the
closing price of our common stock on the American  Stock  Exchange on such date)
to  three  of four  persons  who had lent the  Company  a total of  $500,000  in
November  2000, in  consideration  of such persons  extension of the due date of
such loans from  February 12, 2001 to June 30, 2001.  See "MD&A - Liquidity  and
Capital Resources."


March 2000 Private Placement of Series F Preferred Stock

         On March  20,  2000,  the  Company  completed  a $2.0  million  private
placement  financing  with The Shaar Fund Ltd.  The Company  issued to The Shaar
Fund 226,000 shares of a newly authorized  Series F Convertible  Preferred Stock
(the "Series F  Convertible"),  convertible  into the Company's common stock, at
any  time  after  September  31,  2000,  for a  conversion  price  equal  to the
arithmetic mean of the closing prices of the Company's  common stock as reported
on the American  Stock Exchange for the ten trading days  immediately  preceding
the date of conversion so long as the Company's  common stock continues to trade
on the American  Stock  Exchange.  In May 2003,  the Series F  Convertible  will
automatically  convert into our Common Stock at a conversion price calculated in
accordance  with the  above  conversion  formula  plus any  accrued  and  unpaid
dividends.

         The Series F Convertible  has a variable rate dividend  averaging 8.15%
over the term of the securities. The Company reserved the right to redeem all of
the  Series F  Convertible  on or before  September  31,  2000 by payment to the
holders of the  shares of the  Series F  Convertible  of $2.3  million  plus any
accrued and unpaid  dividends.  Depending upon the market price of the Company's
common stock at the time of  conversion,  the issuance of the  Company's  common
stock upon  conversion of the Series F Convertible may be subject to shareholder
approval.  In  addition,  the  Company  issued  to The Shaar  Fund a warrant  to
purchase  up to  226,500  shares  of the  Company's  common  stock  (subject  to
adjustment)  at a purchase  price of $1.1963 per share.  The warrant  expires on
November 4, 2004.  The Company  also issued to Avalon  Research  Group Inc.,  as
finder in this transaction, a five-year warrant to purchase up to 250,000 shares
of the Company's  common stock  (subject to  adjustment)  at a purchase price of
$1.1963 per share.  The Company also paid Avalon a "finder's  fee" in the amount
of $200,000 for this transaction.

         The  recipient  of  securities  in  this  transaction  represented  its
intention to acquire the securities for investment  only and not with a view to,
or for sale in  connection  with,  any  distribution  thereof,  and  appropriate
restrictive   legends  were  affixed  to  the  warrants  and  the   certificates
representing the shares issued in this  transaction.  The Company made available
to The Shaar Fund Ltd., written information about the Company in accordance with
Rule 502 of the Securities Act and advised such recipient of the  limitations on
resale of such  securities.  In  addition,  The Shaar Fund Ltd.  was offered the
opportunity,  prior to  purchasing  any  securities,  to ask  questions  of, and
receive  answers from,  the Company  concerning  the terms and conditions of the
transaction and to obtain  additional  relevant  information  about the Company.
Based upon the facts above,  the Company  believed this transaction to be exempt
from the registration  requirements of the Securities Act in reliance on Section
4 (2) thereof as a transaction not involving any public offering of securities.


                                       24
<PAGE>

November 1999 Private Placement of Series E Preferred Stock

         On November  4, 1999,  the Company  completed  a $2.5  million  private
placement  financing  with The Shaar Fund Ltd.  The Company  issued to The Shaar
Fund 335,000 shares of a newly authorized  Series E Convertible  Preferred Stock
(the "Series E  Convertible"),  convertible  into the Company's common stock, at
any time after April 30, 2000,  for a conversion  price equal to the  arithmetic
mean of the  closing  prices of the  Company's  common  stock as reported on the
American Stock Exchange for the ten trading days immediately  preceding the date
of conversion so long as the  Company's  common stock  continues to trade on the
American  Stock   Exchange.   In  May  2003,  the  Series  E  Convertible   will
automatically  convert into the  Company's  common  stock at a conversion  price
calculated in accordance with the above conversion  formula plus any accrued and
unpaid dividends.

         The Series E Convertible  has a variable rate dividend  averaging 8.15%
over the term of the securities. The Company reserved the right to redeem all of
the Series E  Convertible  on or before April 30, 2000 by payment to the holders
of the shares of the Series E  Convertible  of $2.8 million plus any accrued and
unpaid dividends.  Depending upon the market price of the Company's common stock
at the time of  conversion,  the  issuance of the  Company's  common  stock upon
conversion of the Series E Convertible  may be subject to shareholder  approval.
In  addition,  the Company  issued to The Shaar Fund a warrant to purchase up to
312,500  shares of our Common Stock  (subject to adjustment) at a purchase price
of $1.1963 per share.  The warrant expires on November 4, 2004. The Company also
issued to Avalon Research Group Inc., as finder in this transaction, a five-year
warrant  to  purchase  up to  250,000  shares of our Common  Stock  (subject  to
adjustment)  at a purchase  price of $1.1963 per share.  The  Company  also paid
Avalon a "finder's fee" in the amount of $250,000 for this transaction.

         The  recipient  of  securities  in  this  transaction  represented  its
intention to acquire the securities for investment  only and not with a view to,
or for sale in  connection  with,  any  distribution  thereof,  and  appropriate
restrictive   legends  were  affixed  to  the  warrants  and  the   certificates
representing the shares issued in this  transaction.  The Company made available
to The Shaar Fund Ltd., written information about the Company in accordance with
Rule 502 of the Securities Act and advised such recipient of the  limitations on
resale of such  securities.  In  addition,  The Shaar Fund Ltd.  was offered the
opportunity,  prior to  purchasing  any  securities,  to ask  questions  of, and
receive  answers from,  the Company  concerning  the terms and conditions of the
transaction and to obtain  additional  relevant  information  about the Company.
Based upon the facts above,  the Company  believed this transaction to be exempt
from the registration  requirements of the Securities Act in reliance on Section
4 (2) thereof as a transaction not involving any public offering of securities.

September  1998  Exchange  of  Debt  for  Series  B, C,  D,  Preferred Stock and
Separation Stock

         On December 25, 1998, the Company  consummated the transfer,  effective
as of September 28, 1998, of all  10,000,000 of its shares of common stock,  par
value $.001 per share (the  "Separation  Stock"),  of  Separation,  representing
approximately  87% of the issued  and  outstanding  shares of  capital  stock of
Separation,  to  Environmental  as part of a debt  repayment  plan  between  the
Company  and  Environmental.  As of  September  28,  1998,  Environmental  owned
approximately  35% of the issued and  outstanding  shares of common stock of the
Company.  As of April 30, 2001,  Environmental owns approximately  16.58% of the
issued and outstanding shares of common stock of the Company.


                                       25
<PAGE>

         As a result of the repayment, the Company has repaid all of its debt in
the amount of $6,756,000  (the "Debt") to  Environmental  by exchanging the Debt
for (i) the  Separation  Stock (as repayment of  $1,250,000  of the Debt);  (ii)
20,909 shares of newly authorized 6% Series B Convertible Preferred Stock of the
Company (as repayment of  $2,090,870 of the Debt);  (iii) 10,189 shares of newly
authorized 6% Series C Convertible  Preferred Stock of the Company (as repayment
of $1,018,864 of the Debt);  (iv) 20,391 shares of newly  authorized 6% Series D
Convertible  Preferred  Stock of the Company (as  repayment of $2,039,100 of the
Debt); (v) the assignment to  Environmental of an account  receivable due to the
Company from  Separation  in the amount of $357,000 (as repayment of $357,000 of
the Debt);  and (vi) the amendment of an existing warrant owned by Environmental
to  purchase  1,500,000  shares of the  Company's  common  stock to  reduce  the
exercise  price of such  warrant  from  $10.00  per  share to $1.50  per  share.
Representatives  of both the Company and  Environmental  determined the terms of
the debt restructuring were determined as a result of arm's-length negotiations,
and such  determinations  were supported by fairness opinions by an independent,
third party  appraiser.  Since the Company  and  Environmental  are deemed to be
related  parties,  the Company  and  Environmental  recorded  gains in the total
amount of $7,818,000 from these transactions as direct contributions to equity.

         The  recipient  of  securities  in  this  transaction  represented  its
intention to acquire the securities for investment  only and not with a view to,
or for sale in  connection  with,  any  distribution  thereof,  and  appropriate
restrictive   legends  were  affixed  to  the  warrants  and  the   certificates
representing the shares issued in this  transaction.  The Company made available
to Environmental  written  information about the Company in accordance with Rule
502 of the Securities Act and advised Environmental of the limitations on resale
of such  securities.  In addition,  Environmental  was offered the  opportunity,
prior to purchasing  any  securities,  to ask questions of, and receive  answers
from, the Company  concerning the terms and conditions of the transaction and to
obtain additional relevant  information about the Company.  Based upon the facts
above,  the Company believed this transaction to be exempt from the registration
requirements  of the  Securities  Act in  reliance on Section 4 (2) thereof as a
transaction  not involving any public  offering of  securities.  On November 24,
1999,  Environmental converted all its shares Series B, C, and D Preferred Stock
into 7,258,533 shares of common stock.

February 1998 Intercompany Note

         In  February  1998,  Environmental  provided an  unsecured  loan in the
amount of  $5,450,000  to the  Company,  evidenced by the  non-convertible  note
issued by the Company (the  "Intercompany  Note").  Pursuant to the Intercompany
Note,  interest  on the unpaid  principal  balance of the  Intercompany  Note is
payable at the rate of 8% per annum,  semiannually in cash. The unpaid principal
amount of the Intercompany  Note was due and payable,  together with accrued and
unpaid  interest,  on the  earlier to occur of (a)  December  31,  1999,  or (b)
consummation  of any public  offering or private  placement of securities of the
Company with net proceeds aggregating in excess of $6.0 million, other than with
respect to working capital  financing or secured financing of assets received by
the Company in the ordinary  course of business  from any bank or other  lending
institution, subject to certain conditions. The Company used the net proceeds of
the loan solely for working capital and general  corporate  purposes and not for
the  satisfaction of any portion of Company debt or to redeem any Company equity
or equity-equivalent  securities. The Company paid the Intercompany Note in full
effective as of September 28, 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity  and Capital Resources"
and "Certain Relationships and Related  Transactions--February 1998 Intercompany
Note."


                                       26
<PAGE>

         In connection  with the loan,  the Company  amended and restated in its
entirety a five-year  warrant  issued to  Environmental  on December 2, 1996, to
purchase  7,500,000  shares  of the  Company's  common  stock to,  reducing  the
exercise  price of the warrant  from $15.00 per share to $10.00 per share and to
modify  other  terms  of  the  warrant.  In  addition,  the  Company  issued  to
Environmental an additional  five-year  warrant to purchase  1,500,000 shares of
the  Company's  common  stock at an  exercise  price of $10.00  per  share.  See
"Certain  Relationships  and Related  Transactions--February  1998  Intercompany
Note."

         The  recipient  of  securities  in  this  transaction  represented  its
intention to acquire the securities for investment  only and not with a view to,
or for sale in  connection  with,  any  distribution  thereof,  and  appropriate
restrictive   legends  were  affixed  to  the  warrants  and  the   certificates
representing the shares issued in this  transaction.  The Company made available
to Environmental,  written information about the Company in accordance with Rule
502 of the Securities Act and advised Environmental of the limitations on resale
of such  securities.  In addition,  Environmental  was offered the  opportunity,
prior to purchasing  any  securities,  to ask questions of, and receive  answers
from, the Company  concerning the terms and conditions of the transaction and to
obtain additional relevant  information about the Company.  Based upon the facts
above,  the Company believed this transaction to be exempt from the registration
requirements  of the  Securities  Act in  reliance on Section 4 (2) thereof as a
transaction not involving any public offering of securities.

October 1997 Private Placement of Common Stock

         In  October  1997,  the  Company  sold  700,000  shares  (the  "Private
Placement  Shares") of common stock (of which 600,000 shares were sold at $3.675
per share and 100,000  shares were sold at $3.93125  per share) for an aggregate
purchase  price of  approximately  $2.6  million  in a  private  placement  (the
"October 1997 Private  Placement") to certain  "accredited  investors",  as such
term is defined in Rule 501  promulgated  under the  Securities  Act of 1933, as
amended (the "Securities Act"). The names of the persons or the class of persons
to whom the Company sold the Private  Placement  Shares are set forth in Exhibit
4.11.  Pursuant to the terms of such sale, if, during the 12-month period ending
September  30,  1998 (the "Reset  Period"),  the Company (i) sells any shares of
common stock,  (ii) issues any securities  convertible  into or exercisable  for
common  stock,  or (iii)  issues any shares of common  stock  during  such Reset
Period (but not thereafter)  upon conversion of the Series A Preferred Stock, in
each case,  for a selling  price,  conversion  price or exercise price per share
which shall be lower than the per share purchase price of the Private  Placement
Shares  (such  lower  price  referred  to as the "Reset  Price"),  the per share
purchase  price will be adjusted  downward at the end of the Reset  Period to be
equal to the Reset Price.  On December 31, 1997, the Company's  aggregate  price
reset liability was $1,198,000. This amount was recorded as an adjustment to the
original  purchase  price and accrued as a  liability.  On October 2, 1998,  the
Company issued an additional 599,063 shares or the Company's common stock to the
holders of the  Private  Placement  Shares in  connection  with the Reset  Price
provision. The Reset Price and the per share price of the subsequent issuance of
shares of common stock was $2.00 per share.

         In December 1997, the Company issued to various  investors an aggregate
of 326,760 shares of common stock upon conversion of certain of their respective
shares of Series A Preferred Stock at a conversion price of $2.00 per share. See
"--August 1997 Private Placement of Series A Preferred Stock." As a result,  the
per share  purchase  price of the Private  Placement  Shares have been  adjusted
downward  at the end of the Reset  Period to reflect a share  price of $2.00 per
share. Pursuant to the terms of the October 1997 Private Placement,  the Company

                                       27
<PAGE>

is  required  either to refund  approximately  $1.2  million  (representing  the
difference  between the aggregate purchase price of the Private Placement Shares
and the  aggregate  purchase  price of such  shares  based on the Reset Price of
$2.00 per share), or to issue approximately  600,000 additional shares of common
stock  (representing  the  number  of  additional  shares  of  common  stock the
investors  would have  received in October 1997 had the purchase  price  thereof
been $2.00 per share) to the  investors in the October  1997 Private  Placement,
for no additional consideration, at the end of the Reset Period. The Company has
recorded a liability of  approximately  $1.2 million to reflect the cost of such
price reset.

         Affiliates of the placement  agent in connection  with the October 1997
Private  Placement,  received warrants to purchase an aggregate of 60,000 shares
of the Company's common stock at a price of $3.675 per share. The Company has an
effective  registration  statement  on file  with the  Securities  and  Exchange
Commission (the "Commission") with respect to the 700,000 shares of common stock
issued in the October 1997  Private  Placement  and the 60,000  shares of common
stock  issuable by the Company  upon  exercise of the  foregoing  warrants.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Liquidity and Capital Resources."

         The  recipients  of securities in this  transaction  represented  their
intentions to acquire the securities for investment only and not with a view to,
or for  sale in  connection  with  any  distribution  thereof,  and  appropriate
restrictive   legends  were  affixed  to  the  warrants  and  the   certificates
representing the shares issued in such transactions.  The Company made available
to all  recipients  of  securities  written  information  about the  Company  in
accordance  with Rule 502 of the Securities  Act and advised such  recipients of
the limitations on resale of such securities.  In addition,  all recipients were
offered the  opportunity,  prior to purchasing any securities,  to ask questions
of, and receive answers from, the Company concerning the terms and conditions of
the transaction and to obtain additional relevant information about the Company.
Based upon the facts above,  the Company  believed this transaction to be exempt
from the registration  requirements of the Securities Act in reliance on Section
4 (2) thereof as a transaction not involving any public offering of securities.

August 1997 Private Placement of Series A Preferred Stock

         In August 1997,  the Company  sold 18,000  shares of Series A Preferred
Stock for an aggregate  purchase  price of $1.8  million in a private  placement
(the "August 1997 Private Placement") to "accredited  investors" as such term is
defined  in Rule 501  promulgated  under the  Securities  Act.  The names of the
persons  or the class of  persons  to whom the  Company  sold the  shares in the
August  1997  Private  Placement  are set forth in  Exhibit  4.7.  The  Series A
Preferred Stock was convertible into that number of shares of common stock equal
to $100 divided by the Conversion  Price (as defined  therein).  The "Conversion
Price" is  defined  as the  amount  equal to the  lesser of (i) $4.64 per share,
representing  100% of the average of the closing sale prices of the common stock
for the five consecutive  trading days preceding the issuance date of the Series
A Preferred  Stock, or (ii) 88% of the average of the closing sale prices of the
common stock for the five consecutive trading days immediately prior to the date
of  conversion.  Subject to  customary  anti-dilution  provisions,  the  minimum
Conversion Price was $2.00 per share, provided,  however, that if the average of
the closing sale prices of the common stock for any 60 consecutive calendar days
was less  than  $2.00  per  share,  such  investors  had the right (i) to demand
mandatory  redemption  of their shares of Series A Preferred  Stock (at $100 per
share plus  accrued and unpaid  dividends)  or (ii) to convert  their  shares of
Series A Preferred  Stock into shares of common  stock,  without  regard to such
minimum $2.00 conversion price.

         As of March 26, 1998, all 18,000 shares of Series A Preferred Stock had
been  converted  into an aggregate  of 753,200  shares of the  Company's  common
stock, based upon Conversion Prices ranging from $2.00 to $3.685 per share.


                                       28
<PAGE>

         The  placement  agent  in  connection  with  the  August  1997  Private
Placement  received  warrants to purchase 19,407 shares of the Company's  common
stock at $5.80 per share. The Company has an effective registration statement on
file with the Commission with respect to the 753,200 shares of Common Stock into
which the Series A Preferred Stock were converted,  as well as the 19,407 shares
of Common  Stock  issuable  upon the  exercise of the  foregoing  warrants.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Liquidity and Capital Resources."

         The  recipients  of securities in this  transaction  represented  their
intentions to acquire the securities for investment only and not with a view to,
or for sale in  connection  with,  any  distribution  thereof,  and  appropriate
restrictive   legends  were  affixed  to  the  warrants  and  the   certificates
representing the shares issued in such transactions.  The Company made available
to all  recipients  of  securities  written  information  about the  Company  in
accordance  with Rule 502 of the Securities  Act and advised such  recipients of
the limitations on resale of such securities.  In addition,  all recipients were
offered the  opportunity,  prior to purchasing any securities,  to ask questions
of, and receive answers from, the Company concerning the terms and conditions of
the transaction and to obtain additional relevant information about the Company.
Based upon the facts above,  the Company  believed this transaction to be exempt
from the registration  requirements of the Securities Act in reliance on Section
4 (2) thereof as a transaction not involving any public offering of securities.

September 1997 Intercompany Convertible Note

         In  September  1997,  Environmental  provided a  unsecured  loan in the
amount of $4.0 million to the Company, evidenced by the convertible subordinated
note issued by the Company (the "Convertible Note"). Pursuant to the Convertible
Note, the Company is obligated to pay Environmental interest only at the rate of
8% per annum,  payable  quarterly.  Unless  converted into the Company's  common
stock at any time, the unpaid  principal  amount of the Convertible  Note is due
and  payable,  together  with accrued and unpaid  interest,  on August 31, 2002.
Payment  of  principal  and  accrued  interest  under  the  Convertible  Note is
subordinated  to all other  indebtedness  for  money  borrowed  of the  Company.
Environmental  has the right to convert the Convertible  Note into shares of the
Company's common stock at a conversion price of $3.89 per share. Such conversion
price was fixed at  approximately  85% of the five-day average closing bid price
of the Company's  common stock ($4.575 per share) prior to August 22, 1997,  the
date that the  Executive  and Finance  Committees  of the  respective  Boards of
Directors of the Company and  Environmental  authorized such loan. In connection
with the $4.0 million loan, the Company issued Environmental a five-year warrant
to purchase  1,000,000 shares of the Company's common stock at an exercise price
of $5.0325 per share (such price  constituting  approximately 110% of the $4.575
five-day average closing bid price of Common Stock prior to August 22, 1997).

         In March 1998, the Company prepaid $2.0 million of the Convertible Note
by (i) paying Environmental the sum of $500,000 in cash and (ii) transferring to
Environmental a promissory note (the "LPM Note"),  dated August 30, 1996, in the
principal  amount of $1.5  million  from  Lanxide  Performance  Materials,  Inc.
("LPM"),  a  wholly-owned   subsidiary  of  Lanxide   Corporation,   a  Delaware
corporation  ("Lanxide").  Lanxide,  which  specializes  in the  manufacture  of
ceramic  bonding  and  refractory  materials,  is related to the  Company due to
significant common beneficial  ownership.  To induce Environmental to accept the
Company's prepayment of $2.0 million of the Convertible Note (and thereby divest
itself of the right to convert $2.0 million of the Convertible  Note into Common
Stock), the Company issued to Environmental an additional warrant to purchase up

                                       29
<PAGE>

to 514,000  shares of the Company's  common stock at an exercise  price of $4.50
per share.  Such exercise price was fixed at  approximately  110% of the closing
sale price of the Company's  common stock on February 20, 1998,  the trading day
immediately  prior to the date the Board of  Directors  of the Company  approved
such  prepayment.  The  estimated  fair value of such  warrant is  approximately
$340,000.  The remaining balance of this Intercompany  Convertible Note was paid
off effective  September 28, 1998. See "Management's  Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity  and Capital Resources"
and "Certain Relationships and Related Transactions--September 1997 Intercompany
Note."

         The  recipient  of  securities  in  this  transaction  represented  its
intention to acquire the securities for investment  only and not with a view to,
or for sale in  connection  with,  any  distribution  thereof,  and  appropriate
restrictive legends were affixed to the warrant issued in this transaction.  The
Company made available to Environmental written information about the Company in
accordance with Rule 502 of the Securities Act and advised  Environmental of the
limitations on resale of such securities. In addition, Environmental was offered
the  opportunity,  prior to purchasing any securities,  to ask questions of, and
receive  answers from,  the Company  concerning  the terms and conditions of the
transaction and to obtain  additional  relevant  information  about the Company.
Based upon the facts above,  the Company  believed this transaction to be exempt
from the registration  requirements of the Securities Act in reliance on Section
4 (2) thereof as a transaction not involving any public offering of securities.


                                       30
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA.
------   ------------------------

         The following table presents selected financial data of the Company, as
of December 31, 2000,  and for the years ended  December 31, 1996,  1997,  1998,
1999 and 2000.  The  following  selected  historical  data is  derived  from the
Company's  Consolidated  Financial  Statements and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations"  and the  Company's  Consolidated  Financial  Statements  and  Notes
thereto included elsewhere in this Annual Report.

                      (in thousands, except per share data)

Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>


                                                                   Year ended December 31,
                                        -----------------------------------------------------------------------------
                                           1996            1997             1998              1999             2000
                                        -----------------------------------------------------------------------------
<S>                                      <C>           <C>                <C>               <C>              <C>
Revenue:
    Contract revenue................     $  5,123      $    19,493      $   17,470        $   18,147      $    20,631
Cost of sales:
    Cost of sales...................        4,136           16,325          15,421            16,127           14,452
    Research and development........        2,022            3,074           2,722             1,145              993
    General and administrative......        3,412           12,196           8,118             4,037            6,989
    Depreciation and amortization...          561            1,282           1,150               696            1,471
      Impairment of Goodwill........                                                                            6,586
    Minority interests..............           --              (82)            300                --              341
                                         --------      -----------      ----------        ----------      -----------

Loss from operations................       (5,008)         (13,302)        (10,241)           (3,858)         (10,201)

    Interest income.................          477              745             337                39               67
    Interest expense................         (617)          (1,310)         (1,066)             (166)          (1,307)
    Equity in net losses of
      subsidiary....................         (495)          (1,827)         (2,383)               --               --
                                         --------      -----------      ----------        ----------      -----------


Loss before income taxes ...........       (5,643)         (15,694)        (13,353)           (3,985)         (11,441)
    Income taxes....................           --               --              --                --               --
                                         --------      -----------      ----------        ----------      -----------

Net loss ...........................     $ (5,643)     $   (15,694)        (13,353)       $   (3,985)     $   (11,441)
                                         ========      ===========      ==========        ==========      ===========

Net loss per share -- basic and
    diluted.........................     $  (0.31)     $     (0.73)     $    (0.58)       $    (0.16)     $     (0.34)
                                         ========      ===========      ==========        ==========      ===========

Weighted average number of shares...       18,100           21,844          23,194            24,819           35,866
                                         ========      ===========      ==========        ==========      ===========
</TABLE>




Consolidated Balance Sheet Data:

<TABLE>
<CAPTION>

                                                                        December 31,
                                        -------------------------------------------------------------------------
                                           1996            1997            1998             1999             2000
                                        -------------------------------------------------------------------------

<S>                                     <C>             <C>             <C>            <C>              <C>
Cash and cash equivalents.........      $ 12,076        $ 13,151        $  1,777       $   1,797        $   1,980
Total assets......................        33,456          29,696          15,617          16,047           37,473
Long term debt....................            29              19              --             716            5,182
Total liabilities.................        13,380          10,521           3,709           6,096           29,199
Minority interests................            --           6,645              --              --              419
Stockholders' equity..............        20,076          11,654          11,908           9,951            7,855

</TABLE>



                                       31
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------   -----------------------------------------------------------------------
         OF OPERATIONS.
         -------------

Overview

         The Company is engaged in providing a range of engineering,  technical,
and  financial  services  to the  public  and  private  sectors  related  to (i)
remediating contamination in soils, liquids and other materials and disposing of
or reusing  certain waste  by-products  by utilizing SET, (ii) the settlement of
complex,  long-tail and latent  insurance  claims by utilizing a series of tools
including an  internally  developed  risk  modeling  program,  FOCUS,  and (iii)
providing services related to, environmental management for on-site and off-site
identification, investigation remediation and management of hazardous, mixed and
radioactive waste.

         The Company owns technologies related to the separation and destruction
of mixed waste, polychlorinated biphenyls (PCBs) and chlorofluorocarbons (CFCs).
Until  September  1998,  the Company was engaged in the  separation of hazardous
waste  through its 87% owned  subsidiary,  Separation.  Effective  September 28,
1998,  the  Company  sold  its  investment  in  Separation,   which  has  caused
significant variations in results for the periods presented.

         The  Company is  currently  working on the  commercialization  of these
technologies  through  development  efforts,  licensing  arrangements  and joint
ventures.  Through  Advanced  Sciences,  formerly  Advanced  Sciences,  Inc.,  a
subsidiary  acquired on October 1, 1996,  the Company has contracts with various
government  agencies  and  private  companies  in the  U.S.  As some  government
contracts are funded in one-year increments, there is a possibility for cutbacks
as these contracts  constitute a major portion of Advanced  Sciences'  revenues,
and such a reduction would materially affect the operations. However, management
believes Advanced Sciences' existing client relationships will allow the Company
to obtain new contracts in the future. Through DRM, an 81% owned subsidiary, the
Company has several  engagements  with  various  industrial,  manufacturing  and
mining companies in the U.S. and in Europe for the recovery of insurance claims.

         The  Company  has  identified  three  reportable  segments  in which it
operates,  based  on  the  guidelines  set  forth  in the  Financial  Accounting
Standards  Board's  Statement of Financial  Accounting  Standards No. 131. These
three  segments  are  as  follows:  Commodore  Advanced  Sciences,  Inc.,  which
primarily provides various engineering,  legal,  sampling,  and public relations
services to Government agencies on a cost plus basis; Commodore Solutions, Inc.,
which is  commercializing  technologies to treat mixed and hazardous  waste; and
Dispute  Resolution  Management,  Inc.,  which provides a package of services to
help companies recover financial  settlements from insurance  policies to defray
costs associated with environmental liabilities.

Results of Operations

Year ended December 31, 2000 compared to Year ended December 31, 1999

         Revenues  were  $20,631,000  for the  year  ended  December  31,  2000,
compared to  $18,147,000  for the year ended  December 31, 1999. The increase in
revenues is  primarily  due to the revenue  contribution  of the  Company's  81%
interest in DRM, acquired August 30, 2000.

         In the case of Advanced  Sciences,  revenues were  $16,786,000  for the
year ended December 31, 2000,  compared to $17,973,000  for the year ended 1999.
Revenues  in 2000  were  primarily  from  engineering  and  scientific  services
performed for the United States  government under a variety of contracts similar
to those in place in 1999.  Advanced Sciences had three major customers in 2000,
each of which  represents more than 10% of annual revenue.  The combined revenue

                                       32
<PAGE>

for these three  customers was  $13,836,000  or 67% of the Company's  total 2000
revenue. The decline in revenues at Advanced Sciences is primarily the result of
less  subcontract  work being performed in 2000. The government  decided to deal
directly with the subcontractor rather than having Advanced Sciences subcontract
this work on behalf of the government.  The government took this action,  as the
subcontracts became too large. Cost of sales decreased from $15,865,000 for 1999
to  $13,962,000  for 2000.  A reduction  in cost of sales at  Advanced  Sciences
resulted from decreased  revenues.  Anticipated losses on contracts are provided
for by a charge to income during the period such losses are first identified.

         In the  case of DRM,  revenues  were  $3,574,000  for  the  year  ended
December 31, 2000.  The Company  purchased its 81% interest in DRM on August 30,
2000 and was able to  consolidate  DRM's  revenues and earnings as of that date.
Revenues in 2000 were  primarily from completed  settlement  agreements  between
their clients and major insurers.  DRM has several client engagements,  of which
three  represented  more than 10% of DRM's annual revenue.  The combined revenue
for these three  customers was $2,300,000 or 64% of the DRM's total 2000 revenue
contribution  to the Company.  Settlements  are the result of 18 to 24 months of
effort by various  employees  of DRM, of which the  expenses are captured in the
general and administrative costs section.  Anticipated losses on engagements, if
any,  will be provided  for by a charge to income  during the period such losses
are first identified.

         In the case of  Solution,  revenues  were  $271,000  for the year ended
December  31, 2000 as compared  with  $174,000  for the year ended  December 31,
1999. The increase is primarily due to the increase in  feasibility  studies and
commercial processing. Revenues in 2000 were primarily from remediation services
performed for  engineering  and waste  treatment  companies in the U.S.  under a
variety of contracts. Solution has two major customers, each of which represents
more than 10% of annual  revenue.  The combined  revenue for these two customers
was  $271,000 or 100% of the  Solution's  total 2000  revenue.  The  increase in
revenues at  Solution is  primarily  the result of more  subcontract  work being
performed in 2000.  Cost of sales was  $490,000 for the year ended  December 31,
2000 as compared to $262,000 for the year ended  December 31, 1999. The increase
in cost of sales is attributable to greater sales and marketing expenses for the
SET technology which the Company  anticipates greater revenues from Solutions in
2001.  Anticipated  losses on  engagements,  if any,  will be provided  for by a
charge to income during the period such losses are first identified.

         For the year ended December 31, 2000, the Company incurred research and
development  costs of  $993,000,  as compared to  $1,145,000  for the year ended
December 31, 1999. 100% of the research and development  costs are  attributable
to the  operations  of Solution.  In 2000,  the Company  invested  more money in
capital  expenditures and less in laboratory work and consultants than it had in
1999. DRM and Advanced  Sciences did not incur research and development costs in
the years 1999 and 2000.

         General and  administrative  expenses  for the year ended  December 31,
2000 were $6,989,000,  as compared to $4,037,000 for the year ended December 31,
1999.  This  increase  is the result of the  addition  of the DRM's  general and
administrative costs as well as and increase in the costs from Solution.

         In the case of  Advanced  Sciences,  general and  administrative  costs
increased from $1,428,000 for the year ended December 31, 1999 to $2,355,000 for
the year ended  December 31,  2000.  This  increase  reflects the impact of some
restructuring steps in Advanced Sciences  (including  principally a reduction in
personnel  and the  associated  severance  cost) the Company  made in the fourth

                                       33
<PAGE>

quarter of 2000 due to the inability to replace certain completed contracts.  In
the case of DRM, general and administrative costs recognized by the Company were
$1,761,000  for the year ended  December 31,  2000.  These costs  represent  the
salaries and bonuses issued to all employees of DRM.  Solution  incurred general
and  administrative  costs of $504,000  for the year ended  December 31, 2000 as
compared with $175,000 for the year ended  December 31, 1999.  This increase was
primarily due to a greater sales and marketing  effort for Solution's  services,
which has resulted in contracts that will produce revenue in 2001.

         The  increase in interest  expense of  $1,141,000  from 1999 to 2000 is
primarily related to amortization of non-cash interest costs associated with the
Company's  purchase  of 81% of DRM on August 30, 2000  ($658,000)  and the Weiss
Group Note ($333,000).

         In 2000, the Company took an asset impairment charge of $6,586,000 as a
result of the write off of goodwill  associated  with the prior  acquisition  of
Advanced  Sciences.  In taking  this  charge,  the Company  considered  Advanced
Sciences'  operating history and cashflows,  its inability to obtain replacement
contracts  for  completed  contracts  in fourth  quarter  of 2000 and the future
prospects for  additional  contracts to Advanced  Sciences in 2001.  The Company
believes that  revenues  from  existing and potential  contracts in 2001 will be
insufficient  to  offset  amortization  of  goodwill  associated  with  Advanced
Sciences.  The impairment  charge reduced the value of the assets of Advanced to
their fair market value.

Year ended December 31, 1999 compared to Year ended December 31, 1998

         Revenues  were  $18,147,000  for the year ended  December 31, 1999,  as
compared to $17,470,000 for the year ended December 31, 1998. Such revenues were
primarily from the Company's ASI  subsidiary,  and consisted of engineering  and
scientific  services  performed for the United States government under a variety
of contracts,  most of which provide for  reimbursement of cost plus fixed fees.
Revenue under  cost-reimbursement  contracts is recorded under the percentage of
completion method as costs incurred and include estimated fees in the proportion
that costs to date bear to total  estimated  costs.  The  Company  has two major
customers,  each of which represents more than 10% of total annual revenue.  The
combined  revenue for these two customers was  $15,979,000  or 88% of total 1999
revenue.  Costs of sales were  $16,127,000 for the year ended December 31, 1999,
as compared to  $15,421,000  for the year ended  December 31,  1998.  Variations
arise from the changes in subcontract activities in relation to total revenue.

         For the year ended December 31, 1999, the Company incurred research and
development  costs of  $1,145,000,  as compared to $2,722,000 for the year ended
December  31, 1998.  In 1999,  research  and  development  costs were reduced in
accordance  with the  Company's  cost  saving  program  initiated  in late 1998.
Research and development costs include salaries,  wages, and other related costs
of personnel engaged in research and development  activities,  contract services
and materials,  test equipment and rent for facilities  involved in research and
development  activities.  Research  and  development  costs  are  expensed  when
incurred,  except that those costs related to the design or  construction  of an
asset having an economic useful life are capitalized,  and then depreciated over
the  estimated  useful life of the asset.  1998  numbers  included  research and
development costs of $501,000 for Separation.

         General and  administrative  expenses  for the year ended  December 31,
1999 were $4,037,000,  as compared to $8,118,000 for the year ended December 31,
1998. The savings in 1999 are a result of  restructuring  steps taken during the
last half of 1998. Also, Separation had $1,896,000 in general and administrative
costs in 1998.

                                       34
<PAGE>

         Interest  expense for the year ended  December 31, 1999 was $166,000 as
compared to $1,066,000 for the year ended December 31, 1998. Interest changes in
1999  result from  favorable  rate and terms on a line of credit put in place in
April  1998 and the  elimination  of  non-cash  interest  expense  that  totaled
$777,000 in 1998.

         Equity  in  losses  of  unconsolidated  subsidiary  for the year  ended
December 31, 1999 was $0, as compared to $2,383,000  for the year ended December
31,  1998.  The  Company's  Teledyne-Commodore,   LLC  joint  venture  commenced
operations in October 1996.  The Company  recorded its liability for all capital
contributions  at December 31, 1998. The Company's  1999  obligation to fund the
LLC ($176,500) has been included in research and development costs.


LIQUIDITY AND CAPITAL RESOURCES

         From its inception  through the second  quarter of 1996,  the Company's
operations  were  financed   principally  by  loans  and  investments  from  its
stockholders.  In June 1996,  the Company  successfully  completed  its IPO from
which it  received  net  proceeds  of  approximately  $30,500,000.  The  Company
allocated  approximately  $12.0  million of the net  proceeds for the funding of
proposed  collaborative  joint ventures,  $2.0 million of which was allocated to
Teledyne-Commodore,    LLC.    See    "Certain    Relationships    and   Related
Transactions--Organization and Capitalization of the Company."

         In July 1996,  the Company  utilized a portion of the net proceeds from
its IPO to repay an  outstanding  line of credit of $2.0  million,  as well as a
$5,925,426  promissory  note to its principal  stockholder  (the  "Environmental
Funding Note").  The Company set aside $1.0 million cash collateral to support a
loan  made  by a  commercial  bank to the  Company's  principal  stockholder  in
December 1993. In September  1996, the bank released such cash  collateral.  See
"Certain Relationships and Related Transactions--Organization and Capitalization
of the Company."

         In August 1996, the Company loaned $1.5 million to Lanxide  Performance
Materials,  Inc. ("LPM"),  a wholly owned subsidiary of Lanxide  Corporation,  a
Delaware corporation  ("Lanxide"),  evidenced by a promissory note, dated August
30, 1996, in the principal  amount of $1.5 million (the "LPM Note").  Lanxide is
related to the Company by significant common beneficial ownership.  The LPM Note
is collateralized  by the assets of LPM and guaranteed by Lanxide.  The LPM Note
became due on February 28, 1998. In March 1998, the Company  transferred the LPM
Note to Environmental,  together with $500,000 in cash, as partial prepayment of
the $4.0 million  unsecured loan from  Environmental to the Company in September
1997. See "Market for Registrant's Common Equity and Related Stockholder Matters
Recent  Sales  of  Unregistered   Securities",   "September  1997   Intercompany
Convertible Note" and "Certain  Relationships and Related Transactions September
1997 Intercompany Convertible Note."

         In December  1996,  the  Company  acquired  (i) all of the  outstanding
capital stock of Separation and (ii) all of the outstanding capital stock of CFC
Technologies  from  Environmental,  as  part  of a  corporate  restructuring  of
Environmental  to  consolidate  all  of  its  current  environmental  technology
businesses with the Company. In addition,  Environmental assigned to the Company
outstanding   Separation  notes  aggregating   $976,200  at  December  2,  1996,
representing advances previously made by Environmental to Separation,  which the
Company has contributed to the equity of Separation.  In  consideration  for the
transfer  of all  of  the  outstanding  capital  stock  of  Separation  and  CFC
Technologies to the Company, the Company paid Environmental $3.0 million in cash
and issued to  Environmental  a warrant  expiring  December  2, 2003 to purchase

                                       35
<PAGE>

7,500,000  shares of Company  Common  Stock at an  exercise  price of $15.00 per
share,  valued  at  $2.4  million.   See  "Certain   Relationships  and  Related
Transactions  Organization and  Capitalization " and "February 1998 Intercompany
Note."

         In April 1997,  Separation  completed an initial public offering of its
equity  securities,  from  which  it  received  net  proceeds  of  approximately
$11,100,000.  Such funds were used primarily to finance Separation's  operations
through 1998.

         In August 1997, the Company completed the August 1997 Private Placement
from which it received net proceeds of approximately $1.6 million. In connection
with the sale,  the Company  incurred cash  transaction  costs of  approximately
$117,000  and issued  warrants,  expiring on August 15, 2002,  to the  placement
agent.  See  "Market for  Registrant's  Common  Equity and  Related  Stockholder
Matters--Recent Sales of Unregistered Securities."

         In October  1997,  the  Company  completed  the  October  1997  Private
Placement from which it received  aggregate net proceeds of  approximately  $2.4
million.  In  connection  with the October 1997 Private  Placement,  the Company
incurred cash transaction  costs of approximately  $209,000 and issued warrants,
expiring  on  September  30,  2002,  to the  placement  agent.  See  "Market for
Registrant's  Common  Equity and Related  Stockholder  Matters--Recent  Sales of
Unregistered Securities."

         In  September  1997,  Environmental  provided  the Company  with a $4.0
million  unsecured loan,  evidenced by the Convertible Note due August 31, 2002.
In connection with the Convertible Note, the Company issued warrants to purchase
1,000,000  shares of  Common  Stock to  Environmental  valued  at  $660,000  and
provided a beneficial  conversion  privilege with an intrinsic value of $750,000
as of the date of the  transaction.  In March  1998,  the Company  prepaid  $2.0
million of the Convertible Note by (i) paying  Environmental the sum of $500,000
in cash and (ii)  transferring to Environmental  the LPM Note from LPM. Lanxide,
which   specializes  in  the  manufacture  of  ceramic  bonding  and  refractory
materials, is related to the Company by significant common beneficial ownership.
To induce  Environmental  to accept the Company's  prepayment of $2.0 million of
the  Convertible  Note (and thereby give up the right to convert $2.0 million of
the Convertible Note into Common Stock),  the Company issued to Environmental an
additional  warrant  to  purchase  up to  514,000  shares of Common  Stock at an
exercise   price  of  $4.50  per  share.   Such  exercise  price  was  fixed  at
approximately 110% of the closing sale price of the Common Stock on February 20,
1998,  the trading day  immediately  prior to the date the Board of Directors of
the Company approved such  prepayment.  The estimated fair value of such warrant
is  approximately   $340,000.   The  remaining   balance  of  this  Intercompany
Convertible Note was paid off by December 31, 1998. See "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations--Liquidity  and
Capital     Resources"     and     "Certain     Relationships     and    Related
Transactions--September 1997 Intercompany Note."

         At December 31, 2000 and 1999,  Advanced  Sciences had a $1,459,000 and
$948,000  outstanding  balance,  respectively,  on  various  revolving  lines of
credit. In August 1998,  Advanced Sciences  refinanced their line of credit with
Finova Capital  Corporation  (the "Finova Credit Line").  The Finova Credit Line
was not to exceed 75% of eligible receivable or $2,000,000 and was due in August
2000 with interest payable monthly at prime plus 1 1/2 percent (9 1/4 percent as
of December 31, 1999).  The Finova Credit Line was extended on a  month-to-month
basis through  October 2000 when the Company  secured a new line of credit.  The
Finova Credit Line was collateralized by the assets of Advanced Sciences and was
guaranteed by the Company.  The Finova Credit Line contained  certain  financial
covenants and restrictions  including  minimum ratios that Advanced Sciences had
to satisfy.  Advanced  Sciences was in compliance with the covenants  throughout
the term of the Finova Credit Line.


                                       36
<PAGE>

         In February 1998,  Environmental provided the Company with a $5,450,000
uncollateralized  loan, evidenced by the Intercompany Note due on the earlier to
occur of (a) December 31, 1999, or (b)  consummation  of any public  offering or
private placement of securities of the Company with net proceeds  aggregating in
excess of $6.0 million,  other than in respect of working  capital  financing or
secured  financing of assets  received by the Company in the ordinary  course of
business  from  any  bank or  other  lending  institution,  subject  to  certain
conditions. The Company has used the net proceeds of the loan solely for working
capital and  general  corporate  purposes  and not for the  satisfaction  of any
portion of Company  debt or to redeem any  Company  equity or  equity-equivalent
securities. During 1998, the Company repaid $828,000 of the principal balance on
this Note before the Note was paid off in its entirety through the September 28,
1998  transaction  described  below.  In connection  with the loan,  the Company
amended and restated in its entirety a five-year  warrant to purchase  7,500,000
shares of Common  Stock  issued to  Environmental  on December 2, 1996 to, among
other things,  reducing the exercise  price of the warrant from $15.00 per share
to $10.00 per  share.  In  addition,  the  Company  issued to  Environmental  an
additional  five-year warrant to purchase 1,500,000 shares of Common Stock at an
exercise price of $10.00 per share. See "Market for  Registrant's  Common Equity
and Related Stockholder  Matters--Recent  Sales of Unregistered  Securities" and
"Certain Relationships and Related Transactions."

         Effective September 28, 1998, the Company repaid $6,756,000 of its debt
to Environmental  (representing the balances on the September,  1997 Convertible
Note and the February,  1998  Intercompany  Note) by exchanging the debt for (i)
10,000,000  shares of  Separation  Common Stock (as  repayment of  $1,250,000 of
debt);  (ii) 20,909 shares of newly  created 6% Series B  Convertible  Preferred
Stock of the Company (as repayment of  $2,090,870 of debt);  (iii) 10,189 shares
of newly  created 6% Series C  Convertible  Preferred  Stock of the  Company (as
repayment of $1,018,864 of debt);  (iv) 20,391 shares of newly created 6% Series
D  Convertible  Preferred  Stock of the Company (as  repayment of  $2,039,100 of
debt);  (v)  assignment to  Environmental  of an account  receivable  due to the
Company from  Separation  in the amount of $357,000 (as repayment of $357,000 of
debt);  and (vi)  amendment of an existing  warrant  owned by  Environmental  to
purchase  1,500,000  shares of the  Company's  Common Stock at $10.00 per share,
reducing  the  exercise  price  to  $1.50  per  share.  The  terms  of the  debt
restructuring were determined as a result of arm's length  negotiations  between
representatives  of both the Company and  Environmental,  and were  supported by
fairness  opinions  by an  independent,  third  party  appraiser.  Environmental
currently  owns  approximately  35% of the  outstanding  shares of the Company's
common stock. See "Certain Relationships and Related Transactions",  "Market for
Registrant's  Common  Equity and Related  Stockholder  Matters  Recent  Sales of
Unregistered  Securities",  and  Note  5 to  "Notes  to  Consolidated  Financial
Statements".

         As  part  of this  restructuring  plan,  the  Company  consummated  the
transfer of all  10,000,000 of its shares of common  stock,  par value $.001 per
share (the "Separation Stock"), of Separation, representing approximately 87% of
the  issued  and   outstanding   shares  of  capital   stock  of  Separation  to
Environmental. The transfer was effective as of September 28, 1998. Accordingly,
the 1998 consolidated  financial  statements of the Company include the activity
of Separation  only through  September  28, 1998. As a result of this sale,  the
Company recognized a contribution to capital of $4,664,000.

         In  August  1999,  Advanced  Sciences  received  $1,000,000  as a  "new
advance" under a First Amendment to its existing revolving line of credit.  This
advance is evidenced by a secured  promissory  note (the "1999 Term Note").  The

                                       37
<PAGE>

1999 Term Note was repayable in monthly  installments in the principal amount of
$16,667 plus interest  accrued and unpaid  interest.  The first payment was paid
August 1999. Interest was set at prime plus 1 1/2 percent. Security for the 1999
Term Note  included  virtually  all  property  and  equipment  owned by Advanced
Sciences and the Company. This 1999 Term Note was shown as long-term debt in the
consolidated  balance sheet. The 1999 Term Note and the outstanding  balances of
the Finova Credit Line were paid in full when Advanced Sciences refinanced their
line of credit in October 2000.

         In November  1999,  the Company  completed  $2.5  million in  financing
through private  placement.  The Company issued 335,000 shares of a new Series E
Convertible Preferred Stock,  convertible into Common Stock at the market price,
after  April  30,  2000  and  up  through  April  30,  2003  at  which  time  it
automatically converts to Common Stock. The Series E Convertible Preferred Stock
has a variable rate dividend averaging 8.15% over the term of the security.  The
Company  reserved  the right to redeem  all the Series E  Convertible  Preferred
Stock on or before  April 30, 2000 by payment of $2.8  million  plus any accrued
dividends.

         In March 2000, the Company  completed $2.0 million in financing through
private  placement.  The  Company  issued  226,000  shares  of a  new  Series  F
Convertible Preferred Stock,  convertible into Common Stock at the market price,
after  September  30,  2000 and up  through  April  30,  2003 at  which  time it
automatically converts to Common Stock. The Series F Convertible Preferred Stock
has a variable rate dividend averaging 8.15% over the term of the security.  The
Company  reserved  the right to redeem  all the Series F  Convertible  Preferred
Stock on or before  September  30,  2000 by  payment  of $2.3  million  plus any
accrued dividends.

         In September 2000, the Company  completed  $500,000 in financing in the
form of a loan  (the  "Brewer  Note")  from S.  Brewer  Enterprises,  Inc.  ("SB
Enterprises"),  which is owned by one of its officers and  directors,  Shelby T.
Brewer.  The Brewer Note bears a 9.75% interest rate,  payable  monthly,  with a
balloon  principal  payment at the end of the term. The note was due and payable
on March 15, 2001 and was  extended  under the same terms and  conditions  until
December  31,  2001.  The Brewer Note is  convertible  into Common  Stock at the
market price up through December 31, 2001.

         On March 15,  2001,  SB  Enterprises  executed an Amended and  Restated
Promissory Note (the "Restated  Brewer Note"),  which extended the maturity date
of the note until December 31, 2001. Additionally, the conversion feature of the
Restated Brewer Note was changed from $1.0625 per share of the Company's  common
stock to the 5-day average closing price of the Company's  common stock prior to
a conversion notice. On April 9, 2001, SB Enterprises issued a conversion notice
for $250,000 of the  outstanding  principal  of the Brewer  Restated  Note.  The
conversion  price was  calculated  by the previous  5-day average of the closing
price of the Company's common stock and was converted into 1,041,667 shares.

         In October 2000, Advanced Sciences refinanced their line of credit with
KBK  Financial,  Inc.  (the "KBK  Credit  Line").  The KBK Credit Line is not to
exceed 85% of eligible  receivables  or $2,500,000  and is due October 2002 with
interest  payable monthly at prime plus 2 percent (11 1/2 percent as of December
31,  2000).  The KBK Credit  Line is  collateralized  by the assets of  Advanced
Sciences and is guaranteed by the Company.  The KBK Credit Line contains certain
financial  covenants and  restrictions  including  minimum  ratios that Advanced
Sciences must satisfy. Advanced Sciences was in compliance with the covenants of
the KBK Credit Line at December 31, 2000.


                                       38
<PAGE>

         In addition,  the KBK Credit Line agreement stipulates that no payments
shall be made by Advanced  Sciences to the Company other than monthly  scheduled
payments of principal with respect to the $7,700,000  subordinated  indebtedness
owed by Advanced  Sciences to the Company (which is eliminated in consolidation)
and  intercompany  indebtedness not to exceed $20,000 in any month. In addition,
Advanced Sciences shall not incur indebtedness in excess of $25,000,  other than
trade  payables,  the above  subordinated  indebtedness  and  other  contractual
obligations  to  suppliers  and  customers  incurred in the  ordinary  course of
business.

         In November  2000, the Company  completed  $500,000 in financing in the
form of a loan (the "Weiss Group Note") from a group of four investors;  $75,000
of which was borrowed from the son of Paul E.  Hannesson,  our former  President
and Chief Executive  Officer,  and $25,000 of which was borrowed from Stephen A.
Weiss,  a  shareholder  of  Greenberg  Traurig,  LLP, our former  corporate  and
securities  counsel.  The Weiss Group Note bears interest at 12% per annum,  was
due and payable on February  12, 2001,  and is secured by the first  $500,000 of
loans or dividends that the Company may receive from DRM. As  consideration  for
such loan,  Environmental,  one of the Company's  principal  stockholders owning
approximately  16.58% of the Common Stock,  transferred to the investors a total
of  1,000,000  shares of Common  Stock.  Three of the holders of the Weiss Group
Note have granted payment  extensions until June 30 and July 31, 2001, while the
fourth  holder of the Weiss Group Note has extended  only until May 1, 2001.  If
the fourth holder of the Weiss Group Note declares a default on May 1, 2001, the
other three  holders of the Weiss Group Note will also be permitted to declare a
default.  As of May 4, 2001 the  Company has not been  notified of the  holder's
intent to declare a default on the Weiss Group Note.

         Effective  April 5, 2001,  the  Company  issued  warrants  to  purchase
500,000  shares of its common stock at an exercise price of $0.22 per share (the
closing price of our common stock on the American  Stock  Exchange on such date)
to  three  of four  persons  who had lent the  Company  a total of  $500,000  in
November  2000, in  consideration  of such persons  extension of the due date of
such loans from February 12, 2001 to June 30, 2001.

         The Company has an irrevocable obligation to repurchase from the former
shareholders  of DRM, by August 30, 2001,  that number of 9.5 million  shares of
the  Company's  common stock (at a per share price equal to the greater of $1.50
or the closing  price of our common stock 30 days prior to purchase) as shall be
necessary  to provide the holders of such shares with a total of $14.5  million.
As partial security for the payment of such obligation, all of the shares of DRM
common  stock  owned by the  Company  have been  pledged to  Messrs.  William J.
Russell and Tamie P. Speciale, the former sole stockholders of DRM. In the event
the Company is unable to make such $14.5 million payment, when due, the pledgees
may foreclose on the DRM stock; in which event the Company would lose its entire
equity ownership in the DRM subsidiary.

         The Company currently intends to meet its repurchase  obligation to the
former  shareholders of DRM by reacquiring their shares and selling those shares
to generate the cash necessary to meet the  obligation;  however,  the Company's
ability to effect the repurchase  obligation in this manner is heavily dependent
on the stock price of the Company's  common stock at the time of the repurchase.
At April 30,  2001,  the  closing  price of the  Company's  common  stock on the
American Stock Exchange, Inc. was $0.22 per share.

         The Company  currently  requires  additional  cash to sustain  existing
operations and meet the Company's  ongoing capital  requirements.  Excluding the

                                       39
<PAGE>

Company's DRM  subsidiary,  the Company's  current  monthly  operating  expenses
exceed its cash revenues by  approximately  $200,000.  The  continuation  of the
Company's  operations  is dependent in the short term upon its ability to obtain
additional  financing and, in the long term, to generate sufficient cash flow to
meet its obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain profitability.

         The Company's auditor's opinion on our fiscal 2000 financial statements
contains a "going concern"  qualification  in which they express doubt about the
Company's ability to continue in business, absent additional financing.

         The  Company  currently  is  negotiating  with a lender to obtain  debt
financing, to supplement funds generated from operations,  to meet the Company's
cash needs over the next 12 months.  The  Company  intends to meet its long term
capital needs through  obtaining  additional  contracts that will generate funds
from operations and obtaining  additional debt or equity  financing as necessary
or engaging in merger or sale transactions.  There can be no assurance that such
sources of funds  will be  available  to the  Company or that it will be able to
meet its short or long term capital requirements.

         For the year ended December 31, 2000,  the Company  incurred a net loss
of  $11,441,000,  as  compared  to a net loss of  $3,985,000  for the year ended
December 31, 1999. The increased net loss was primarily due to non-cash costs of
management's  decision to write off the goodwill associated with the purchase of
Advanced  Sciences  ($6,586,000),  the non-cash costs  associated with the Weiss
Group Note  ($333,000)  and the non-cash  interest  ($658,000)  and the non-cash
amortization costs associated with the purchase of DRM ($594,000).

         Advanced   Sciences'   contract   with   one   customer,   representing
$11,618,000,  or 52% of 2000 revenue ended December 31, 2000.  Advanced Sciences
was not  successful  with its efforts to replace this  contract  volume of work.
Advanced Sciences used many subcontractors to service this account. The negative
impact on profits  from this work  reduction  should be offset by  increases  in
business by DRM and Solution in 2001.

         As shown in the financial  statements  for the years ended December 31,
2000,  1999, and 1998, the Company  incurred losses of $11,441,000,  $3,985,000,
and $13,353,000 respectively. The Company has also experienced net cash outflows
from  operating  activities of  $2,002,000,  $2,905,000,  and $9,176,000 for the
years ended  December 31,  2000,  1999 and 1998,  respectively.  At December 31,
2000, 1999 and 1998 the Company had working capital of $(16,876,000),  $621,000,
and $1,817,000  respectively.  The negative working capital balance for the year
ended  December  31, 2000 is  primarily  due to the payment  obligations  of the
Company to the former  shareholders  of DRM  ($13,581,000  of the purchase price
obligation and  approximately  $2,500,000 of the earn-out  guarantee)  under the
Stock Purchase Agreement for the acquisition of 81% of DRM on August 30, 2000.

         As shown in the financial  statements  for the years ended December 31,
2000,  1999,  and 1998,  the Company  had  stockholders'  equity of  $7,855,000,
$9,951,000,  and  $11,654,000  respectively.   The  Company's  net  decrease  in
stockholders'  equity from  December 31, 1999 to December 31, 2000 is due to the
loss for the period  ($11,441,000)  and the gains from the  issuance  of various
classes of stock ($9,345,000).

                                       40
<PAGE>


NET OPERATING LOSS CARRYFORWARDS

         The  Company  has net  operating  loss  carryforwards  (the  "NOLs") of
approximately  $38,000,000,  which  expire in the years 2001 through  2020.  The
amount  of  NOLs  that  can be  used in any one  year  will  be  limited  by the
applicable  tax laws that are in  effect at the time such NOLs can be  utilized.
The Company has  determined a maximum of  approximately  $2.4 million of NOLs is
available to be used annually.  Unused NOLs balances may be accumulated and used
in subsequent  years. A full valuation  allowance has been established to offset
any benefit from the net operating loss  carryforwards.  It cannot be determined
when or if the Company will be able to utilize the NOLs.

YEAR 2000 CONSIDERATIONS

         Prior to January 1, 2000,  there was a great deal of concern  regarding
the ability of computers to  adequately  recognize  21st century dates from 20th
century  dates due to the  two-digit  date  fields  used by many  systems.  Most
reports to date, however, are that computer systems are functioning normally and
the compliance and remediation work accomplished  during the years leading up to
2000 was effective to prevent any problems. As of April 30, 2001 the Company has
not experienced any such computer  difficulty;  however,  computer  experts have
warned that there may still be residual  consequences of the change in centuries
and any such difficulties may, depending upon their  pervasiveness and severity,
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.  Any of the following  could have a material  adverse
effect on the Company's business, financial condition and results of operations:

         o    a failure  to fully  identify  all Year 2000  dependencies  in the
              Company's systems;

         o    a failure  to fully  identify  all Year 2000  dependencies  in the
              Company's  systems of its  collaborative  partners,  suppliers and
              customers;

         o    a failure of the Company's collaborative  partners,  suppliers and
              customers to adequately address their Year 2000 issue;

         o    the  failure of any  contingency  plans  developed  to protect the
              Company's   business  and   operations   from  Year   2000-related
              interruptions; and

         o    delays in the  implementation  of new systems  resulting from Year
              2000 problems.


FORWARD-LOOKING STATEMENTS

         Certain  matters  discussed in this Annual Report are  "forward-looking
statements" intended to qualify for the safe harbors from liability  established
by Section 27A of the Securities Act and Section 21E of the Securities  Exchange
Act of 1934, as amended (the "Exchange Act"). These  forward-looking  statements
can generally be  identified  as such because the context of the statement  will
include words such as the Company "believes,"  "anticipates," "expects" or words
of similar  import.  Similarly,  statements  that describe the Company's  future

                                       41
<PAGE>

plans, objectives or goals are also forward-looking  statements. Such statements
may address future events and  conditions  concerning,  among other things,  the
Company's  results of operations and financial  condition;  the  consummation of
acquisition and financing  transactions  and the effect thereof on the Company's
business;  capital  expenditures;   litigation;   regulatory  matters;  and  the
Company's  plans and  objectives for future  operations and expansion.  Any such
forward-looking  statements would be subject to the risks and uncertainties that
could cause actual results of  operations,  financial  condition,  acquisitions,
financing transactions,  operations, expenditures, expansion and other events to
differ  materially  from those  expressed  or  implied  in such  forward-looking
statements.  Any such forward-looking statements would be subject to a number of
assumptions  regarding,  among other things,  future  economic,  competitive and
market  conditions  generally.  Such  assumptions  would be  based on facts  and
conditions  as they  exist  at the  time  such  statements  are  made as well as
predictions as to future facts and conditions,  the accurate prediction of which
may be  difficult  and involve the  assessment  of events  beyond the  Company's
control.  Further,  the Company's  business is subject to a number of risks that
would affect any such forward-looking statements.  These risks and uncertainties
include, but are not limited to, the ability of the Company to commercialize its
technology;  product demand and industry pricing;  the ability of the Company to
obtain patent  protection  for its  technology;  developments  in  environmental
legislation  and  regulation;  the  ability  of the  Company  to  obtain  future
financing on favorable  terms;  and other  circumstances  affecting  anticipated
revenues and costs. These risks and uncertainties  could cause actual results of
the  Company  to differ  materially  from  those  projected  or  implied by such
forward-looking statements.


ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------          ----------------------------------------------------------

                  Not applicable.


ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
------            -------------------------------------------

         The  consolidated  financial  statements of the Company are included on
pages F-1 through  F-41 of this  Annual  Report and are  incorporated  herein by
reference.



                                       42
<PAGE>


ITEM 9.   CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
------    ----------------------------------------------------------------------
          FINANCIAL DISCLOSURE.
          ---------------------

         The   Company   terminated   and   dismissed   its   former   auditors,
PricewaterhouseCoopers, LLP ("PwC"), on August 17, 1999.

         During  the  Company's  past two  fiscal  years,  PwC's  report  on the
Company's  financial   statements  did  not  contain  any  adverse  opinions  or
disclaimers  of opinions and were not  qualified or modified as to  uncertainty,
audit scope or accounting  principles,  except that PwC's auditor  report on the
Company's  consolidated  financial  statements  for the year ended  December 31,
1998, contained an explanatory  paragraph addressing the Company's  continuation
as a going concern due to the Company's recurring losses from operations and net
cash outflows from operations.

         The decision to terminate its relationship with PwC was approved by the
Board of Directors of the Company.

         In connection with its audits for the past two fiscal years and through
August  17,  1999,  there  were  no  disagreements  with  PwC on any  matter  of
accounting  principles or practices,  financial statement disclosure or auditing
scope or procedure, which disagreements,  if not resolved to the satisfaction of
PwC,  would  have  caused  it to make  reference  to the  subject  matter of the
disagreements in connection with its reports.

         No  "reportable   events"  as  described  under  Item  304(a)(i)(v)  of
Regulation  S-K occurred  during the Company's  fiscal years ended  December 31,
1998 and December 31, 1997.

         Pursuant to action  approved by the  Company's  Board of  Directors  on
August 17, 1999, the Company retained Tanner + Co. ("Tanner") as its independent
auditors for the years ended  December 31, 1999 and December 31, 2000.  Prior to
the  Company's  engagement  of Tanner,  the Company did not consult  with Tanner
regarding any of the matters or events set forth in Item  304(a)(2)(i)  and (ii)
of Regulation S-K.

         During the  Company's  fiscal  years ended  December 31, 2000 and 1999,
there were no  disagreements  between the Company and its independent  auditors,
Tanner, on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements,  if not resolved
to the satisfaction of Tanner, would have caused Tanner to make reference to the
subject matter of the disagreements in connection with its report.


                                       43
<PAGE>



                                    PART III
                                    --------

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
-------    --------------------------------------------------

EXECUTIVE OFFICERS AND DIRECTORS

         The names  and ages of the  executive  Officers  and  Directors  of the
Company,  and their  positions  with the  Company  as of March  15,  2001 are as
follows:
<TABLE>
<CAPTION>

Name                                    Age        Position
--------------------------------- ---------------- -----------------------------------------------------------------
<S>                                     <C>        <C>
Shelby T. Brewer, Ph.D.                 62         Chairman of the Board, President and Chief Executive Officer
--------------------------------- ---------------- -----------------------------------------------------------------
James M. DeAngelis                      40         Chief Financial and Administrative Officer, Treasurer
--------------------------------- ---------------- -----------------------------------------------------------------
Bentley J. Blum                         59         Director
--------------------------------- ---------------- -----------------------------------------------------------------
Herbert A. Cohen                        67         Director
--------------------------------- ---------------- -----------------------------------------------------------------
Paul E. Hannesson                       60         Director
--------------------------------- ---------------- -----------------------------------------------------------------
David L. Mitchell                       70         Director
--------------------------------- ---------------- -----------------------------------------------------------------
Edward L. Palmer                        83         Director
--------------------------------- ---------------- -----------------------------------------------------------------
William R. Toller                       69         Director
--------------------------------- ---------------- -----------------------------------------------------------------
</TABLE>


         SHELBY T. BREWER, Ph.D. was appointed Chairman, Chief Executive Officer
and President of the Company since  January 2001.  Since April 2000,  Mr. Brewer
has served as Chairman and Chief Executive Officer of Solutions,  a wholly owned
subsidiary of the Company, which oversees Advanced Sciences.  From 1996 to March
2000, Dr. Brewer was President of S. Brewer  Enterprises,  a consulting  firm he
founded  that is engaged  in  supporting  mergers  and  acquisitions,  arranging
private and public  financing,  forming joint  ventures  abroad,  re-positioning
established  companies,  and fostering new  technology  enterprises.  Dr. Brewer
served as President  and CEO of the nuclear power  businesses of ABB  Combustion
Engineering from 1985 to 1995. From 1981 to 1984, Dr. Brewer served as Assistant
Secretary of Energy in the Reagan  administration,  holding the top nuclear post
in the U.S. government. Prior to his appointment by President Reagan, Dr. Brewer
achieved  positions of increasing line  responsibility in private industry,  the
U.S.  Navy,  and the Atomic Energy  Commission.  Dr. Brewer holds Ph.D. and M.S.
degrees in nuclear  engineering from the Massachusetts  Institute of Technology.
He holds a B.S.  degree in mechanical  engineering and a B.A. in humanities from
Columbia University.

         James M. dEAngelis was appointed Vice  President-Finance  and Treasurer
of  the  Company  in  July  1998  and  was  promoted  to  Chief   Financial  and
Administrative  Officer and Secretary in December 1998.  Mr.  DeAngelis has also
served as Senior Vice President-Sales & Marketing of Separation since July 1996,
after having served as its Vice  President-Marketing  since  November  1995. Mr.
DeAngelis has also served as the President of CFC  Technologies  since September
1994, and served as Vice  President-Marketing  of  Environmental  from September
1992  to  September  1995.  Mr.  DeAngelis  holds  a  Masters  in  International
Management degree from the American Graduate School of International Management.
Mr.  DeAngelis holds B.S.  degrees in Biology and Physiology from the University
of Connecticut.


                                       44
<PAGE>


         Bentley J. Blum has served as a director  of the  Company  since  March
1996 and served as its  Chairman of the Board from March to November  1996.  Mr.
Blum has  served as a  director  of  Environmental  since 1984 and served as its
Chairman of the Board from 1984 to November 1996. Mr. Blum also currently serves
as a director of  Separation,  Solution and CFC  Technologies.  For more than 15
years,  Mr.  Blum has been  actively  engaged in real  estate  acquisitions  and
currently is the sole stockholder and director of a number of corporations  that
hold  real  estate  interests,   oil  drilling  interests  and  other  corporate
interests. Mr. Blum is a principal stockholder of Environmental. Mr. Blum is the
brother-in-law of Paul E. Hannesson, a director of the Company.

         Herbert  A.  Cohen  has  served  as  a  director  of  the  Company  and
Environmental  since July 1996 and served as a director of Separation from March
1998 to March 2000.  Mr.  Cohen has been a  practicing  negotiator  for the past
three decades acting in an advisory capacity in hostage  negotiations and crisis
management.  He has been an  advisor  to  Presidents  Carter  and  Reagan in the
Iranian  hostage  crisis,  the  government's  response to the  skyjacking of TWA
Flight 847 and the  seizure of the  Achille  Lauro.  Mr.  Cohen's  clients  have
included large  corporations  and government  agencies such as the Department of
State, the Federal Bureau of Investigation, the Conference of Mayors, the Bureau
of Land Management, Lands and Natural Resources Division in conjunction with the
EPA, and the United States Department of Justice. In addition,  Mr. Cohen was an
advisor and consultant to the Strategic Arms Reduction Talks  negotiating  team.
Mr.  Cohen  holds a law degree  from New York  University  School of Law and has
lectured at numerous academic institutions.

         Paul E.  Hannesson  has served as a director of the Company since March
1996 and served as  Chairman of the Board from  November  1996  through  January
2001. Mr.  Hannesson also served as Chief Executive  Officer of the Company from
March to October 1996 and as President  from March to  September  1996,  and was
re-appointed Chief Executive Officer in November 1996 and President in May 1997,
all positions he served until January 2001. Mr. Hannesson has been a director of
Environmental  since  February  1993 and was appointed its Chairman of the Board
and Chief  Executive  Officer in November  1996.  Mr.  Hannesson  also served as
President of Environmental  from February 1993 to July 1996 and was re-appointed
President  in May 1997.  In July 1998 Mr.  Hannesson  resigned as  Director  and
Officer of Environmental. Mr. Hannesson also currently serves as the Chairman of
the Board and Chief Executive Officer of Separation. Mr. Hannesson was a private
investor  and  business  consultant  from  1990 to 1993.  Mr.  Hannesson  is the
brother-in-law of Bentley J. Blum, a director of the Company.

         David  L.  Mitchell  has  served  as a  director  of  the  Company  and
Environmental since July 1996 and as a director of Separation from April 1997 to
March 2000.  Mr.  Mitchell has also served as a  consultant  to the Company from
July 1997 to July  1998.  For the past  sixteen  years,  Mr.  Mitchell  has been
President  and  co-founder  of  Mitchell  &  Associates,  Inc.,  a banking  firm
providing  financial  advisory  services in connection  with corporate  mergers,
acquisitions and  divestitures.  Prior to forming Mitchell & Associates in 1982,
Mr. Mitchell was a Managing Director of Shearson/American Express Inc. from 1979
to 1982, a Managing Director of First Boston  Corporation from 1976 to 1978, and
a Managing  Director of the  investment-banking  firm of S.G.  Warburg & Company
from 1965 to 1976. Mr. Mitchell holds a bachelor's degree from Yale University.

                                       45
<PAGE>

         Edward L. Palmer has served as a director of the Company  since  August
1998.  Mr.  Palmer  currently  serves as President  of the Mill Neck  Consulting
Group,  founded in 1983. Mr. Palmer retired in September 1982 as Chairman of the
Executive  Committee and Director of CitiCorp and Citibank,  N.A. after 23 years
of service.  Mr. Palmer served as Vice President of the New York Trust,  serving
in several  executive  positions  since 1940. Mr. Palmer is Trustee  Emeritus of
Brown University,  New York Philharmonic and The Metropolitan Museum of Art. Mr.
Palmer served as Director of Borg-Warner Corp.,  CitiCorp,  Corning Incorp., Del
Monte Corp.,  First Boston Corp.,  Grindlays  Banks,  plc Kissinger  Associates,
Monsanto Co.,  Mutual Life Ins.,  Phelps Dodge Corp.,  Union Pacific Corp.,  and
Washington National Bank Corp.

         William R. Toller has served as a director  of the Company  since March
1998.  Mr.  Toller  has also  served as a member of the  Board of  Directors  of
Separation  from  April 1997 to March  2000 and has  served as a  consultant  to
Environmental since July 1997. Mr. Toller served as the Vice Chairman of Lanxide
from July 1997 to February 1998.  Mr. Toller also  currently  serves as Chairman
and Chief Executive Officer of Titan Consultants,  Inc. (August 1996 - Present).
Mr.  Toller  had  been  the  Chairman  and  Chief  Executive  Officer  of  Witco
Corporation since October 1990 and retired in July 1996. Mr. Toller joined Witco
in 1984 as an executive officer when it acquired the Continental  Carbon Company
of Conoco,  Inc.,  of which he had been the President and an officer since 1955.
Mr. Toller is a graduate of the University of Arkansas with a Bachelor's  degree
in Economics, and the Stanford University Graduate School Executive Program. Mr.
Toller  serves on the Board of Directors of Chase  Industries,  Inc.,  Fuseplus,
Inc.,  of  which  he is  also  Chairman  of the  Organization  and  Compensation
Committee,  and the United  States  Chamber of  Commerce,  of which he is also a
member of the Labor Relations and International Policy Committees. Mr. Toller is
also a member of the Board of Trustees and the Executive and Finance  Committees
of the  International  Center  for  the  Disabled,  a  member  of the  Board  of
Associates of the Whitehead Institute for Biomedical  Research,  a member of the
National  Advisory Board of First  Commercial Bank in Arkansas,  a member of the
Dean's Executive Advisory Board and the International  Business Committee at the
University of Arkansas, College of Business Administration,  and a member of the
Board of Presidents of the Stamford Symphony Orchestra.

         Each  director  is elected to serve for a term of one year or until his
or her  successor  is duly elected and  qualified.  The  Company's  officers are
elected by, and serve at the pleasure of, the Board of Directors, subject to the
terms  of  any   employment   agreements.   Messrs.   Hannesson   and  Blum  are
brothers-in-law.  No family  relationship  exists  among any other  directors or
executive officers of the Company.


                                       46
<PAGE>


KEY EMPLOYEES

         The names  and ages of the key  employees  of the  Company  not  listed
above,  and  their  positions  with the  Company  as of April 30,  2001,  are as
follows:
<TABLE>
<CAPTION>

Name                                    Age        Position
----                                    ---        --------

<S>                                     <C>        <C>
William J. Russell                      50         Chairman and Chief Executive Officer, DRM
Tamie P. Speciale                       38         President and Chief Operating Officer, DRM
O. Mack Jones                           60         President of Advanced Sciences
Gerry D. Getman, Ph.D.                  53         Vice President and Director of Research and Development
</TABLE>


         WILLIAM J. RUSSELL has served as Chairman and Chief  Executive  Officer
of DRM since December 1996. Mr. Russell served as Managing Director of KPMG Peat
Marwick,  LLP's Environment Management Alternative Dispute Resolution Group from
March 1995 to December  1996.  Mr.  Russell served as Vice President of Atlantic
Environmental  Management  from March 1994 to March 1995.  Mr. Russell served as
General Counsel of Pintlar Corporation  (formerly the Bunker Hill Company).  Mr.
Russell  served as Vice  President to Gulf  Resources & Chemical a NYSE resource
company  located in Washington,  D.C.,  from February 1992 to March 1994 and was
responsible for the company's environmental matters with regard to its status as
the owner and primary PRP of one of the nation's  largest  Superfund  sites. Mr.
Russell  was  engaged in the  private  practice of law at Elam Burke & Boyd from
August  1977 to October  1991,  and  maintained  a practice  with an emphasis on
environmental law and insurance defense representation.  Mr. Russell holds a law
degree from the University of Denver.  Mr. Russell holds a B.A.  degree from the
University of Kansas.

         TAMIE P. SPECIALE has served as President and Chief  Operating  Officer
of DRM since  December  1996.  Ms.  Speciale  served  as a manager  of KPMG Peat
Marwick,  LLP's Environment Management Alternative Dispute Resolution Group from
January 1996 to December 1996. Ms. Speciale was engaged in the private  practice
of law at Watkiss  Dunning & Watkiss,  P.C., from January 1995 to December 1995,
and  maintained  a  practice  with a  concentration  in  environmental  law  and
commercial  business law. Ms.  Speciale is certified as an  arbitrator  with the
National  Association of Security  Dealers (NASD).  Ms. Speciale holds an MBA, a
law degree and a B.S. degree from the University of Utah.

         O. Mack Jones  serves as Acting  President of Advanced  Sciences  since
February 2001. Mr. Jones also serves as Vice President of Field Operations since
April 1998, managing its field treatability studies and commercial projects.  On
February 28, 2001, Mr. Jones was appointed  President of Advanced Sciences.  Mr.
Jones  served as a  consultant  to the  Company  from  June 1996 to April  1998,
assisting in the  commercialization  of the solvated electron  technology.  From
September 1994 to May 1996, he served as a consultant to Environmental assisting
in the development of the solvated electron  technology.  From 1991 to May 1996,
Mr.  Jones  served  as  the  founder  and  principal  executive  officer  of  an
environmental  consulting company,  Florida Vector Services, which provided both
consulting and hands-on  remediation  services primarily in TSCA-related  areas.
From  1986 to  1991,  Mr.  Jones  was  Vice  President-Operations  with  Quadrex
Environmental Company, managing the company's field remediation businesses.  Mr.
Jones  is  a  professional  mechanical  engineer  who  held  several  managerial
operating  positions in power  generation  and  distribution  arenas  during his

                                       47
<PAGE>

twenty-six years of service to General Electric Company. His experience includes
commercial  nuclear,  fossil,  and hydro  power  construction  and  maintenance,
industrial power delivery systems, and industrial drives and controls.

         Gerry D. Getman,  Ph.D.  has served as Vice  President  and Director of
Research and  Development  of the Company since June 1996 and of Solution  since
November 1997. From 1991 to 1995, Dr. Getman was employed by Calgon  Corporation
as Director of  Research.  From  January  1996 to March 1996,  Dr.  Getman was a
private consultant for Environmental, and from April 1996 to May 1996, he served
as Vice President and Director of Research for Environmental. From 1982 to 1991,
Dr. Getman served in various  capacities at Calgon  including ISO 9000 Director,
Quality Assurance  Director,  and Analytical  Laboratory  Manager.  From 1975 to
1981, he was employed by Velsicol  Chemical  Corporation  in several  capacities
including  Manager of  Analytical  Research.  Dr.  Getman  received his Ph.D. in
Chemistry  from  Rensselaer  Polytechnic  Institute and a B.S. in Chemistry from
Florida Southern College.


BOARD COMMITTEES

         The  Company's  Board of Directors has (i) an Audit  Committee,  (ii) a
Compensation,  Stock Option and Benefits  Committee  and (iii) an Executive  and
Finance Committee.  As of December 31, 2000, the Audit Committee was composed of
David L. Mitchell,  as Chairman,  Herbert A. Cohen, Edward L. Palmer and William
R. Toller. The  responsibilities of the Audit Committee include  recommending to
the Board of Directors the firm of independent accountants to be retained by the
Company,  reviewing  with the Company's  independent  accountants  the scope and
results  of  their  audits,  reviewing  with  the  independent  accountants  and
management  the  Company's  accounting  and reporting  principles,  policies and
practices, as well as the Company's accounting, financial and operating controls
and staff,  supervising the Company's  policies relating to business conduct and
dealing  with  conflicts of interest  relating to officers and  directors of the
Company.

         As of December 31, 2000,  the  Compensation,  Stock Option and Benefits
Committee,  was composed of Herbert A. Cohen,  as Chairman,  David L.  Mitchell,
Edward L. Palmer and William R. Toller.  The  Compensation,  Stock  Option,  and
Benefits  Committee has  responsibility  for establishing and reviewing employee
and consultant/advisor compensation,  bonuses and incentive compensation awards,
administering  and  interpreting  the  Company's  1998 Stock  Option  Plan,  and
determining the recipients, amounts and other terms (subject to the requirements
of the 1998 Stock  Option Plan) of options  which may be granted  under the 1998
Stock  Option Plan from time to time and  providing  guidance to  management  in
connection with establishing additional benefit plans.

         The Company no longer maintains an Executive and Finance Committee (the
"Finance  Committee").  On August 30, 2000,  the Board of Directors  unanimously
voted to abolish the Finance Committee and determined that its function would be
performed by the entire Board of Directors.


                                       48
<PAGE>

COMPENSATION OF DIRECTORS

         The  Company  pays  non-management  directors a  director's  fee in the
amount  of $375 per  meeting  for  attendance  at the  meetings  of the Board of
Directors, and the Company reimburses the directors for actual expenses incurred
in  respect of such  attendance.  The  Company  does not  separately  compensate
employees for serving as directors.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Section 16(a) of the Exchange Act requires the Company's  directors and
executive officers,  and persons who own more than 10% of the outstanding shares
of the Company's  Common Stock, to file initial reports of beneficial  ownership
and reports of changes in  beneficial  ownership  of shares of Common Stock with
the  Commission  and  the  Amex.   Such  persons  are  required  by  regulations
promulgated  under the  Exchange  Act to furnish the Company  with copies of all
Section 16(a) forms filed with the Commission.

         Based  solely  upon a review  of Forms 3 and 4 and  amendments  thereto
furnished to the Company  during the year ended  December  31, 2000,  and upon a
review of Forms 5 and amendments  thereto  furnished to the Company with respect
to the year ended December 31, 2000, or upon written representations received by
the Company from certain  reporting  persons that such persons were not required
to file Forms 5, the Company  believes  that no director,  executive  officer or
holder of more than 10% of the outstanding shares of Common Stock failed to file
on a timely  basis the reports  required by Section  16(a) of the  Exchange  Act
during, or with respect to, the year ended December 31, 2000.



                                       49
<PAGE>


ITEM 11.    EXECUTIVE COMPENSATION.
-------     ----------------------

SUMMARY COMPENSATION

         The following table sets forth the amount of all  compensation  paid by
the Company and/or its affiliates and allocated to the Company's  operations for
services  rendered during each of 2000, 1999, and 1998 to all persons serving as
the Company's Chief Executive Officer during 2000, to each of the Company's four
most  highly  compensated  executive  Officers  other  than the Chief  Executive
Officer whose total salary and bonus  compensation  exceeded $100,000 during any
such year.

<TABLE>
<CAPTION>

                           Summary Compensation Table

                                                     Annual Compensation                Long-Term Compensation
                                    -----------------------------------------   -------------------------------------
                                                                    Other                      Securities
                                                                   Annual       Restricted      Under-                   All Other
                                                                   Compen-         Stock          lying        LTIP       Compen-
    Name and Principal                       Salary       Bonus     sation        Award(s)       Options     Pay-outs      sation
       Position                     Year       ($)         ($)       ($)            ($)            (#)         ($)          ($)
-------------------------------     ----    ----------    -----   ----------      -------        -------     --------     -------

<S>                                 <C>      <C>            <C>   <C>               <C>      <C>            <C>          <C>
Paul E. Hannesson                   2000     358,934(1)     -0-       -0-           -0-            -0-          -0-         -0-
Chief Executive Officer             1999     331,416(1)     -0-    12,000(2)        -0-      2,400,000(3)       -0-      33,638(4)
                                    1998     250,256(1)     -0-     7,700(2)        -0-        577,500(3)       -0-         -0-

Kenneth L. Adelman, Ph.D.           2000         -0-        -0-       -0-           -0-            -0-          -0-         -0-
Former Executive Vice President     1999         -0-        -0-   238,756(6)        -0-            -0-          -0-         -0-
                                    1998     179,854(5)     -0-       -0-           -0-         70,000(7)       -0-         -0-

Shelby T. Brewer, Ph.D.(8)          2000      58,707(9)     -0-       -0-           -0-        640,000(10)      -0-         -0-
Chief Executive Officer             1999         -0-        -0-       -0-           -0-            -0-          -0-         -0-
Solutions                           1998         -0-        -0-       -0-           -0-            -0-          -0-         -0-

William E. Ingram (11)              2000     147,842(12)    -0-       -0-           -0-            -0-          -0-         -0-
Vice President & Controller         1999     150,426(12)    -0-       -0-           -0-        100,000(13)      -0-         -0-
                                    1998      82,500(12)    -0-       -0-           -0-        150,000(13)      -0-         -0-

Peter E Harrod(14)                  2000     187,036(15)    -0-       -0-           -0-            -0-          -0-         -0-
President                           1999     170,501(15)    -0-       -0-           -0-        200,000(16)      -0-         -0-
Advanced Sciences                   1998     170,653(15)    -0-       -0-           -0-        255,000(16)      -0-         -0-

James M. DeAngelis(17)              2000     164,368(18)    -0-       -0-           -0-            -0-          -0-         -0-
Senior Vice President & Chief       1999     147,614(18)    -0-       -0-           -0-        200,000(19)      -0-      12,225(20)
Financial Officer                   1998      72,500(18)    -0-       -0-           -0-        181,250(19)      -0-         -0-

----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Represents the amount of Mr.  Hannesson's  base salary allocated to the
         Company (100% in 2000 and 1999). Mr.  Hannesson's total base salary for
         1997  and 1998 was  $395,000  and  $434,500,  (25% of base  salary  was
         deferred  as of October 5, 1998;  base salary  adjusted  to  $330,000),
         respectively.  Certain portions of such base salary were also allocated
         to  Environmental  and Separation.  The Company  previously  recorded a
         liability for $344,000 representing amounts owed to Mr. Hannesson under
         his  employment  contract,  but  deferred per  agreement.  The deferred
         salary  amount  was used by Mr.  Hannesson  to offset a portion  of the
         exercise price and taxes with respect to Mr.  Hannesson's  stock option
         exercise  of  830,000  stock   options  in  July  2000.   See  "Certain
         Relationships  and  Related   Transactions--Services   Agreement."  Mr.
         Hannesson was replaced by Shelby T. Brewer effective  January 15, 2001.
         Mr. Hannesson remains a director of the Company.

(2)      Represents the amount of Mr. Hannesson's automobile allowance allocated
         to the Company. Mr. Hannesson's total automobile allowance for 1997 was
         $24,000 and for 1998 was $12,000,  certain  portions of which were also

                                       50
<PAGE>

         allocated to Environmental  and Separation.  Mr. Hannesson was replaced
         by Shelby T. Brewer effective January 15, 2001. Mr. Hannesson remains a
         director of the Company.

(3)      Represents  shares of Common Stock  underlying stock options granted to
         Mr. Hannesson by the Company in his capacity as an officer and director
         of the Company.

(4)      Represents moving allowances paid to Mr. Hannesson in 1999.

(5)      Represents  the amount of Mr.  Adelman's  base salary  allocated to the
         Company. Mr. Adelman's total base salary for 1998 was $400,500. Certain
         portions of such base salary were also allocated to  Environmental  and
         Separation.  Dr. Adelman  resigned his management  positions  effective
         December 31, 1998. Mr. Adelman  concluded his term as a Director of the
         Company on August 30, 2000.

(6)      Represents  amounts paid to Mr. Adelman in 1999 in  satisfaction of his
         employment agreement.

(7)      Represents  shares of Common Stock  underlying stock options granted to
         Mr.  Adelman  by the  Company  in his  capacity  as a  director  of the
         Company. Mr. Adelman concluded his term as a Director of the Company on
         August 30, 2000.

(8)      Mr. Brewer served as Chief Executive Officer and President of Solutions
         and a director of the Company since April 2000.  Mr. Brewer assumed the
         positions of Chairman,  Chief  Executive  Officer and  President of the
         Company as of January 15, 2001.

(9)      Represents  the amount of Mr.  Brewer's  base salary  allocated  to the
         Company. Mr. Brewer's base salary for 2000 was $90,000.

(10)     Represents  shares of Common Stock  underlying stock options granted to
         Mr. Brewer by the Company in his capacity as an officer and director of
         the Company.

(11)     Mr. Ingram served as Vice President and Controller from October 1996 to
         March 1997, as Vice  President - Finance from March to May 1997, and as
         Vice  President and Controller of the Company from June 1997 to January
         2001. Mr. Ingram resigned his management position effective January 12,
         2001.

(12)     Represents  the amount of Mr.  Ingram's  base salary  allocated  to the
         Company.  Mr.  Ingram's  total base salary for 2000,  1999 and 1998 was
         $150,000.  Certain  portions  of such  base  salary  in 1998  were also
         allocated to  Environmental  and  Separation.  Mr. Ingram  resigned his
         management position effective January 12, 2001.

(13)     Represents  shares of Common Stock  underlying stock options granted to
         Mr. Ingram by the Company in his capacity as an officer of the Company.
         Mr. Ingram resigned his management position effective January 12, 2001.

(14)     Mr.  Harrod  served as President of Advanced  Sciences,  a wholly owned
         subsidiary  of the Company,  from  November  1996 to February  2001 and
         served as President of Commodore Solution Technologies,  Inc., a wholly
         owned subsidiary of the Company since January 1999. Mr. Harrod resigned
         his management position effective February 28, 2001.

(15)     Represents  the amount of Mr.  Harrod's  base salary  allocated  to the
         Company,  through its wholly owned subsidiary,  Advanced Sciences.  Mr.
         Harrod's  total  base  salary  for  1997,  1998 and 1999 was  $150,000,
         $170,000, and $190,000 respectively. Mr. Harrod resigned his management
         position effective February 28, 2001.

(16)     Represents  shares of Common Stock  underlying stock options granted to
         Mr. Harrod by the Company in his capacity as an officer of the Company.
         Mr. Harrod  resigned his  management  position  effective  February 28,
         2001.

(17)     Mr.  DeAngelis  served as Vice  President  and Treasurer of the Company
         from  July  1998 to  December  1999 and as Sr.  Vice  President,  Chief
         Financial and  Administrative  Officer,  Treasurer  and Secretary  from
         December 1999 to present.

(18)     Represents the amount of Mr.  DeAngelis'  base salary  allocated to the
         Company.  Mr.  DeAngelis' total base salary for 2000, 1999 and 1998 was
         $165,000, $145,000 and $145,000 respectively.

(19)     Represents  shares of Common Stock  underlying stock options granted to
         Mr.  DeAngelis  by the  Company  in his  capacity  as an officer of the
         Company.

(20)     Represents moving allowances paid to Mr. DeAngelis in 1999.

                                       51
<PAGE>


 STOCK OPTIONS

         The following table sets forth certain  information  concerning options
granted during the year ended December 31, 2000 to the individuals listed in the
Summary Compensation Table pursuant to the Company's 1998 Stock Option Plan (the
"1998  Plan").  The Company has no  outstanding  stock  appreciation  rights and
granted no stock appreciation rights during the year ended December 31, 2000.

                        Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>


                                                              Individual Grants
                                     -----------------------------------------------------------------
                                                                                                              Potential Realizable
                                                                                                                Value at Assumed
                                       Number of           Percent of                                           Annual Rates of
                                      Securities        Total Options       Exercise of                    Stock Price Appreciation
                                      Underlying          Granted to           Base                            for Option Term(4)
                                       Options           Employees in          Price        Expiration     -------------------------
      Name                            Granted (#)        Fiscal Year(3)       ($/Share)       Date          5% ($)          10% ($)
----------------                      ----------        --------------      -----------     ----------     -------------------------

<S>                                    <C>                  <C>               <C>           <C>              <C>           <C>
Shelby T. Brewer............           500,000(1)           22.28%            1.00          04/15/05         -0-           -0-

                                       140,000(2)            6.24%            1.06          09/30/05         -0-           -0-

</TABLE>


(1)      Options to purchase  500,000 shares of Common Stock were granted to Mr.
         Brewer in April 2000 pursuant to the 1998 Plan and are  exercisable  in
         five (5)  100,000-share  increments  when  the  Company's  stock  price
         reaches $2, $3, $4 and $5 per share.  The  options to purchase  500,000
         shares of Common Stock were fully  vested as of  September  30, 2000 by
         action of the Board of Directors.

(2)      Options to  purchase  140,000  shares of Common  Stock  were  issued on
         September 30 2000 of which 50% vested upon  issuance and the  remaining
         50% vest on June 30, 2001.

(3)      Percentages  based on 2,243,769  stock options  granted (the 1998 Plan)
         during the year ended December 31, 2000.

(4)      The closing price for the  Company's  Common Stock on December 29, 2000
         was  $0.25.  The  closing  price is used for all the  subsequent  stock
         appreciation calculations.


                                       52
<PAGE>



         The following table sets forth certain information concerning the
exercise of options and the value of unexercised options held under the Plan at
December 31, 2000 by the individuals listed in the Summary Compensation Table.

<TABLE>
<CAPTION>

 Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values

                                                                                    Number of
                                                                              Securities Underlying             Value of Unexercised
                                                                               Unexercised Options              In-the-Money Options
                                           Shares             Value           at Fiscal Year-End(#)            at Fiscal Year-End($)
                                        Acquired on         Realized               Exercisable/                     Exercisable/
               Name                     Exercise (#)         ($)(1)               Un-exercisable                 Un-exercisable(2)
--------------------------------        -----------         --------         -----------------------           ---------------------

<S>                                       <C>                  <C>             <C>                                      <C>
Paul E. Hannesson...............          830,000              -0-             830,000 / 2,147,500                      -0- /-0-

Kenneth L. Adelman, Ph.D. ......           70,000              -0-                 -0- /-0-                             -0- /-0-

William E. Ingram...............           90,000              -0-             100,000 / 30,000                         -0- /-0-

James M. DeAngelis..............            -0-                -0-             381,250 / -0-                            -0- / -0-

Peter E. Harrod.................            -0-                -0-             353,000 / 102,000                        -0- / -0-

</TABLE>

(1)      Represents the  difference  between the last reported sale price of the
         Common Stock on December 31, 2000  ($0.25),  and the exercise  price of
         the option ($0.4375 to $0.688)  multiplied by the applicable  number of
         options exercised.

(2)      Represents  the  difference  between the exercise price and the closing
         price on December  31, 2000,  multiplied  by the  applicable  number of
         securities.


EMPLOYMENT AGREEMENTS

         William J. Russell and Tamie P. Speciale, former owners of DRM, entered
into  employment  agreements  with DRM for a term  expiring on August 31,  2005.
Pursuant to such  employment  agreement,  Mr. Russell and Ms. Speciale agreed to
devote their business and  professional  time and efforts to the business of DRM
as senior executive officers. The employment agreements provide that Mr. Russell
and Ms.  Speciale,  each shall receive,  among other things, a base salary at an
annual rate of $262,500  through  December 31,  2001,  and will receive not less
than  $275,000  through  December  31, 2002 and not less than  $290,000  through
December 31, 2003, for services  rendered to DRM and certain of its  affiliates,
including the Company.

         The Company has no other employment contracts.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The individuals who served as members of the Compensation, Stock Option
and Benefits  Committee  (the  "Compensation  Committee")  during the year ended
December 31, 2000 were Herbert A. Cohen (Chairman), David L. Mitchell, Edward L.
Palmer and William R. Toller. Mr. Mitchell served as a consultant to the Company
from July 15, 1997 to August 14, 1998, and received  compensation  in the amount
of $10,000 per month for services rendered to the Company in such capacity.

                                       53
<PAGE>

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

         The  Compensation  Committee  was  established  in November 1996 and is
responsible  for, among other things,  establishing  the  compensation  policies
applicable to executive Officers of the Company. The Compensation  Committee was
composed of Herbert A. Cohen (Chairman), David L. Mitchell, Edward L. Palmer and
William R. Toller at December 31, 2000, all of whom were non-employee  Directors
of the Company.  All  decisions of the  Compensation  Committee  relating to the
compensation  of the  Company's  executive  Officers  are  reviewed  by, and are
subject to the final  approval  of, the full Board of  Directors of the Company.
Set forth below is a report  prepared by Mr. Cohen,  Mr. Mitchell and Mr. Toller
in their  capacities  as members of the  Compensation  Committee at December 31,
2000,  addressing the Company's  compensation policies for 2000 as they affected
the Company's executive Officers.

Overview and Philosophy

         The Company's executive  compensation  program is designed to be linked
to corporate  performance and returns to stockholders.  Of particular importance
to the Company is its ability to grow and  enhance its  competitiveness  for the
rest of the decade and beyond. Shorter-term performance, although scrutinized by
the Compensation Committee,  stands behind the issue of furthering the Company's
strategic goals. To this end, the Company has developed an overall  compensation
strategy  and  specific  compensation  plans that tie a  significant  portion of
executive compensation to the Company's success in meeting specified performance
goals.

         The objectives of the Company's executive compensation program are to:

         o    attract, motivate and retain the highest quality executives;

         o    motivate them to achieve  tactical and  strategic  objectives in a
              manner consistent with the Company's corporate values; and

         o    link executive and stockholder interest through equity-based plans
              and provide a  compensation  package  that  recognizes  individual
              contributions as well as overall business results.

         To achieve  these  objectives,  the  Company's  executive  compensation
program is designed to:

         o    focus participants on high priority goals to increase  stockholder
              value;

         o    encourage  behavior that exemplifies the Company's values relating
              to  customers,  quality  of  performance,   employees,  integrity,
              teamwork and good citizenship;

         o    assess  performance  based on results and pre-set  goals that link
              the business  activities  of each  individual  to the goals of the
              Company; and

         o    increase stock ownership to promote a proprietary  interest in the
              success of the Company.

                                       54
<PAGE>

Executive Officer Compensation

         Each year the  Compensation  Committee  conducts  a full  review of the
Company's executive  compensation  program. This review includes a comprehensive
evaluation of the  competitiveness of the Company's  compensation  program and a
comparison  of the  Company's  executive  compensation  to certain  other public
companies,  which  in the  view  of the  Compensation  Committee  represent  the
Company's most direct  competitors for executive  talent. It is the Compensation
Committee's policy to target overall  compensation for executive Officers of the
Company taking into account the levels of  compensation  paid for such positions
by such other public companies. A variety of other factors,  however,  including
position and time in position,  experience,  and both  Company  performance  and
individual performance, will have an impact on individual compensation amounts.

         The key elements of the  Company's  executive  compensation  program in
2000  consisted of base salary,  annual  incentive  compensation  and  long-term
incentive   compensation  in  the  form  of  stock  options.   The  Compensation
Committee's policies with respect to each of these elements, including the basis
for the  compensation  awarded to the Company's  Chief  Executive  Officer,  are
discussed below.

         Base Salaries.  Base salaries for executive Officers are established by
evaluating,  on an annual basis,  the  performance  of such  individuals  (which
evaluation   involves   management's    consideration   of   such   factors   as
responsibilities  of the positions held,  contribution toward achievement of the
Company's  strategic  plans,  attainment of specific  individual  objectives and
interpersonal  managerial  skills),  and by  reference  to the  marketplace  for
executive  talent,  including  a  comparison  to base  salaries  for  comparable
positions at other similar public companies.

         In 2000, total compensation was paid to executives primarily based upon
individual  performance  and the  extent to which the  business  plans for their
areas of responsibility were achieved or exceeded. On balance, performance goals
were  substantially  met  or  exceeded  and  therefore   compensation  was  paid
accordingly.

         Mr. Hannesson, the Chairman of the Board, President and Chief Executive
Officer of the Company  received  annual  compensation  based upon,  among other
things,  individual  performance  and the extent to which the business plans for
their areas of responsibility were achieved or exceeded.  Mr. Hannesson received
a base salary at an annual rate of $360,000 in 2000 for services rendered to the
Company.

         The members of the Compensation Committee establish the amount actually
received by Mr. Hannesson each year as base salary for services  rendered to the
Company and its affiliates.  In  establishing  Mr.  Hannesson's  base salary for
2000,  the  Compensation  Committee  took into  account  the  salaries  of chief
executive  Officers at other similar  public  companies,  future  objectives and
challenges,  and  Mr.  Hannesson's  individual  performance,  contributions  and
leadership.  The  Compensation  Committee  reviewed  in detail  Mr.  Hannesson's
achievement  of his 1999 goals and his individual  contributions  to the Company
and its affiliates.  The Compensation  Committee  concluded that he had achieved
his 1999 goals and had provided a leadership role in achieving the Company's and
its affiliates'  strategic priorities for 1999. The Compensation  Committee also
considered Mr.  Hannesson's  decisive  management of  operational  and strategic
issues,  his drive to  reinforce  a culture of  innovation  and his  ability and
dedication to enhance the long-term  value of the Company and its affiliates for
their  respective  stockholders.  In making its salary decisions with respect to
Mr. Hannesson,  the Compensation Committee exercised its discretion and judgment
based on the above factors, and no specific formula was applied to determine the
weight of each factor.

                                       55
<PAGE>

         Mr.  Hannesson's  base  salary  increased  from  $330,000  for  1999 to
$360,000 for 2000, representing an increase of approximately 9%. Mr. Hannesson's
base salary  originally  was  increased  from  $434,500 for 1998 to $477,950 for
1999,  representing  an increase of  approximately  10%. On October 5, 1998, Mr.
Hannesson agreed to defer a portion of his base salary (31%),  reducing his base
salary  to  $330,000.   1998  base  salary  was  allocated  among  the  Company,
Environmental and Separation based upon the amount of time and effort devoted by
Mr. Hannesson to the respective businesses of such companies.  Consequently, the
Company,  Environmental  and  Separation  paid  $260,526,  $58,658 and  $94,504,
respectively,  of his 1998 salary.  Mr.  Hannesson  also  received an automobile
allowance of $12,000 for 1998,  and the Company,  Environmental  and  Separation
paid $7,700,  $1,620 and $2,610,  respectively,  of such allowance.  The Company
paid all of Mr. Hannesson's compensation in 1999 and 2000.

         Annual Incentive Bonus. Annual incentive bonuses for executive Officers
are intended to reflect the Compensation  Committee's  belief that a significant
portion  of  the  annual  compensation  of  each  executive  officer  should  be
contingent  upon the  performance of the Company.  For 2000 no annual  incentive
bonuses were paid to the individuals named in the Summary Compensation Table.

         Pursuant to his employment agreement which ended December 31, 1999, Mr.
Hannesson was eligible to receive  incentive  compensation of up to $225,000 per
year for achieving  certain of the performance  goals set forth above. For 1999,
Mr.  Hannesson  was awarded no incentive  bonus . However,  per Mr.  Hannesson's
employment contract,  he was guaranteed a minimum bonus of $25,000 per year. The
Company has included $50,000 in a deferred compensation  liability  representing
minimum bonuses for 1998 and 1999.

         Stock Options. The Compensation  Committee has the power to grant stock
options  under the Plan.  With  respect to executive  Officers,  it has been the
Compensation  Committee's  practice to grant, on an annual basis,  stock options
that vest at the rate of 20% upon grant and 20% in each calendar year thereafter
for four  years,  and that are  exercisable  over a ten-year  period at exercise
prices  per share set at the fair  market  value per share on the date of grant.
Generally,  the  executives  must be  employed  by the  Company  at the time the
options vest in order to exercise the options and, upon announcement of a Change
in Control  (pursuant to and as defined in the 1998 Plan),  such options  become
immediately  exercisable.  The Compensation Committee believes that stock option
grants provide an incentive that focuses the  executives'  attention on managing
the  Company  from the  perspective  of an  owner  with an  equity  stake in the
business.  The Company's stock options are tied to the future performance of the
Company's  stock and will provide value to the recipient  only when the price of
the Company's stock increases above the option grant price.

         A total of  2,243,769,  3,259,323  and  3,576,412  stock  options  were
granted  pursuant  to the  1998  Plan in  2000,  1999  and  1998,  respectively.
2,400,000 and 577,500 of such options were granted to Mr.  Hannesson in 1999 and
1998 respectively, and 640,000, 500,000 and 656,250 of such options were granted
(in the aggregate) to other individuals named in the Summary  Compensation Table
in 2000,  1999 and 1998  respectively.  The 1998 number does not include 324,959
stock options granted to Directors under the 1996 Plan,  which were rescinded on
the issuance of the 1998 Plan. The number of stock options granted in 2000, 1999
and  1998  were  determined  by  reference  to the  long-term  compensation  for
comparable  positions  at other  similar  public  companies  and  based  upon an
assessment of individual performance.

                                       56
<PAGE>


Impact of Section 162(m) of the Internal Revenue Code

         The Compensation Committee's policy is to structure compensation awards
for executive  Officers that will be consistent with the requirements of Section
162(m) of the U.S.  Internal  Revenue Code of 1986 (the "Code").  Section 162(m)
limits  the  Company's  tax  deduction  to $1.0  million  per year  for  certain
compensation  paid in a given year to the Chief  Executive  Officer and the four
highest  compensated  executives other than the Chief Executive Officer named in
the  Summary  Compensation  Table.  According  to  the  Code  and  corresponding
regulations,  compensation  that is  based  on  attainment  of  pre-established,
objective performance goals and complies with certain other requirements will be
excluded from the $1.0 million deduction limitation.  The Company's policy is to
structure  compensation  awards  for  covered  executives  that  will  be  fully
deductible  where doing so will further the purposes of the Company's  executive
compensation  program.  However,  the  Compensation  Committee also considers it
important to retain flexibility to design compensation programs that recognize a
full range of  performance  criteria  important to the Company's  success,  even
where compensation payable under such programs may not be fully deductible.  The
Company expects that all compensation payments in 2000 to the individuals listed
in the Summary Compensation Table will be fully deductible by the Company.

Conclusion

         The  Compensation  Committee  believes  that the  quality of  executive
leadership  significantly  affects the long-term  performance of the Company and
that  it is in the  best  interest  of the  stockholders  to  compensate  fairly
executive leadership for achievement meeting or exceeding the high standards set
by the  Compensation  Committee,  so long as there is a corresponding  risk when
performance  falls short of such standards.  A primary goal of the  Compensation
Committee  is to relate  compensation  to  corporate  performance.  Based on the
Company's  performance in 2000,  the  Compensation  Committee  believes that the
Company's  current executive  compensation  program meets such standards and has
contributed,  and  will  continue  to  contribute,  to  the  Company's  and  its
stockholders' long-term success.

COMPENSATION, STOCK OPTION AND BENEFITS COMMITTEE
                                                     Herbert A. Cohen (Chairman)
                                                               David L. Mitchell
                                                                Edward L. Palmer
                                                               William R. Toller

         The Report of the  Compensation  Committee  on  Executive  Compensation
shall  not  be  deemed  incorporated  by  reference  by  any  general  statement
incorporating  by  reference  this  Annual  Report  into any  filing  under  the
Securities Act, or under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.



                                       57
<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------  --------------------------------------------------------------

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         The  following  table sets forth certain  information,  as of March 15,
2001,  with respect to the  beneficial  ownership of Common Stock by each person
known  to  the  Company  to be the  beneficial  owner  of  more  than  5% of the
outstanding shares of Common Stock of the Company.  Unless otherwise  indicated,
the  owners  have  sole  voting  and  investment  power  with  respect  to their
respective shares.
<TABLE>
<CAPTION>

                                          Number of Shares                Percentage of Outstanding
  Name and Address of                     of Common Stock                 Shares of Common Stock
    Beneficial Owner                     Beneficially Owned(4)                Beneficially Owned
------------------------------------    ----------------------            -------------------------
<S>                                             <C>                                 <C>

Commodore Environmental                         8,456,677(5)                        16.24%
Services, Inc.(1)....................

Credit Agricole Deux Sevres(2).......           7,759,048(6)                        14.90%

William J. Russell(3)................           7,952,071(7)                        14.58%

Tamie P. Speciale(3).................           7,952,071(8)                        14.58%

Bentley J. Blum(1)...................           3,742,481(9)                         7.19%

Paul E. Hannesson(1).................           2,614,237(10)                        5.02%

</TABLE>


(1)      The address of Commodore Environmental Services,  Inc., Bentley J. Blum
         and Paul E.  Hannesson is 150 East 58th Street,  Suite 3238,  New York,
         New York 10155. Messrs. Blum and Hannesson are brothers-in-law.

(2)      The address of Credit  Agricole Deux Sevres is 4 Boulevard Louis Tardy,
         79000 Niort, France.

(3)      The address of Tamie P.  Speciale  and  William J.  Russell is 132 West
         Pierpoint Avenue, Suite 400, Salt Lake City, Utah 84101.

(4)      As used  herein,  the  term  beneficial  ownership  with  respect  to a
         security is defined by Rule 13d-3 under the Exchange Act as  consisting
         of sole or shared voting power  (including  the power to vote or direct
         the disposition of) with respect to the security  through any contract,
         arrangement,  understanding,  relationship  or  otherwise,  including a
         right  to  acquire  such  power(s)  during  the  next 60  days.  Unless
         otherwise  noted,  beneficial  ownership  consists  of sole  ownership,
         voting and investment rights.

(5)      Excludes  warrants to purchase an  aggregate  of  17,901,988  shares of
         Common Stock at exercise  prices  ranging from $1.24 per share to $5.49
         per share.  See  "Market  for  Registrant's  Common  Equity and Related
         Stockholder  Matters--Recent  Sales  of  Unregistered  Securities"  and
         "Certain Relationships and Related Transactions."

(6)      Consists  of (i)  6,000,000  shares of Common  Stock  pledged to Credit
         Agricole   Deux   Sevres  from   Environmental   in   connection   with
         Environmental's  default  on  $4.0  million  of  convertible  bonds  on
         February  06, 2001;  and (ii) Credit  Agricole  Deux  Sevres'  indirect
         beneficial  ownership  of Common  Stock based upon their  ownership  of
         16,800,000  shares of  Environmental's  common stock  pledged to Credit
         Agricole   Deux   Sevres  from   Environmental   in   connection   with
         Environmental's  default  on  $4.0  million  of  convertible  bonds  on
         February 06, 2001.

(7)      Consists  of (i)  6,960,000  shares of our common  stock  issued to Mr.
         William J. Russell and Nancy E.  Russell with joint  tenancy and rights
         of  survivorship,  by the company in connection with our acquisition of
         81.0% of DRM;  (ii)  300,000  shares  of our  Common  Stock  underlying
         currently  exercisable employee stock options granted to Mr. Russell at
         an exercise price of $1.125 per share;  and (iii) 340,000 shares of our
         Common Stock underlying a currently exercisable five year warrant at an
         exercise price of $2.00 per share granted to Mr. William J. Russell and
         Nancy E. Russell with joint tenancy and rights of survivorship,  by the
         Company in connection with our acquisition of 81.0% of DRM.

                                       58
<PAGE>

(8)      Consists of (i) 6,960,000 shares of our Common Stock issued to Tamie P.
         Speciale  and  George H.  Speciale  with  joint  tenancy  and rights of
         survivorship,  by the Company in  connection  with our  acquisition  of
         81.0% of DRM;  (ii)  300,000  shares  of our  Common  Stock  underlying
         currently exercisable employee stock options granted to Ms. Speciale at
         an exercise price of $1.125 per share;  and (iii) 340,000 shares of our
         Common Stock underlying a currently exercisable five year warrant at an
         exercise  price of $2.00 per share granted to Ms. Tamie P. Speciale and
         George H. Speciale with joint  tenancy and rights of  survivorship,  by
         the Company in connection with our acquisition of 81.0% of DRM.

(9)      Consists of: (i) 105,000 shares of the Company Common Stock  underlying
         currently  exercisable options granted to Mr. Blum by the Company under
         the Plan; and (ii) Mr. Blum's indirect  beneficial  ownership of Common
         Stock based upon his beneficial  ownership of 28,479,737 shares and his
         spouse's  ownership of 2,000,000 shares of Environmental  Common Stock,
         representing together 37.74% of the outstanding shares of Environmental
         Common Stock at March 15, 2001, and 4,500,000  shares of  Environmental
         Common  Stock   underlying   currently   exercisable   stock   options,
         representing   together   41.02%   of   the   outstanding   shares   of
         Environmental.  Does not include 450,400 shares of Environmental Common
         Stock owned by Simone Blum,  the mother of Mr. Blum, and 385,000 shares
         of  Environmental  Common Stock owned by Samuel Blum, the father of Mr.
         Blum.  Mr.  Blum  disclaims  any  beneficial  interest in the shares of
         Environmental Common Stock owned by his spouse, mother and father.

(10)     Consists of: (i) 830,000 shares of Common Stock;  (ii) 1,147,500 shares
         of Common Stock underlying currently  exercisable stock options granted
         to  Mr.  Hannesson  by  the  Company  under  the  Plan;  and  (ii)  Mr.
         Hannesson's  indirect  beneficial  ownership of Common Stock based upon
         his ownership of an aggregate of (a) 2,650,000  shares of Environmental
         Common Stock owned by Suzanne  Hannesson,  the spouse of Mr. Hannesson,
         (b)  2,650,000  shares  of  Environmental  Common  Stock  owned  by the
         Hannesson  Family  Trust  (Suzanne  Hannesson  and  John D.  Hannesson,
         trustees)  for the  benefit of Mr.  Hannesson's  spouse and (c) 500,000
         shares  of  Environmental  Common  Stock in  exchange  for  options  to
         purchase  950,000  shares  of  Environmental  Common  Stock,  issued to
         Hannesson Family Trust,  representing together 7.18% of the outstanding
         shares of  Environmental  Common  Stock as of March 15,  2001,  and (d)
         currently   exercisable   options  to   purchase   525,705   shares  of
         Environmental  Common  Stock,   representing   together  7.78%  of  the
         outstanding  shares of  Environmental  Common  Stock.  Does not include
         1,000,000  shares of  Environmental  Common  Stock owned by each of Jon
         Paul and Krista  Hannesson,  the adult children of Mr.  Hannesson.  Mr.
         Hannesson   disclaims  any   beneficial   interest  in  the  shares  of
         Environmental  Common  Stock  owned by or for the benefit of his spouse
         and children. It also does not include 1,000,000 shares of Common Stock
         underlying  stock options granted to Mr.  Hannesson by the Company that
         are not currently exercisable.


                                       59
<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT

         The following table sets forth certain  information with respect to the
beneficial  ownership  of Common  Stock as of April 30,  2001 by (i) each person
known  to  the  Company  to be the  beneficial  owner  of  more  than  5% of the
outstanding  shares of Common Stock of the Company,  (ii) each  Director,  (iii)
each individual listed in the Summary  Compensation  Table herein,  and (iv) all
executive  officers and Directors of the Company as a group, as reported by such
persons. Unless otherwise indicated,  the owners have sole voting and investment
power with respect to their respective shares.

<TABLE>
<CAPTION>


                                                                                         Percentage of Outstanding
              Name and Address of                        Number of Shares                 Shares of Common Stock
              Beneficial Owner(1)                     Beneficially Owned(4)                 Beneficially Owned
------------------------------------------------ --------------------------------- -------------------------------
<S>                                                      <C>                                      <C>

Commodore Environmental
Services, Inc........................                      8,456,677(5)                           16.24%

Credit Agricole(2) ..................                      7,759,048(6)                           14.90%

William J. Russell(3)................                      7,600,000(7)                           14.58%

Tamie P. Speciale(3).................                      7,600,000(8)                           14.58%

Bentley J. Blum......................                      3,742,481(9)                            7.19%

Paul E. Hannesson....................                      2,614,237(10)                           5.02%

Shelby T. Brewer, PhD................                      1,985,167(11)                           3.78%

James M. DeAngelis...................                        734,679(12)                           1.41%

Peter E. Harrod......................                        353,000(13)                             *

William E. Ingram....................                        190,000(14)                             *

Kenneth L. Adelman, PhD..............                            -0-(15)                             *

Herbert A. Cohen.....................                        106,000(16)                             *

David L. Mitchell....................                        105,000(17)                             *

Edward L. Palmer.....................                        105,000(18)                             *

William R. Toller....................                        105,000(19)                             *

All executive officers and Directors                      10,041,063                              19.29%
as a group (10 persons)..............

</TABLE>

* Percentage ownership is less than 1%.

(1)      Unless otherwise noted the address of each beneficial owner is 150 East
         58th Street,  Suite 3238,  New York, New York 10155.  Messrs.  Blum and
         Hannesson are brothers-in-law.

(2)      The address of Credit  Agricole Deux Sevres is 4 Boulevard Louis Tardy,
         79000 Niort, France.

(3)      The address of Tamie P.  Speciale  and  William J.  Russell is 132 West
         Pierpoint Avenue, Suite 400, Salt Lake City, Utah 84101.

(4)      As used  herein,  the  term  beneficial  ownership  with  respect  to a
         security is defined by Rule 13d-3 under the Exchange Act as  consisting
         of sole or shared voting power  (including  the power to vote or direct
         the disposition of) with respect to the security  through any contract,
         arrangement,  understanding,  relationship  or  otherwise,  including a
         right  to  acquire  such  power(s)  during  the  next 60  days.  Unless
         otherwise  noted,  beneficial  ownership  consists  of sole  ownership,
         voting and investment rights.

                                       60
<PAGE>

(5)      Excludes  warrants to purchase an  aggregate  of  17,901,988  shares of
         Common Stock at exercise  prices  ranging from $1.24 per share to $5.49
         per share.  See  "Market  for  Registrant's  Common  Equity and Related
         Stockholder  Matters--Recent  Sales  of  Unregistered  Securities"  and
         "Certain Relationships and Related Transactions."

(6)      Consists of (i) 6,000,000  shares of our Common Stock pledged to Credit
         Agricole   Deux   Sevres  from   Environmental   in   connection   with
         Environmental's  default  on  $4.0  million  of  convertible  bonds  on
         February  06, 2001;  and (ii) Credit  Agricole  Deux  Sevres'  indirect
         beneficial  ownership of our Common Stock based upon their ownership of
         16,800,000  shares of  Environmental's  common stock  pledged to Credit
         Agricole   Deux   Sevres  from   Environmental   in   connection   with
         Environmental's  default  on  $4.0  million  of  convertible  bonds  on
         February 06, 2001.

(7)      Consists  of (i)  6,960,000  shares of our common  stock  issued to Mr.
         William J. Russell and Nancy E.  Russell with joint  tenancy and rights
         of  survivorship,  by the company in connection with our acquisition of
         81.0% of DRM;  (ii)  300,000  shares  of our  Common  Stock  underlying
         currently  exercisable employee stock options granted to Mr. Russell at
         an exercise price of $1.125 per share;  and (iii) 340,000 shares of our
         Common Stock underlying a currently exercisable five year warrant at an
         exercise price of $2.00 per share granted to Mr. William J. Russell and
         Nancy E. Russell with joint tenancy and rights of survivorship,  by the
         Company in connection with our acquisition of 81.0% of DRM.

(8)      Consists of (i) 6,960,000 shares of our Common Stock issued to Tamie P.
         Speciale  and  George H.  Speciale  with  joint  tenancy  and rights of
         survivorship,  by the Company in  connection  with our  acquisition  of
         81.0% of DRM;  (ii)  300,000  shares  of our  Common  Stock  underlying
         currently exercisable employee stock options granted to Ms. Speciale at
         an exercise price of $1.125 per share;  and (iii) 340,000 shares of our
         Common Stock underlying a currently exercisable five year warrant at an
         exercise  price of $2.00 per share granted to Ms. Tamie P. Speciale and
         George H. Speciale with joint  tenancy and rights of  survivorship,  by
         the Company in connection with our acquisition of 81.0% of DRM.

(9)      Consists of: (i) 105,000 shares of the Company Common Stock  underlying
         currently  exercisable options granted to Mr. Blum by the Company under
         the Plan; and (ii) Mr. Blum's indirect  beneficial  ownership of Common
         Stock based upon his beneficial  ownership of 28,479,737 shares and his
         spouse's  ownership of 2,000,000 shares of Environmental  Common Stock,
         representing together 37.74% of the outstanding shares of Environmental
         Common Stock at March 15, 2001, and 4,500,000  shares of  Environmental
         Common  Stock   underlying   currently   exercisable   stock   options,
         representing   together   41.02%   of   the   outstanding   shares   of
         Environmental.  Does not include 450,400 shares of Environmental Common
         Stock owned by Simone Blum,  the mother of Mr. Blum, and 385,000 shares
         of  Environmental  Common Stock owned by Samuel Blum, the father of Mr.
         Blum.  Mr.  Blum  disclaims  any  beneficial  interest in the shares of
         Environmental Common Stock owned by his spouse, mother and father.

(10)     Consists of: (i) 830,000 shares of Common Stock;  (ii) 1,147,500 shares
         of Common Stock underlying currently  exercisable stock options granted
         to Mr.  Hannesson  by  the  Company  under  the  Plan;  and  (iii)  Mr.
         Hannesson's  indirect  beneficial  ownership of Common Stock based upon
         his ownership of an aggregate of (a) 2,650,000  shares of Environmental
         Common Stock owned by Suzanne  Hannesson,  the spouse of Mr. Hannesson,
         (b)  2,650,000  shares  of  Environmental  Common  Stock  owned  by the
         Hannesson  Family  Trust  (Suzanne  Hannesson  and  John D.  Hannesson,
         trustees)  for the  benefit of Mr.  Hannesson's  spouse and (c) 500,000
         shares  of  Environmental  Common  Stock in  exchange  for  options  to
         purchase  950,000  shares  of  Environmental  Common  Stock,  issued to
         Hannesson Family Trust,  representing together 7.18% of the outstanding
         shares of  Environmental  Common  Stock as of March 15,  2001,  and (d)
         currently   exercisable   options  to   purchase   525,705   shares  of
         Environmental  Common  Stock,   representing   together  7.78%  of  the
         outstanding  shares of  Environmental  Common  Stock.  Does not include
         1,000,000  shares of  Environmental  Common  Stock owned by each of Jon
         Paul and Krista  Hannesson,  the adult children of Mr.  Hannesson.  Mr.
         Hannesson   disclaims  any   beneficial   interest  in  the  shares  of
         Environmental  Common  Stock  owned by or for the benefit of his spouse
         and children. It also does not include 1,000,000 shares of Common Stock
         underlying  stock options granted to Mr.  Hannesson by the Company that
         are not currently exercisable.

(11)     Consists of: (i) 3,500 shares of common stock;  (ii) 840,000  shares of
         common stock underlying currently  exercisable stock options granted to
         Mr.  Brewer by the  Company  under the Plan;  (iii)  100,000  shares of

                                       61
<PAGE>

         common stock  underlying a currently  exercisable  2-year warrant at an
         exercise  price of $1.06 per share  granted  to SB  Enterprises  by the
         Company in connection  with the Brewer Note; and (iv) 1,041,667  shares
         of our common stock issued pursuant to the Restated Brewer Note,  dated
         as of March 15,  2001,  between the Company  and SB  Enterprises  and a
         subsequent conversion notice for 50% of the outstanding principal dated
         as of April 9, 2001.

(12)     Consists of (i) 1,500 shares of common  stock;  (ii) 681,250  shares of
         Common Stock underlying currently  exercisable stock options granted to
         Mr.  DeAngelis by the Company under the Company's  1998 Plan; and (iii)
         Mr. DeAngelis' indirect beneficial ownership of Common Stock based upon
         his ownership of 580,000 shares of Environmental.

(13)     Consists  of  353,000  shares  of  Common  Stock  underlying  currently
         exercisable  stock  options  granted to Mr. Harrod by the Company under
         the Company's 1998 Plan.

(14)     Consists  of (i) 90,000  shares of Common  Stock;  and (ii)  100,000 of
         Common Stock underlying currently  exercisable stock options granted to
         Mr. Ingram by the Company under the Company's 1998 Plan.

(15)     All stock  options  granted  to Mr.  Adelman by the  Company  under the
         Company's 1998 Plan have expired by their terms and conditions.

(16)     Consists of (i) 1,000 shares of Common Stock;  and (ii) 105,000  shares
         of Common Stock underlying currently  exercisable stock options granted
         to Mr. Cohen by the Company under the Company's 1998 Plan.

(17)     Consists  of  105,000  shares  of  Common  Stock  underlying  currently
         exercisable  stock options granted to Mr. Mitchell by the Company under
         the Company's 1998 Plan.

(18)     Consists  of  105,000  shares  of  Common  Stock  underlying  currently
         exercisable  stock  options  granted to Mr. Palmer by the Company under
         the Company's 1998 Plan.

(19)     Consists  of  105,000  shares  of  Common  Stock  underlying  currently
         exercisable  stock  options  granted to Mr. Toller by the Company under
         the Company's 1998 Plan.


Messrs. Blum and Hannesson are brothers-in-law.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-------  ----------------------------------------------


ORGANIZATION AND CAPITALIZATION OF THE COMPANY

         Since its  acquisition of the capital stock of Commodore  Laboratories,
Inc.  (the  Company's  predecessor)  in  1993,  Environmental  has  advanced  an
aggregate  of  $8,925,426  to the  Company,  which has been used to finance  the
development of SET, including salaries of personnel,  equipment,  facilities and
patent  prosecution.  These cash  advances by  Environmental  were  evidenced by
successive unsecured 8% promissory notes of the Company's  predecessor,  and, at
December 31,1995,  by the Environmental  Funding Note. Kraft Capital Corporation
("Kraft"),   a  corporation  wholly  owned  by  Bentley  J.  Blum,  a  principal
stockholder of Environmental and a director of the Company and of Environmental,
provided   approximately   $656,000   of  such   financing   to   Environmental.
Environmental  provided  additional  advances to the Company of $978,896 for the
first fiscal quarter of 1996, which were repaid by the Company subsequent to its
obtaining  a  line  of  credit  from  a  commercial  bank  in  April  1996.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations --Liquidity and Capital Resources."


                                       62
<PAGE>

         In March 1996,  the Company was formed as a wholly owned  subsidiary of
Environmental.  Prior to its IPO, in  exchange  for the  issuance of  15,000,000
shares of Common Stock,  Environmental contributed to the Company (i) all of the
assets and properties (including joint working proposals, quotations and bids in
respect to projects and contracts awarded for feasibility  studies),  subject to
all of the  liabilities,  of its  operating  divisions  relating  to SET and the
exploitation  of  the  SET  technology  and  processes  in  all  commercial  and
governmental  applications;  (ii) all of the  outstanding  shares of the capital
stock  of  each  of  Commodore   Laboratories,   Inc.,   Commodore   Remediation
Technologies,  Inc.,  Commodore  Government  Environmental  Technologies,  Inc.,
Commodore Technologies,  Inc. and Sandpiper Properties, Inc. (except for a 9.95%
minority interest in Commodore Laboratories,  Inc. which at the time was held by
Albert E. Abel);  and (iii) a portion of the  Environmental  Funding Note in the
amount of $3.0 million.

         In April 1996,  Bentley J. Blum  personally  guaranteed  a $2.0 million
line of credit for the Company from a commercial  bank.  The initial  borrowings
under  the line of  credit,  in the  approximate  amount of $1.0  million,  were
utilized to repay  advances made by  Environmental  to the Company in 1996,  and
Environmental, in turn, utilized such funds to repay Kraft the funds provided by
Kraft to Environmental for purposes of the advances to the Company.  The Company
applied $2.0 million of the net proceeds of its IPO to repay the line of credit,
and Mr. Blum's guarantee was released at such time. See "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations--Liquidity  and
Capital Resources."

         Upon  completion of the IPO in June 1996,  Environmental  acquired from
Albert E. Abel the remaining 9.95% of the outstanding  shares of Common Stock of
Commodore  Laboratories,  Inc. and contributed such shares to the Company for no
additional   consideration.   To  acquire  the  remaining  shares  of  Commodore
Laboratories, Inc., Environmental paid Mr. Abel the sum of $750,000 in cash, and
issued a ten-year,  8% promissory  note to Mr. Abel in the  principal  amount of
$2,250,000,  payable as to interest  only until the  maturity of the note on the
tenth anniversary of the date of issuance.  Simultaneously,  the Company settled
all outstanding obligations for accrued compensation payable to Mr. Abel and for
amounts receivable by the Company from Mr. Abel, and the net payment to Mr. Abel
arising  therefrom  approximated  $120,000.  The Company paid such amount to Mr.
Abel from the proceeds of its IPO.

         In October 1996, the Company acquired all of the outstanding  shares of
capital  stock  of  Advanced  Sciences.  Advanced  Sciences,  together  with its
subsidiaries,  provides a full range of  environmental  and technical  services,
including identification, investigation, remediation and management of hazardous
and mixed waste sites, to government agencies, including the DOD and DOE, and to
private  companies located in the United States and abroad. In consideration for
all of the outstanding shares of capital stock of Advanced Sciences,  the former
shareholders  of Advanced  Sciences  received an aggregate of 450,000  shares of
Common  Stock.  Simultaneously,   the  Company  also  acquired  of  all  of  the
outstanding  shares of capital  stock of ASE. ASE, a newly formed entity with no
history of operations,  had an option to purchase all of the outstanding capital
stock of Advanced  Sciences  and was  acquired by the Company for the purpose of
enabling the Company to effect its acquisition of Advanced Sciences.  The former
shareholders of ASE received, in consideration for all of the outstanding shares
of capital  stock of ASE, an  aggregate of 450,000  shares of  Company's  Common
Stock.  See  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations--Liquidity and Capital Resources."

         In December  1996,  the Company  transferred  certain of its  operating
assets related to its SET technology to Solution, subject to certain liabilities
related to such assets,  in exchange for 100 shares of Common Stock of Solution,
representing  all of the  issued  and  outstanding  shares of  capital  stock of

                                       63
<PAGE>

Solution.  Solution  agreed  to  assume  all of the net  assets  of the  Company
relating  to its SET  technology  at  December  1,  1996,  which  assets  had an
aggregate  value of  approximately  $4.0 million at such date,  and all known or
unknown  contingent  or  un-liquidated  liabilities  of and claims  against  the
Company  and its  subsidiaries  to the extent they relate to or arise out of the
transferred assets. The Company retained,  among other things, (a) all temporary
cash investments of the Company at December 1, 1996,  aggregating  approximately
$14.1 million, and (b) the principal executive offices and related assets of the
Company that, at the time, were located in McLean,  Virginia.  See "Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations--Liquidity and Capital Resources."

         In December 1996, as part of a corporate  restructuring  to consolidate
all of its  current  environmental  technology  businesses  within the  Company,
Environmental  transferred to the Company all of the capital stock of Separation
and CFC Technologies.  In addition,  Environmental assigned to the Company notes
aggregating $976,200 at December 2, 1996,  representing advances previously made
by  Environmental  to  Separation.  Such advances have been  capitalized  by the
Company as its capital  contribution to Separation.  In  consideration  for such
transfers,  the Company  paid  Environmental  $3.0 million in cash and issued to
Environmental a warrant expiring  December 2, 2003 to purchase  7,500,000 shares
of the Company's  Common Stock at an exercise price of $15.00 per share,  valued
at $2.4 million.  Such warrant was subsequently  amended to, among other things,
reduce the exercise  price  thereof to $10.00 per share.  See  "--February  1998
Intercompany  Note" and  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations--Liquidity and Capital Resources."

         On August 30, 2000 The Company  completed  a stock  purchase  agreement
with DRM and its two shareholders.

         Under terms of the agreement,  The Company  purchased 81% of the issued
and  outstanding   capital  stock  of  DRM  from  the  two   shareholders.   The
consideration to these shareholders (and their designees) consisted of:

         a)   10.5 million shares of Common Stock. Of these 10.5 million shares,
              9.5 million are subject to a one-year  option to repurchase any or
              all shares.

         b)   5  million  shares of Common  Stock in  exchange  for an option to
              purchase  the  remaining  19%  interest  in DRM at the end of five
              years. The option price will be based upon the relative  appraised
              values of DRM and the Company at the end of the five-year period.

         c)   Five-year  warrants to purchase up to an  aggregate of 1.0 million
              shares of The Company  common stock at an exercise  price of $2.00
              per share.

         d)   Quarterly earn-out  distributions equal to 35% of the cash flow of
              DRM over an earn-out period commencing as of September 1, 2000 and
              ending  December 31, 2005.  The Company has agreed that if DRM has
              not distributed to these  shareholders a total of $10.0 million in
              cash in earn-out  payments by December 31, 2003,  The Company will
              make up any  difference  between $10.0 million and the actual cash
              distributed.  This  difference  can be paid in our Common Stock at
              our sole discretion.

         The Company has an absolute and  irrevocable  obligation to repurchase,
by the end of the one-year  option period,  that number of 9.5 million shares of


                                       64
<PAGE>

Common  Stock  necessary  to provide the holders of those shares with a total of
$14.5 million. It is the Company's intention to exercise its option to reacquire
these shares during the one-year  period and sell these shares to meet the $14.5
million  obligation  to  DRM.  As  partial  security  for  the  payment  of such
obligation, all of the shares of DRM common stock owned by the Company have been
pledged to Messrs.  William J.  Russell and Tamie P.  Speciale,  the former sole
stockholders  of DRM.  In the event  the  Company  is unable to make such  $14.5
million payment, when due, the pledgees may foreclose on the DRM stock; in which
event the Company would lose its entire equity ownership in the DRM subsidiary.

         In September 2000, the Company  completed  $500,000 in financing in the
form of a loan  (the  "Brewer  Note")  from S.  Brewer  Enterprises,  Inc.  ("SB
Enterprises"),  which is owned by one of its officers and  directors,  Shelby T.
Brewer.  The Brewer Note bears a 9.75% interest rate,  payable  monthly,  with a
balloon  principal  payment at the end of the term. The note was due and payable
on March 15, 2001 and was  extended  under the same terms and  conditions  until
December  31,  2001.  The Brewer Note is  convertible  into Common  Stock at the
market price up through December 31, 2001.

         On March 15,  2001,  SB  Enterprises  executed an Amended and  Restated
Promissory Note (the "Restated  Brewer Note"),  which extended the maturity date
of the note until December 31, 2001. Additionally, the conversion feature of the
Restated Brewer Note was changed from $1.0625 per share of the Company's  common
stock to the 5-day average closing price of the Company's  common stock prior to
a conversion notice. On April 9, 2001, SB Enterprises issued a conversion notice
for $250,000 of the  outstanding  principal  of the Brewer  Restated  Note.  The
conversion  price was  calculated  by the previous  5-day average of the closing
price of the Company's common stock and was converted into 1,041,667 shares.

         In November  2000, the Company  completed  $500,000 in financing in the
form of a loan (the "Weiss Group Note") from a group of four investors;  $75,000
of which was borrowed from the son of Paul E.  Hannesson,  our former  President
and Chief Executive  Officer,  and $25,000 of which was borrowed from Stephen A.
Weiss,  a  shareholder  of  Greenberg  Traurig,  LLP, our former  corporate  and
securities  counsel.  The Weiss Group Note bears interest at 12% per annum,  was
due and payable on February  12, 2001,  and is secured by the first  $500,000 of
loans or dividends that the Company may receive from DRM. As  consideration  for
such loan,  Environmental,  one of the Company's  principal  stockholders owning
approximately  16.58% of the Common Stock,  transferred to the investors a total
of  1,000,000  shares of Common  Stock.  Three of the holders of the Weiss Group
Note have granted payment  extensions until June 30 and July 31, 2001, while the
fourth  holder of the Weiss Group Note has extended  only until May 1, 2001.  If
the fourth holder of the Weiss Group Note declares a default on May 1, 2001, the
other three  holders of the Weiss Group Note will also be permitted to declare a
default.  As of May 4, 2001 the  Company has not been  notified of the  holder's
intent to declare a default on the Weiss Group Note.

         Effective  April 5, 2001,  the  Company  issued  warrants  to  purchase
500,000  shares of its common stock at an exercise price of $0.22 per share (the
closing price of our common stock on the American  Stock  Exchange on such date)
to  three  of four  persons  who had lent the  Company  a total of  $500,000  in
November  2000, in  consideration  of such persons  extension of the due date of
such loans from February 12, 2001 to June 30, 2001.

SERVICES AGREEMENT


                                       65
<PAGE>

         In September  1997, the Company,  Environmental,  Separation,  Advanced
Sciences, and certain other affiliates of the Company (the "Affiliated Parties")
entered into a services agreement,  dated as of September 1, 1997 (the "Services
Agreement"),  whereby the Company and the Affiliated Parties agreed to cooperate
in sharing, where appropriate,  costs related to accounting services,  financial
management,   human  resources  and  personnel  management  and  administration,
information systems,  executive  management,  sales and marketing,  research and
development,  engineering,  technical assistance,  patenting, and other areas of
service as are appropriately  and necessarily  required in the operations of the
Company and the Affiliated Parties (collectively,  the "Services").  Pursuant to
the  Services  Agreement,  services  provided by  professional  employees of the
Company  and the  Affiliated  Parties to one another are charged on the basis of
time  actually  worked as a percentage  of salary  (including  cost of benefits)
attributable to that  professional.  In addition,  charges for rent,  utilities,
office  services  and other  routine  charges  regularly  incurred in the normal
course of business are apportioned to the professionals working in the office on
the  basis of  salary,  and then  charged  to any party in  respect  of whom the
professional  devoted such time based upon time  actually  worked.  Furthermore,
charges  from  third  parties,  including,   without  limitation,   consultants,
attorneys and accountants,  are levied against the party actually  receiving the
benefit of such services.  Pursuant to the Services Agreement,  the Company acts
as the coordinator of billings and payments for Services on behalf of itself and
the other Affiliated Parties.

         There was no sharing of services in 1999 and 2000, although,  insurance
costs were allocated between the Companies where it was beneficial to insure the
family of companies under one policy.

SALE OF COMPANY COMMON STOCK BY ENVIRONMENTAL

         In February  1998,  Environmental  sold (i) 1,381,692  shares of Common
Stock of the Company and (ii)  three-year  warrants to purchase an  aggregate of
150,000  shares of Company  Common Stock at an exercise price equal to $6.00 per
share,  for an aggregate  purchase  price of $6.0  million  (the "First  Tranche
Sale") in a private placement (the "Environmental Private Placement") to certain
"accredited  investors"  as defined  in Rule 501 of the  Securities  Act.  After
deduction of fees and transaction  costs  associated with the First Tranche Sale
totaling approximately  $550,000,  Environmental received aggregate net proceeds
of  approximately  $5,450,000 from the First Tranche Sale. The shares of Company
Common Stock issued and to be issued to the  investors  in  connection  with the
Environmental Private Placement have been and will be issued from the account of
Environmental,  which,  immediately  prior  to the  First  Tranche  Sale,  owned
approximately 52% of the outstanding shares of Company Common Stock. As of March
31, 1999,  Environmental  owned  approximately 35% of the outstanding  shares of
Company Common Stock.

         Pursuant  to  the  terms  of  the  Environmental   Private   Placement,
Environmental  was  required  to issue up to a maximum of  1,618,308  additional
shares  of  Company   Common  Stock  to  the   investors,   for  no   additional
consideration,  in the event that 90% of the  average  closing  bid price of the
Common  Stock for a certain  period of time is less than the  $4.3425  per share
purchase price of the Common Stock sold in the First Tranche Sale. Environmental
was required to issue an additional  1,400,981  shares of the Company's stock in
satisfaction of the price-reset  provisions.  Environmental  will, for a certain
period of time,  have the right and option (but not the  obligation)  to require
the  investors  to purchase  (i) an  aggregate  amount of  additional  shares of
Company  Common Stock equal to 4,000,000  divided by 90% of the average  closing
price per share of the Common Stock for the five trading days immediately  prior
to the closing  date of such sale and (ii)  warrants to purchase an aggregate of
100,000  shares of Company  Common Stock at an exercise price per share equal to
the  greater of $6.00 or 125% of the per share  purchase  price of the shares of
Common Stock sold pursuant to (i) above, for an aggregate purchase price of $4.0
million (the "Second Tranche  Sale").  As in the case of the First Tranche Sale,

                                       66
<PAGE>

Environmental may be required to issue additional shares of Company Common Stock
to the investors in connection  with the Second  Tranche Sale, for no additional
consideration,  in the event that 90% of the  average  closing  bid price of the
Common  Stock for a certain  period of time is less than the per share  purchase
price of the Common Stock sold in the Second Tranche Sale.

         Pursuant to the terms of the Environmental Private Placement, if during
a certain period of time Environmental  sells, or the Company issues, any shares
of Common Stock ("First  Future  Shares") at a price per share that is less than
the per share  purchase price of the Common Stock sold in the First Tranche Sale
or  Environmental  sells,  or the  Company  issues,  any shares of Common  Stock
("Second  Future  Shares")  at a price per share that is less than the per share
purchase   price  of  the  Common  Stock  sold  in  the  Second   Tranche  Sale,
Environmental will issue to the investors,  for no additional  consideration,  a
number of additional shares of Company Common Stock equal to (a) with respect to
First Future  Shares,  an amount equal to the  difference  between (i) 6,000,000
divided by the price at which the First  Future  Shares  were sold or issued and
(ii) 1,381,692, and (b) with respect to Second Future Shares, an amount equal to
the  difference  between (i) 4,000,000  divided by the price at which the Second
Future  Shares  were sold or issued and (ii) the  amount  equal to the number of
shares of Common  Stock sold in the Second  Tranche  Sale.  Notwithstanding  the
foregoing,  the terms "First Future  Shares" and "Second  Future  Shares" do not
include  any  shares of Common  Stock  which  may be issued in the  future  upon
conversion  or exercise  of, or pursuant to the terms of any  agreement  entered
into by the Company or  Environmental  in respect of,  securities of the Company
and/or Environmental which have been issued prior to February 9, 1998.

         The  Company   has  agreed  to  file   registration   statements   (the
"Registration Statements") on Form S-3, or other applicable form of registration
statement,  under the  Securities Act covering all of the shares of Common Stock
that have been and may be issued to the investors in the  Environmental  Private
Placement, and to keep such Registration Statements continuously effective under
the  Securities Act for a period of two years after their  respective  effective
dates  or  such  earlier  date  when  all  shares  covered  by the  Registration
Statements have been sold or may be sold without volume  restrictions  under the
Securities Act (the "Effective Period").

FEBRUARY 1998 INTERCOMPANY NOTE

         Upon  receipt  of  the  net  proceeds  of  the  Environmental   Private
Placement,  Environmental  provided a  $5,450,000  uncollateralized  loan to the
Company,  evidenced by a promissory note (the "Intercompany Note").  Pursuant to
the terms of the Intercompany Note,  interest on the unpaid principal balance of
the  Intercompany  Note was payable at the rate of 8% per annum  semiannually in
cash. The unpaid principal amount of the Intercompany  Note was due and payable,
together  with  accrued  and  unpaid  interest,  on the  earlier to occur of (a)
December  31,  1999,  or (b)  consummation  of any  public  offering  or private
placement (other than the Environmental  Private Placement) of securities of the
Company with net proceeds  aggregating in excess of $6.0 million,  other than in
respect of working capital  financing or secured financing of assets received by
the Company in the ordinary  course of business  from any bank or other  lending
institution,  provided  that if such  funds are  raised  in a private  placement
during the period  commencing  on February 9, 1998 and ending on the last day of
the  Effective  Period,  then the  Intercompany  Note was not  payable  unless a
Registration  Statement  has  been  effective  for 75  consecutive  days  and is
effective  on the date of such  repayment.  The Company used the net proceeds of
the loan solely for working capital and general  corporate  purposes and not for
the  satisfaction of any portion of Company debt or to redeem any Company equity
or  equity-equivalent  securities.  The  Intercompany  Note was  fully  paid off
effective  September 28, 1998.  See "Market for  Registrant's  Common Equity and

                                       67
<PAGE>

Related Stockholder  Matters--Recent Sales of Unregistered  Securities--February
1998 Intercompany  Note" and "Management's  Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

         In connection  with the loan,  the Company  amended and restated in its
entirety a five-year warrant to purchase 7,500,000 shares of Common Stock issued
to Environmental on December 2, 1996 to, among other things, reduce the exercise
price of the warrant from $15.00 per share to $10.00 per share. In addition, the
Company  issued to  Environmental  an additional  five-year  warrant to purchase
1,500,000  shares of Common Stock at an exercise price of $10.00 per share.  See
"Market for Registrant's Common Equity and Related  Stockholder  Matters--Recent
Sales of Unregistered Securities--February 1998 Intercompany Note."


SEPTEMBER 1997 INTERCOMPANY CONVERTIBLE NOTE

         In   September   1997,    Environmental   provided   a   $4.0   million
uncollateralized loan to the Company, evidenced by a convertible promissory note
(the  "Convertible  Note").  Pursuant to the terms of the Convertible  Note, the
Company is obligated to pay  Environmental  interest  only at the rate of 8% per
annum,  payable  quarterly.  Unless converted into Common Stock at any time, the
unpaid  principal  amount of the Convertible  Note is due and payable,  together
with accrued and unpaid interest,  on August 31, 2002.  Payment of principal and
accrued  interest  under  the  Convertible  Note is  subordinated  to all  other
indebtedness for money borrowed of the Company.  Environmental  has the right to
convert the Convertible  Note into shares of Common Stock at a conversion  price
of $3.89 per share.  Such conversion price was fixed at approximately 85% of the
five-day  average  closing bid price of Common Stock ($4.575 per share) prior to
August 22, 1997, the date that the executive committees of the respective boards
of  Directors  of  the  Company  and  Environmental  authorized  such  loan.  In
connection  with the $4.0  million  loan,  the Company  issued  Environmental  a
five-year  warrant to purchase  1,000,000  shares of Common Stock at an exercise
price of $5.0325  per share  (approximately  110% of the $4.575 five day average
closing bid price of Common Stock prior to August 22, 1997).

         In March 1998, the Company prepaid $2.0 million of the Convertible Note
by (i) paying Environmental the sum of $500,000 in cash and (ii) transferring to
Environmental  the LPM Note.  To induce  Environmental  to accept the  Company's
prepayment  of $2.0  million of the  Convertible  Note (and  thereby give up the
right to convert $2.0 million of the  Convertible  Note into Common Stock),  the
Company issued to Environmental an additional  warrant to purchase up to 514,000
shares of Common Stock at an exercise  price of $4.50 per share.  Such  exercise
price was fixed at  approximately  110% of the closing  sale price of the Common
Stock on February 20, 1998,  the trading day  immediately  prior to the date the
Board of Directors of the Company approved such  prepayment.  The estimated fair
value of such warrant is approximately  $340,000.  The remaining balance of this
Intercompany  Convertible  Note was paid off effective  September 28, 1998.  See
"Transactions with Lanxide," "Market for Registrant's  Common Equity and Related
Stockholder  Matters--Recent  Sales of Unregistered  Securities--September  1997
Intercompany  Convertible  Note" and  "Management's  Discussion  and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."


                                       68
<PAGE>


SALE OF SERIES D PREFERRED STOCK BY ENVIRONMENTAL

         In May and  August  1997,  Environmental  sold an  aggregate  of 88,000
shares of its 7%  Series D  Convertible  Preferred  Stock,  par value  $0.01 per
share, with a liquidation  preference of $100 per share (the "Series D Preferred
Stock"),  for an aggregate  purchase price of  approximately  $7.8 million.  The
Series D Preferred  Stock is  convertible  into shares of the  Company's  Common
Stock held by Environmental,  at a conversion price equal to 85% of the lower of
(a) the average of the low prices,  or (b) the average of the closing bid prices
of the Common Stock of the Company for the previous five business days ending on
the day prior to conversion  (the "Average  Closing Bid Price").  The conversion
price of the Series D Preferred Stock will be equal to certain amounts set forth
in the  Certificate  of  Designation,  Rights and  Preferences  for the Series D
Preferred  Stock if the Average  Closing  Bid Price of the Common  Stock for any
consecutive  30 days is equal to or less than $2.00,  provided  that in no event
will the conversion price of the Series D Preferred Stock be less than $1.50. As
of December 31, 1998,  the 88,000  shares of Series D Preferred  Stock have been
converted into an aggregate 4,019,210 shares of the Company's Common Stock.

         The purchasers of the Series D Preferred Stock also received  five-year
warrants to purchase an aggregate of 1,175,000  shares of the  Company's  Common
Stock held by  Environmental  at exercise prices ranging from $5.15 per share to
$7.14 per share.  Such  exercise  prices  were  reset on August  18,  1998 to an
exercise price of $0.825.  In addition,  if the Common Stock trades at less than
50% of the August 17,  1998  closing  bid price for any 10  consecutive  trading
days,  the exercise  price is subject to further reset (on one occasion only) to
50% of such August 17, 1998 closing bid price.  In addition,  affiliates  of the
finder  received  warrants to purchase an aggregate  of 85,000  shares of Common
Stock from  Environmental  at exercise  prices  ranging  from $5.15 per share to
$7.14 per share.  The Company has an  effective  registration  statement on file
with the Commission  covering the shares of Common Stock into which the Series D
Preferred Stock are convertible, as well as the 1,260,000 shares of Common Stock
transferable by Environmental upon exercise of the foregoing warrants.

LICENSE OF SET TECHNOLOGY

         As a result of its  acquisition of the capital stock of Commodore Labs,
the Company acquired all patents, discoveries, technology and other intellectual
property in  connection  with the SET  process,  which it later  transferred  to
Solution  effective December 1, 1996.  Environmental  licenses from Solution the
exclusive  worldwide right with the right to sublicense,  to make, use, sell and
exploit, itself or jointly with other third parties, for the life of all patents
now or hereafter owned by Solution,  the SET process and all related  technology
underlying  such  patents  and   intellectual   property  in  all  domestic  and
international  commercial and industrial  applications,  in connection  with the
destruction of CFCs and other  ozone-depleting  substances (the "CFC Business");
provided that such license  expressly  limits the rights of the  licensee(s) and
others  who  may  be  sub-licensees  or  users  of  the  Company's  patents  and
technologies to the CFC Business.

FUTURE TRANSACTIONS

         In June 1996, the Company's Board of Directors adopted a policy whereby
any  future  transactions  between  the  Company  and  any of its  subsidiaries,
affiliates, Officers, Directors and principal stockholders, or any affiliates of
the  foregoing,  will be on terms no less  favorable  to the Company  than could
reasonably  be  obtained  in   "arm's-length"   transactions   with  independent
third-parties,  and any such transactions will also be approved by a majority of
the Company's disinterested non-management Directors.


                                       69
<PAGE>


                                     PART IV
                                     -------

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON  FORM 8-K
--------  ----------------------------------------------------------------


         The following documents are filed as part of this Annual Report:

<TABLE>
<CAPTION>

                                                                                                    Page No.
Financial Statements.                                                                               --------
--------------------
         <S>                                                                                          <C>

         Commodore Applied Technologies, Inc.

         Independent Auditor's Report......................................................            F-1

         Consolidated Balance Sheets as of December 31, 2000 and 1999......................            F-2

         Consolidated Statements of Operations and Comprehensive Loss for the years ended
         December 31, 2000, 1999 and 1998..................................................            F-4

         Consolidated Statements of Stockholders' Equity for the years
         ended December 31, 2000, 1999 and 1998............................................            F-5

         Consolidated Statements of Cash Flows for the years ended
         December 31, 2000, 1999 and 1998..................................................            F-7

         Notes to Consolidated Financial Statements........................................           F-11
</TABLE>


         Except    for    the    unconsolidated    financial    statements    of
Teledyne-Commodore, LLC included herein, all other financial statement schedules
for which  provision is made in the  applicable  accounting  regulations  of the
Securities   and  Exchange   Commission  are  not  required  under  the  related
instructions or are inapplicable, and, therefore, have been omitted.



                                       70
<PAGE>


Exhibits.
--------

Exhibit No.       Description
-----------       -----------

1.1               Form  of  Underwriting   Agreement  between  the  Company  and
                  National  Securities  Corporation,  as  Representative  of the
                  several  Underwriters  listed therein (the  "Representative").
                  (1)

3.1               Certificate of Incorporation of the Company. (1)

3.2               By-Laws of the Company. (1)

4.1               Specimen Common Stock Certificate. (3)

4.2               Form of Warrant  Agreement between the Company and The Bank of
                  New York. (1)

4.3               Specimen Warrant Certificate. (1)

4.4               Form of Representative's Warrant Agreement between the Company
                  and the  Representative,  including  form of  Representative's
                  Warrant therein. (1)

4.5               Registration  Rights Agreement dated September 27, 1996, among
                  the   Company,   CXI-ASI   Acquisition   Corp.,   and  certain
                  stockholders. (5)

4.6               Registration Rights Agreement, dated September 27, 1996, among
                  the   Company,   CXI-ASE   Acquisition   Corp.,   and  certain
                  stockholders. (5)

4.7               Series A Convertible Preferred Stock Purchase Agreement, dated
                  as of August  15,  1997,  among the  Company  and the Series A
                  Preferred Stock purchasers listed therein. (9)

4.8               Certificate of Designations,  Rights and Preferences of Series
                  A Preferred Stock. (9)

4.9               Registration  Rights  Agreement  between  the  Company and the
                  Series A Preferred Stock purchasers. (9)

4.10              Warrant to purchase 1,000,000 shares of Common Stock issued to
                  Environmental. (9)

4.11              Common Stock  Purchase  Agreements,  dated as of September 26,
                  1997,  by and between the Company and each of certain  private
                  investors listed therein. (9)

4.12              Warrant to purchase 7,500,000 shares of Common Stock issued to
                  Environmental. (10)

4.13              Warrant to purchase 1,500,000 shares of Common Stock issued to
                  Environmental. (10)

4.14              Registration  Rights Agreement,  dated as of February 9, 1998,
                  among the Company, Environmental and certain private investors
                  listed therein. (10)

4.15              Amended Warrant to purchase  1,500,000  shares of Common Stock
                  issued to Environmental. (15)

4.16              Certificate   of   Designation  of  6%  Series  B  Convertible
                  Preferred Stock of the Company. (15)

4.17              Certificate   of   Designation  of  6%  Series  C  Convertible
                  Preferred Stock of the Company. (15)

4.18              Certificate   of   Designation  of  6%  Series  D  Convertible
                  Preferred Stock of the Company. (15)

4.19              Warrant  to  purchase  shares  of  Common  Stock of  Commodore
                  Applied Technologies, Inc. issued to The Shaar Fund Ltd. (16)

4.20              Certificate of Designation of Series E Preferred Stock. (16)

                                       71
<PAGE>

4.21              Warrant  to  purchase  shares  of  Common  Stock of  Commodore
                  Applied  Technologies,  Inc.  issued to Avalon Research Group,
                  Inc. (16)

10.1              Employment   Agreement,    dated   June   1,   1995,   between
                  Environmental and Neil L. Drobny,  and conditional  assignment
                  thereof by Environmental to the Company, dated March 29, 1996.
                  (1)

10.2              Employment   Agreement,   dated  August  31,   1995,   between
                  Environmental and Carl O. Magnell, and conditional  assignment
                  thereof by Environmental to the Company, dated March 29, 1996.
                  (1)

10.3              Form of  Employment  Agreement,  dated July 28, 1993,  between
                  Commodore   Laboratories,   Inc.  and  Albert  E.  Abel,  with
                  conditional  assignment  thereof  by  Commodore  Labs  to  the
                  Company, dated March 29, 1996. (1)

10.4              Employment   Agreement,   dated   October  3,  1994,   between
                  Environmental and Vincent Valeri,  and conditional  assignment
                  thereof by Environmental to the Company, dated March 29, 1996.
                  (1)

10.5              Non-Competition,   Non-Disclosure  and  Intellectual  Property
                  Agreement, dated March 29, 1996, between the Company and Gerry
                  D. Getman. (1)

10.6              Employment Agreement,  dated as of March 29, 1996. between the
                  Company and Paul E. Hannesson. (2)

10.7              1996 Stock Option Plan of the Company. (1)

10.8              Executive Bonus Plan of the Company. (1)

10.9              Nationwide  Permit  for  PCB  Disposal  issued  by the  EPA to
                  Commodore Remediation Technologies, Inc. (1)

10.10             Memorandum  of  Understanding,  dated  April 9, 1996,  between
                  Teledyne Brown Engineering (a Division of Teledyne Industries,
                  Inc.) and  Commodore  Government  Environmental  Technologies,
                  Inc. (1)

10.11             Memorandum  of  Understanding.  dated March 28, 1996,  between
                  Sharp Associates, Inc. and the Company. (1)

10.12             Memorandum  of  Understanding,  dated April 12, 1996,  between
                  Sverdrup Environmental, Inc. and the Company. (1)

10.13             Credit Facility  Agreement and Promissory Note, dated April 5,
                  1996,  between the Company and Chemical Bank, and Guaranty and
                  General  Loan and  Collateral  Agreement,  each dated April 5,
                  1996, between Bentley J. Blum and Chemical Bank. (1)

10.14             Demand  Promissory  Note,  dated  December  31,  1995,  in the
                  principal  amount of  $8,925,426,  issued by Commodore Labs to
                  Environmental. (1)

10.15             Form of  $4,000,000  Promissory  Note issued by the Company to
                  Environmental, in partial replacement of the $8,925,426 Demand
                  Promissory Note, dated December 31, 1995,  issued by Commodore
                  Labs to Environmental. (1)

10.16             Bond  Purchase  Agreement,  dated  December  3,  1993,  by and
                  between Environmental and Credit Agricole Deux Sevres. (1)

10.17             License Agreement,  dated as of March 29, 1996, by and between
                  the Company and  Environmental,  relating to the use of SET in
                  the CFC Business. (2)

10.18             Form of Technology and Technical  Services  Agreement  entered
                  into between the Company and CFC Technologies.(2)

10.19             Voting  Agreement,  dated June 28, 1996, among  Environmental,
                  Bentley  J.  Blum,   the  Company  and   National   Securities
                  Corporation. (4)

10.20             Agreement and Plan of Merger, dated September 27, 1996, by and
                  between the Company,  CXI-ASI  Acquisition  Corp. and Advanced
                  Sciences, Inc. (5)

                                       72
<PAGE>

10.21             Agreement and Plan of Merger, dated September 27, 1996, by and
                  between  the  Company  CXI-ASE   Acquisition  Corp.  and  A.S.
                  Environmental, Inc. (5)

10.22             Agreement  of  Transfer,  dated as of  December 1, 1996 by and
                  between the Company and Advanced Sciences. (11)

10.23             Bill of Sale, dated as of December 1, 1996, by and between the
                  Company and Commodore Advanced Sciences, Inc. (11)

10.24             Stock  Purchase  Agreement,  dated  as of  December  2,  1996,
                  between the Company and Environmental. (6)

10.25             Employment  Agreement,  dated as of October 31, 1996,  between
                  Environmental and Edwin L. Harper. (7)

10.26             Employment Agreement, dated as of October 1, 1996, between the
                  Company and Thomas E. Noel. (5)

10.27             Form of Employment Agreement between Environmental and Paul E.
                  Hannesson. (8)

10.28             8%  convertible  note for $4.0  million  from the  Company  to
                  Environmental. (9)

10.29             8%  non-convertible  note for  $5,450,000  from the Company to
                  Environmental. (10)

10.30             Teaming  Agreement,  dated March 18, 1997,  by and between ICF
                  Kaiser Engineers, Inc. and Advanced Sciences.

10.31             Memorandum of  Understanding  between Lockheed Martin Advanced
                  Environmental Systems, Inc. and Advanced Sciences.

10.32             Services  Agreement,  dated as of  September  1, 1997,  by and
                  among  the  Company,   Environmental,   Separation,   Advanced
                  Sciences and other affiliated companies named therein. (14)

10.33             Amended and Restated 1996 Stock Option Plan. (13)

10.34             Securities Purchase Agreement, dated November 4, 1999, between
                  Commodore Applied  Technologies,  Inc. and The Shaar Fund Ltd.
                  (16)

10.35             Registration Rights Agreement, dated November 4, 1999, between
                  Commodore Applied  Technologies,  Inc. and the Shaar Fund Ltd.
                  (16)

10.36             Finder's  Agreement,  dated August 17, 1999, between Commodore
                  Applied  Technologies,  Inc. and Avalon Research  Group,  Inc.
                  (16)

10.37             Securities Purchase  Agreement,  dated March 15, 2000, between
                  Commodore Applied  Technologies,  Inc. and The Shaar Fund Ltd.
                  (16)

10.38             Registration  Rights Agreement,  dated March 15, 2000, between
                  Commodore Applied  Technologies,  Inc. and the Shaar Fund Ltd.
                  (16)

*10.39            Warrant  to  purchase   340,000  shares  of  Common  stock  of
                  Commodore  Applied  Technologies,  Inc.  issued to  William J.
                  Russell.

*10.40            Warrant  to  purchase   340,000  shares  of  Common  stock  of
                  Commodore  Applied  Technologies,  Inc.  issued  to  Tamie  P.
                  Speciale.

*10.41            Warrant  to  purchase   300,000  shares  of  Common  stock  of
                  Commodore   Applied   Technologies,   Inc.   issued  to  Diane
                  Archangeli.

*10.42            Warrant to purchase 20,000 shares of Common stock of Commodore
                  Applied  Technologies,  Inc. issued to Arthur Berry & Company,
                  Inc.

10.43             Specimen Form of Common Stock Certificate. (1)

*10.44            Promissory Note, dated September 15, 2000, issued to Shelby T.
                  Brewer in the principal amount of $500,000.


                                       73
<PAGE>


*10.45            Registration Rights Agreement, dated September 15, 2000 issued
                  to Shelby T. Brewer.

*10.46            Stock  Pledge  Agreement,  dated  September  15, 2000  between
                  Commodore  Environmental  Technologies,  Inc.,  and  Shelby T.
                  Brewer.

*10.47            Warrant  to  purchase   100,000  shares  of  Common  stock  of
                  Commodore  Applied  Technologies,  Inc.  issued  to  Shelby T.
                  Brewer.

*10.48            Amended and Restated  Promissory  Note,  dated  September  15,
                  2000,  issued to Shelby T. Brewer in the  principal  amount of
                  $500,000.

*10.49            Registration Rights Agreement,  dated March 15, 2001 issued to
                  Shelby T. Brewer.

*10.50            Secured  Promissory Note,  dated November 13, 2000,  issued to
                  Klass Partners Ltd. in the principal amount of $250,000.

*10.51            Secured  Promissory Note,  dated November 13, 2000,  issued to
                  Mathers Associates in the principal amount of $150,000.

*10.52            Secured  Promissory Note,  dated November 13, 2000,  issued to
                  Jon Paul Hannesson in the principal amount of $75,000.

*10.53            Secured  Promissory Note,  dated November 13, 2000,  issued to
                  Stephen A. Weiss in the principal amount of $25,000.

10.54             Amended and Restated  Stock Purchase  Agreement,  dated August
                  30, 2000, by and among Commodore Applied  Technologies,  Inc.,
                  Dispute  Resolution  Management,  Inc., William J. Russell and
                  Tamie P. Speciale. (18)

*10.55            Securities Purchase Agreement, dated November 13, 2000, by and
                  among  Commodore   Applied   Technologies,   Inc.,   Commodore
                  Environmental  Services,   Inc.,  Mathers  Associates,   Klass
                  Partners, Ltd., Jon Paul Hannesson and Stephen A. Weiss.

*10.56            Security  Agreement,  dated  November  13,  2000 by and  among
                  Mathers Associates,  Klass Partners, Ltd., Jon Paul Hannesson,
                  Stephen A. Weiss and Commodore Applied Technologies, Inc.

*10.57            Registration Rights Agreement,  dated November 13, 2000, among
                  Mathers Associates,  Klass Partners, Ltd., Jon Paul Hannesson,
                  Stephen A. Weiss and Commodore Applied Technologies, Inc.

*10.58            Dispute Resolution Management,  Inc. Undertaking Letter, dated
                  November 13, 2000.

*10.59            Nationwide Permit Extension for PCB Disposal issued by the EPA
                  to Commodore Remediation Technologies, Inc.

*10.60            Contract  between   Commodore   Solutions  and  Waste  Control
                  Specialists dated February 12, 2000.

*10.70            Conversion  Notice,  dated  April 9, 2001  between  S.  Brewer
                  Enterprises,  Inc.  and  the  Company  for the  conversion  of
                  $250,000 of the Restated Brewer Note.

*10.71            Memorandum  of  Understanding  for  Amendment  of $500,000 CXI
                  Bridge Loan Documents,  dated April 16, 2001, by and among the
                  Company,   Commodore  Environmental  Services,  Inc.,  Mathers
                  Associates, Jon Paul Hannesson and Stephen A. Weiss.

*10.72            Klass Partners Ltd. Agreement for Amendment of CXI Bridge Loan
                  Documents,  dated  April 16,  2001,  by the  Company and Klass
                  Partners, Ltd.

*10.73            Warrant  to  purchase  300,000  shares of Common  Stock of the
                  Company issued to Mathers Associates.

*10.74            Warrant  to  purchase  75,000  shares of  Common  Stock of the
                  Company issued to Jon Paul Hannesson.

*10.75            Warrant  to  purchase  75,000  shares of  Common  Stock of the
                  Company issued to Krista S. Hannesson.

*10.76            Warrant  to  purchase  50,000  shares of  Common  Stock of the
                  Company issued to Stephen A. Weiss.

16.1              Letter regarding change in certifying accountant. (12)

                                       74
<PAGE>

16.2              Letter regarding change in certifying accountant. (17)

*22.1             Subsidiaries of the Company.

99.1              Debt Repayment  Agreement,  dated September 28, 1998,  between
                  the Company and Environmental. (15)

99.2              Registration  Rights  Agreement,  dated  September  28,  1998,
                  between the Company and Environmental. (15)

* Filed herewith.

(1)      Incorporated   by  reference  and  filed  as  Exhibit  to  Registrant's
         Registration  Statement  on Form  S-1  filed  with the  Securities  and
         Exchange Commission on May 2, 1996 (File No. 333-4396).

(2)      Incorporated   by  reference  and  filed  as  Exhibit  to  Registrant's
         Amendment  No. 1 to  Registration  Statement on Form S-1 filed with the
         Securities  and  Exchange   Commission  on  June  11,  1996  (File  No.
         333-4396).

(3)      Incorporated   by  reference  and  filed  as  Exhibit  to  Registrant's
         Amendment  No.  2  to  Registration   Amendment  No.2  to  Registration
         Statement on Form S-1 filed with the Securities and Exchange Commission
         on June 25, 1996 (File No. 333-4396).

(4)      Incorporated   by  reference  and  filed  as  Exhibit  to  Registrant's
         Post-Effective  Amendment No. 1 to  Registration  Statement on Form S-1
         filed with the Securities and Exchange Commission on July 1, 1996 (File
         No. 333-4396).

(5)      Incorporated by reference and filed as Exhibit to Registrant's  Current
         Report on Form 8-K filed with the Securities and Exchange Commission on
         October 15, 1996 (File No. 1-11871).

(6)      Incorporated by reference and filed as Exhibit to Registrant's  Current
         Report on Form 8-K filed with the Securities and Exchange Commission on
         January 27, 1997 (File No. 1-11871).

(7)      Incorporated  by reference  and filed as Exhibit to Amendment  No. 3 to
         Registration  Statement  on  Form  S-1 of  Separation  filed  with  the
         Securities  and  Exchange  Commission  on  January  23,  1997 (File No.
         333-11813).

(8)      Incorporated by reference and filed as Exhibit to Annual Report on Form
         10-K for the fiscal year ended December 31, 1996 of Environmental filed
         with the Securities and Exchange Commission on April 15, 1997 (File No.
         0-10054).

(9)      Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Current  Report  on Form 8-K filed  with the  Securities  and  Exchange
         Commission on October 3, 1997 (File No. 1-11871).

(10)     Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Current  Report  on Form 8-K filed  with the  Securities  and  Exchange
         Commission on February 23, 1998 (File No. 1-11871).

(11)     Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Annual Report on Form 10-K for the fiscal year ended  December 31, 1996
         filed with the  Securities  and Exchange  Commission  on April 15, 1997
         (File No. 1-11871).

(12)     Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Current  Report  on Form 8-K filed  with the  Securities  and  Exchange
         Commission on December 24, 1996 (File No. 1-11871).

(13)     Incorporated  by reference and filed as an Exhibit to the  Registrant's
         Registration  Statement  on Form  S-8  filed  with the  Securities  and
         Exchange Commission on December 5, 1997 (File No. 333-41643).

(14)     Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Annual Report on Form 10-K for the fiscal year ended  December 31, 1997
         filed with the  Securities  and Exchange  Commission  on March 31, 1998
         (File No. 1-11871).

(15)     Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Current  Report  on Form 8-K filed  with the  Securities  and  Exchange
         Commission on January 5, 1999 (File No. 1-11871).


                                       75
<PAGE>

(16)     Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Current  Report  on Form 8-K filed  with the  Securities  and  Exchange
         Commission on January 5, 1999 (File No. 1-11871).

(17)     Incorporated  by reference  and filed as Exhibit to Amendment  No. 5 to
         Registrant's   Registration  Statement  on  Form  S-3  filed  with  the
         Securities  and Exchange  Commission  on  September  12, 1999 (File No.
         333-95445).

(18)     Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Current  Report  on Form 8-K filed  with the  Securities  and  Exchange
         Commission on August 23, 1999 (File No. 1-11871).

(19)     Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Current  Report  on Form 8-K filed  with the  Securities  and  Exchange
         Commission on September 13, 2000 (File No. 1-11871).



Reports on Form 8-K:
-------------------

         On September  13, 2000,  the Company  filed with the SEC the  Company's
current  report  on Form  8-K,  dated  August  30,  2000,  with  respect  to its
announcement that it had entered into a stock purchase agreement to purchase 81%
of Dispute Resolution Management,  Inc. Such event was reported in Item 5 of the
Form 8-K with appropriate financial statements included.





                                       76
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  to Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date:  May 04, 2001                 COMMODORE APPLIED TECHNOLOGIES, INC.

                                    By: /s/ James M. DeAngelis
                                      ------------------------------------------
                                       James M. DeAngelis, Senior Vice President
                                       and Chief Financial Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>

<S>                                            <C>                                       <C>
/s/ Shelby T. Brewer                           Chairman of the Board and Chief           May 04, 2001
------------------------------------------     Executive Officer (principal
Shelby T. Brewer                               executive officer)

/s/ James M. DeAngelis                         Senior Vice President and Chief           May 04, 2001
------------------------------------------     Financial Officer (principal
James M. DeAngelis                             financial officer)

/s/ Bentley J. Blum                            Director                                  May 04, 2001
------------------------------------------
Bentley J. Blum

/s/ Herbert A. Cohen                           Director                                  May 04, 2001
------------------------------------------
Herbert A. Cohen

/s/ Paul E. Hannesson                          Director                                  May 04, 2001
------------------------------------------
Paul E. Hannesson

/s/ David L. Mitchell                          Director                                  May 04, 2001
------------------------------------------
David L. Mitchell

/s/ Edward L. Palmer                           Director                                  May 04, 2001
----------------------------------
Edward L. Palmer

/s/ William R. Toller                          Director                                  May 04, 2001
------------------------------------------
William R. Toller


</TABLE>

                                       77
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2000 and 1999

<PAGE>

                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                                                           Index

--------------------------------------------------------------------------------




                                                                            Page
                                                                            ----

Commodore Applied Technologies Inc.

     Independent Auditors' Report                                           F-1

     Consolidated Balance Sheet as of December 31, 2000 and 1999            F-2

     Consolidated Statements of Operations for the years ended
       December 31, 2000, 1999 and 1998                                     F-4

     Consolidated Statements of Stockholders' Equity for
       the years ended December 31, 2000, 1999 and 1998                     F-5

     Consolidated Statements of Cash Flows for the years
       ended December 31, 2000, 1999 and 1998                               F-7

     Notes to Consolidated Financial Statements                             F-11




<PAGE>

                                                    INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
of Commodore Applied Technologies, Inc. and Subsidiaries

We  have  audited  the   consolidated   balance   sheet  of  Commodore   Applied
Technologies,  Inc.  and  Subsidiaries  as of December 31, 2000 and 1999 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Commodore Applied
Technologies,  Inc. and  Subsidiaries  as of December 31, 2000 and 1999, and the
results of their  operations  and their cash flows for the years then ended,  in
conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses and
net cash outflows from operations that raise substantial doubt about its ability
to continue as a going concern.  Management's  plans regarding those matters are
also described in Note 2. The consolidated  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.


TANNER+Co.

Salt Lake City, Utah
March 2, 2001

                                                                             F-1
<PAGE>







                                         Report of Independent Accountants


To the Board of Directors and Shareholders
    of Commodore Applied Technologies, Inc. and Subsidiaries:

In our opinion,  the  consolidated  statements of operations  and  comprehensive
loss, of stockholders'  equity and of cash flows for the year ended December 31,
1998 present  fairly,  in all material  respects,  the results of operations and
cash flows of Commodore Applied Technologies,  Inc. and its subsidiaries for the
year ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America.  These  financial  statements  are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards  generally accepted in
the United States of America which require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audit  provides a  reasonable  basis for our  opinion.  We have not  audited the
consolidated  financial statements of Commodore Applied  Technologies,  Inc. for
any period subsequent to December 31, 1998.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and net cash outflows from  operations  that raise  substantial  doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also  described in Note 2. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.




PricewaterhouseCoopers LLP


Philadelphia, Pennsylvania
April 8, 1999

                                                                            F-1A
<PAGE>
<TABLE>
<CAPTION>



                                                                                2000             1999
                                                                         -----------------------------------
              Assets
<S>                                                                      <C>                <C>

Current assets:
     Cash and cash equivalents                                           $          1,980   $         1,797
     Accounts receivable, net                                                       4,536             3,552
     Notes and advances to related parties                                              -               265
     Restricted cash                                                                    -                21
     Prepaid assets and other current assets                                          625               366
                                                                         -----------------------------------

              Total current assets                                                  7,141             6,001

Property and equipment, net                                                         1,983             2,244

Intangible assets:
     Goodwill, net of accumulated amortization of $419
       and $831, respectively                                                      24,676             6,841
     Covenants not to compete, net of accumulated
       amortization of $175 and $0, respectively                                    2,450                 -
     Patents and completed technology, net of accumulated
       amortization of $613 and $478, respectively                                    862               961
                                                                         -----------------------------------

              Total intangible assets                                              27,988             7,802

Other assets                                                                          361                 -
                                                                         -----------------------------------

              Total assets                                               $         37,473   $        16,047
                                                                         -----------------------------------


-----------------------------------------------------------------------------------------------------------
                                                                                                        F-2

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                       COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                                           AND SUBSIDIARIES
                                                                                 Consolidated Balance Sheet

                                                                                 December 31, 2000 and 1999
                                                   (Amounts in thousands, except shares and per share data)
-----------------------------------------------------------------------------------------------------------


                                                                                    2000          1999
                                                                              ------------------------------

              Liabilities and Stockholders' Equity
              ------------------------------------
<S>                                                                            <C>            <C>

Current liabilities:
     Accounts payable                                                          $       2,490   $      1,792
     Related party payable                                                               247              -
     Current portion of long-term debt                                                 2,650            200
     Line of credit                                                                    1,459            948
     Notes payable                                                                    14,682              -
     Other accrued liabilities                                                         2,489          2,440
                                                                              ------------------------------

              Total current liabilities                                               24,017          5,380
                                                                              ------------------------------

Long-term debt                                                                         5,182            716
                                                                              ------------------------------

              Total liabilities                                                       29,199          6,096

Minority interest in subsidiary                                                          419              -
Commitments and contingencies                                                              -              -
Stockholders' Equity:
     Convertible Preferred Stock, Series E and F, par value $.001 per share,
       aggregate liquidation value of $7,332,429 and $4,355,000 at December 31,
       2000 and 1999, respectively, 12% cumulative dividends, 601,700 shares
       authorized, 556,700 shares and 335,000 shares issued and outstanding at
       December 31, 2000 and 1999,
       respectively                                                                        1              -
     Common Stock, par value $.001 per share, 125,000,000
       shares authorized, 48,330,385 and 30,962,938 issued
       and outstanding, at December 31, 2000 and 1999,
       respectively                                                                       48             31
     Additional paid-in capital                                                       66,495         57,168
     Accumulated deficit                                                             (58,689)       (47,248)
                                                                              ------------------------------

              Total stockholders' equity                                               7,855          9,951
                                                                              ------------------------------


              Total liabilities and stockholders' equity                       $      37,473   $     16,047
                                                                              ------------------------------

-----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
                                                                                                        F-3

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                       COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                                           AND SUBSIDIARIES
                                                                       Consolidated Statement of Operations

                                                               Years Ended December 31, 2000, 1999 and 1998
                                                   (Amounts in Thousands, Except Shares and Per Share Data)
-----------------------------------------------------------------------------------------------------------

                                                                       2000         1999          1998
                                                                  -----------------------------------------

  <S>                                                             <C>            <C>          <C>
  Revenue                                                         $      20,631  $    18,147  $     17,470
                                                                  -----------------------------------------
  Costs and expenses:
       Cost of revenues                                                  14,452       16,127        15,421
       Research and development                                             993        1,145         2,722
       General and administrative                                         6,989        4,037         8,118
       Depreciation and amortization                                      1,471          696         1,150
       Impairment of goodwill                                             6,586            -             -
       Minority interest                                                    341            -           300
                                                                  -----------------------------------------

                    Total costs and expenses                             30,832       22,005        27,711
                                                                  -----------------------------------------

  Loss from operations                                                  (10,201)      (3,858)      (10,241)

  Interest income                                                            67           39           337
  Interest expense                                                       (1,307)        (166)       (1,066)
  Equity in losses of unconsolidated subsidiary                               -            -        (2,383)
                                                                  -----------------------------------------

  Loss before income taxes                                              (11,441)      (3,985)      (13,353)
  Income tax benefit                                                          -            -             -
                                                                  -----------------------------------------

  Net loss                                                        $     (11,441) $    (3,985) $    (13,353)
                                                                  -----------------------------------------

  Net loss per share - basic and diluted                          $        (.34) $      (.16) $       (.58)
                                                                  -----------------------------------------

  Number of weighted average shares outstanding                          35,866       24,819        23,194
                                                                  -----------------------------------------


-----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
                                                                                                        F-4

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                          COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                                              AND SUBSIDIARIES
                                                                Consolidated Statement of Stockholders' Equity

                                                      Years Ended December 31, 2000, 1999, and 1998 (Restated)
                                                      (Amounts in thousands, except shares and per share data)
--------------------------------------------------------------------------------------------------------------


                                                           Preferred Stock        Common Stock      Additional
                                                         ----------------------------------------     Paid-In    Accumulated
                                                         Shares     Amount      Shares    Amount      Capital      Deficit
                                                        --------------------------------------------------------------------

<S>                                                     <C>        <C>       <C>          <C>       <C>          <C>
Balance, January 1, 1998                                      -    $    -    22,766,334   $    23   $   41,541   $ (29,910)

Conversion of Series A Preferred
    Stock into Common Stock                                   -         -       336,866         -          890           -

Issuance of Common Stock to satisfy price
    reset liability                                           -         -       599,063         1        1,197           -

Equity gains on satisfaction of related party
    obligations (restated)                                    -         -             -         -        7,818           -

Preferred stock dividends                                     -         -             -         -          (14)          -

Warrant issued in connection with early paydown
    on intercompany note                                      -         -             -         -          340           -

Warrant issued in connection with loan from
    parent                                                    -         -             -         -          527           -

Change in exercise price of warrant issued in
  connection with convertible loan from parent                -         -             -         -          842           -

Change in exercise price of warrant issued in
  connection with debt restructuring                          -         -             -         -            5           -

Issuance of Series B Convertible Preferred Stock         20,909         -             -         -          813           -

Issuance of Series C Convertible Preferred Stock         10,189         -             -         -          396           -

Issuance of Series D Convertible Preferred Stock         20,391         -             -         -          792           -

Net loss                                                      -         -             -         -            -     (13,353)
                                                         -----------------------------------------------------------------

Balance December 31, 1998                                51,489         -    23,702,263        24       55,147     (43,263)

Conversion of series B, C, and D preferred stock
  into common stock                                     (51,489)        -     7,258,533         7           (7)          -


--------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.                                  F-5

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                        COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                                                            AND SUBSIDIARIES
                                                                              Consolidated Statement of Stockholders' Equity
                                                                                                                   Continued
----------------------------------------------------------------------------------------------------------------------------


                                                           Preferred Stock        Common Stock      Additional
                                                         ----------------------------------------     Paid-In    Accumulated
                                                         Shares     Amount      Shares    Amount      Capital      Deficit
                                                        --------------------------------------------------------------------

<S>                                                     <C>        <C>       <C>          <C>       <C>          <C>

Issuance of Series E Convertible Preferred Stock
  at redemption value                                   335,000         -             -         -        2,030           -

Warrants issued in connection with Series E
  Convertible Preferred Stock                                 -         -             -         -           60           -

Preferred stock dividends                                     -         -             -         -          (63)          -

Exercise of stock options                                     -         -         2,142         -            1           -

Net loss                                                      -         -             -         -            -      (3,985)
                                                        ------------------------------------------------------------------

Balance, December 31, 1999                              335,000         -    30,962,938        31       57,168     (47,248)

Issuance of Series F Convertible Preferred
Stock at redemption value                               266,700         1             -         -        1,770           -

Conversion of series E and F preferred stock
into common stock                                       (45,000)        -       440,581         -            -           -


Warrants issued in compensation with short
term note payable to affiliated party                         -         -             -         -           89           -

Issuance of common stock for private placement fee            -         -       100,000         -            -           -

Issuance of common stock and warrants in acquisition          -         -    15,500,000        16        7,506           -

Preferred stock dividends                                     -         -             -         -         (634)          -

Exercise of stock options                                     -         -     1,326,866         1          596           -

Net loss                                                      -         -             -         -            -     (11,441)
                                                        ------------------------------------------------------------------

Balance, December 31, 2000                              556,700    $    1    48,330,385   $    48   $   66,495   $ (58,689)



---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.                                   F-6

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                      COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                                          AND SUBSIDIARIES
                                                                      Consolidated Statement of Cash Flows

                                                              Years Ended December 31, 2000, 1999 and 1998
                                                  (Amounts in Thousands, Except Shares and Per Share Data)
----------------------------------------------------------------------------------------------------------



                                                                   2000          1999            1998
                                                              --------------------------------------------
<S>                                                            <C>            <C>             <C>

Cash flows from operating activities:
   Net loss                                                    $    (11,441)  $     (3,985)   $    (13,353)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                                    1,471            696           1,150
     Loss on disposition of property and equipment                       12              -             601
     Interest expense from common stock                                 333              -               -
     Impairment of goodwill                                           6,586              -               -
     Equity in losses of unconsolidated subsidiary                        -              -           2,340
     Write down of investment in unconsolidated subsidiary                -              -              43
     Provision for related party bad debt                               109              -               -
     Minority interest in subsidiary losses                             341              -             300
     Amortization of debt discount                                      718              -             695
     Other                                                                -              -              26
   Changes in assets and liabilities:
     Accounts receivable                                               (827)          (410)            (79)
     Inventory                                                            -              -            (271)
     Restricted cash                                                     21              -             (21)
     Prepaid assets                                                     414           (95)             132
     Other receivables                                                    -              -              18
     Accounts payable and accrued liabilities                           261            889            (776)
     Other                                                                -              -              19
                                                              ---------------------------------------------

         Net cash used in
         operating activities                                        (2,002)        (2,905)         (9,176)
                                                              ---------------------------------------------

Cash flows from investing activities:
   Equipment purchased or constructed                                  (114)          (353)         (2,554)
   Patents acquired                                                     (36)          (113)           (150)
   Purchase of Dispute Resolution Management, Inc.,
     net of cash acquired                                               508              -               -
   Contribution from minority interest in DRM                            78              -               -
   Advances to related parties                                          (97)          (135)            (96)
   Increase in restricted cash                                            -              -              50
   Cash held by subsidiary at the time of sale                            -              -            (715)
   Repayment of loans to affiliate, net of advances                       -              -             752
   Contributions to affiliate                                          (325)             -          (2,377)
                                                              ---------------------------------------------

         Net cash provided by (used in)
         investing activities                                            14           (601)         (5,090)
                                                              ---------------------------------------------




----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.                  F-7

</TABLE>



<PAGE>
<TABLE>
<CAPTION>


                                                                      COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                                          AND SUBSIDIARIES
                                                                      Consolidated Statement of Cash Flows
                                                                                                 Continued
----------------------------------------------------------------------------------------------------------



                                                                   2000          1999            1998
                                                              --------------------------------------------
<S>                                                            <C>            <C>             <C>

Cash flows from financing activities:
  Proceeds from sale of Common Stock                                    597              1               -
  Proceeds from sale of Preferred Stock                               1,771          2,090               -
  Preferred stock dividends paid by subsidiary                            -              -            (300)
  Preferred stock dividends                                            (214)           (63)              -
  Payments to principal shareholder                                       -              -          (1,328)
  Borrowings from principal shareholder                                   -              -           5,450
  (Repayments)/borrowings under line of credit                         (256)           587            (838)
  Borrowings on long term debt and warrants                           1,000          1,000               -
  Payments on long term debt and notes payable                         (727)           (89)            (35)
  Repayment of related party accounts receivable and payable              -              -             (57)
                                                               -------------------------------------------

                  Net cash provided by
                  financing activities                                2,171          3,526           2,892
                                                               -------------------------------------------

Increase (decrease) in cash and cash equivalents                        183             20         (11,374)

Cash and cash equivalents, beginning of year                          1,797          1,777          13,151
                                                               -------------------------------------------

Cash and cash equivalents, end of year                         $      1,980   $      1,797    $      1,777
                                                               -------------------------------------------

</TABLE>

Non-Cash Investing and Financing Activities:

2000
----
Effective  August 31,  2000,  the Company  acquired  an 81%  interest in Dispute
Resolution  Management,  Inc. (DRM) (see Note 6). Consideration  consists of the
following:

9.5 million option shares of common stock                        $       13,122
6.0 million shares of common stock                                        6,563
Warrants to purchase 1 million shares of common stock                       959
Future payment guarantee                                                  7,412
                                                                 --------------

                  Total consideration                            $       28,056
                                                                 --------------

Assets and liabilities acquired:

Accounts receivable                                              $          157
Property and equipment                                                      124
Prepaids and other current assets                                            47
Goodwill                                                                 25,095
Covenant not to compete                                                   2,625
Other assets                                                                 36
Accounts payable                                                            (61)
Accrued expenses                                                             (5)
Note payable                                                               (470)
                                                                 --------------

                                                                 $       27,548
                                                                 --------------

                  Cash received                                  $          508
                                                                 --------------


--------------------------------------------------------------------------------
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                                                             F-8


<PAGE>

                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                            Consolidated Statement of Cash Flows
                                                                       Continued
--------------------------------------------------------------------------------

2000 - Continued
----------------
A shareholder of the Company  transferred  100,000 shares of its common stock in
the Company to holders of notes  payable from the Company.  The common stock was
valued at $500 with $167 considered prepaid and $333 expensed as interest.

The Company issued a warrant valued at $89 in connection with a debt issuance.

The Company  converted  45,000 shares of Series E & F Preferred Stock to 440,581
shares of common stock.

The  Company  financed  equipment  and  prepaid  assets  with notes  payable and
long-term debt of $459.

The Company  accrued $420 of unpaid dividends to  holders  of  Preferred  Stock.


1999
----
In 1999,  51,489  shares of Series B, C and D Preferred  Stock held by Commodore
with an aggregate value of $2,001 were converted into common stock (Note 12).


1998
----
In February  1998,  Commodore  provided a $5,450 loan to Applied.  In connection
with the loan,  Applied issued new and amended  warrants valued at $1,369 in the
aggregate and recorded as additional paid-in capital (Note 15).

In February  1998,  Applied  transferred a receivable  from an affiliate  with a
carrying value of $830 to Commodore for debt  reduction.  In connection with the
transaction,  Applied  issued a warrant to  Commodore  with a fair value of $340
which was recorded as additional paid-in capital (Note 15).

In September 1998,  Applied repaid  Intercompany  Notes with a carrying value of
$5,660  through the exchange of 87%  interest in the Common Stock of  Separation
and receivable from Separation with a value of $500, issuance of Preferred Stock
with a value of $2,001 and  modification  of a warrant  with a value of $5 (Note
15).

In October 1998,  Applied  satisfied a price reset  liability  with an aggregate
balance of $1,198,  recorded  as an accrued  liability  at  December  31,  1997,
through the issuance of additional shares of Common Stock Note 15).

In 1998,  9,600 shares of Series A Preferred  Stock with an  aggregate  value of
$876 were converted into Common Stock (Note 12).



--------------------------------------------------------------------------------
   The accompanying notes are an integral part of the consolidated financial
                                      statements.                            F-9




<PAGE>



                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                            Consolidated Statement of Cash Flows
                                                                       Continued
--------------------------------------------------------------------------------


Supplemental disclosure of cash flow information

     Cash paid during the year for:

              Interest            $      158 $    166  $       289
                                  --------------------------------

              Taxes               $        - $      -  $         -
                                  --------------------------------



--------------------------------------------------------------------------------
   The accompanying notes are an integral part of the consolidated financial
                                      statements.                           F-10




<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements

                                                      December 31, 2000 and 1999
                                  (In thousands except share and per share data)
--------------------------------------------------------------------------------

1.   Background         Commodore  Applied  Technologies,  Inc. and subsidiaries
                        ("Applied"),   is   engaged  in  the   destruction   and
                        neutralization  of hazardous waste from other materials.
                        Applied owns technologies  related to the separation and
                        destruction  of  polychlorinated  biphenyls  (PCBs)  and
                        chlorofluorocarbons (CFCs).

                        Applied is currently working on the commercialization of
                        these   technologies    through   development   efforts,
                        licensing  arrangements  and  joint  ventures.   Through
                        Commodore  Advanced Sciences,  Inc.  ("CASI"),  formerly
                        Advanced  Sciences,   Inc.,  a  subsidiary  acquired  on
                        October 1, 1996,  Applied  has  contracts  with  various
                        government  agencies and private companies in the United
                        States and  abroad.  As some  government  contracts  are
                        funded in one year  increments,  there is a  possibility
                        for  cutbacks  as  these  contracts  constitute  a major
                        portion of CASI's  revenues,  and such a reduction would
                        materially  affect the operations.  However,  management
                        believes the subsidiary's  existing client relationships
                        will  allow  Applied  to  obtain  new  contracts  in the
                        future.

                        Through  Dispute  Resolution  Management,  Inc. (DRM), a
                        subsidiary  acquired August 30, 2000, Applied provides a
                        package of services to help companies  recover financial
                        settlements  from  insurance  policies  to defray  costs
                        associated with environmental liabilities.

                        Until  September  1998,  Applied was also engaged in the
                        separation  of  hazardous  waste  through  its 87% owned
                        subsidiary,   Commodore  Separation  Technologies,  Inc.
                        ("Separation").  Effective  September 28, 1998,  Applied
                        sold  its   investments   in   Separation  to  Commodore
                        Environmental  Services,  Inc.  ("Commodore")  (See Note
                        15).


--------------------------------------------------------------------------------
                                                                            F-11
<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

2.   Summary of         Going Concern
     Significant        The accompanying  consolidated financial statements have
     Accounting         been  prepared  under the  assumption  that Applied will
     Policies           continue   as   a   going   concern.   Such   assumption
                        contemplates   the   realization   of  assets   and  the
                        satisfaction  of  liabilities  in the  normal  course of
                        business.   As  shown  in  the  consolidated   financial
                        statements for the years ended  December 31, 2000,  1999
                        and 1998,  Applied  incurred losses of $11,441,  $3,985,
                        and $13,353, respectively.  Applied has also experienced
                        net  cash  outflows  from  operating   activities.   The
                        consolidated  financial  statements  do not  include any
                        adjustments  that might be necessary  should  Applied be
                        unable  to  continue  as  a  going  concern.   Applied's
                        continuation  as a going  concern is dependent  upon its
                        ability  to  generate  sufficient  cash flow to meet its
                        obligations  on a timely  basis,  to  obtain  additional
                        financing as may be required,  and  ultimately to attain
                        profitability.  Potential  sources of cash  include  new
                        contracts,  external  debt,  the sale of new  shares  of
                        Company stock or alternative  methods such as mergers or
                        sale transactions.

                        Principles of Consolidation
                        The  consolidated   financial   statements  include  the
                        accounts of Applied and its majority-owned subsidiaries.
                        Dispute Resolution  Management,  Inc. is included in the
                        consolidated  operations  from  August 30, 2000 (date of
                        acquisition) (see Note 6). All significant  intercompany
                        balances  and  transactions  have been  eliminated.  The
                        investment in Teledyne-Commodore, LLC, a 50% owned joint
                        venture  with  Teledyne  Environmental,  Inc.,  has been
                        accounted for under the equity method of accounting  for
                        the year  ended  December  31,  1998 and at the lower of
                        cost or market for December 31, 1999 and 2000 due to the
                        recovery  value of the joint venture as Applied does not
                        have a  controlling  interest in the venture.  Effective
                        September  28,  1998,  Applied  sold its  investment  in
                        Separation to Commodore (see Note 15).

                        Revenue Recognition
                        Substantially all of Applied's revenues are generated by
                        its subsidiaries, CASI and DRM. CASI revenues consist of
                        engineering  and scientific  services  performed for the
                        U.S.  Government  and prime  contractors  that serve the
                        U.S.  Government  under a variety of contracts,  most of
                        which provide for reimbursement of cost plus fixed fees.
                        Revenue under  cost-reimbursement  contracts is recorded
                        using the  percentage of completion  method as costs are
                        incurred and include  estimated  fees in the  proportion
                        that  costs  incurred  to date  bear to total  estimated
                        costs.

--------------------------------------------------------------------------------
                                                                            F-12

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


2.   Summary of         Revenue Recognition - Continued
     Significant        Anticipated  losses on  contracts  are provided for by a
     Accounting         charge to income during the period such losses are first
     Policies           identified.  Changes in job performance, job conditions,
     Continued          estimated  profitability  (including losses arising from
                        contract   penalty   provisions)   and  final   contract
                        settlements  may result in revisions to costs and income
                        and are  recognized in the period in which the revisions
                        are determined.

                        Direct and indirect  contract costs are subject to audit
                        by  the  Defense   Contract   Audit   Agency   ("DCAA").
                        Management  does not expect these  audits to  materially
                        affect the  financial  statements  and have  established
                        appropriate   allowances   to  cover   potential   audit
                        disallowances.  Contract  revenues have been recorded in
                        amounts  which are  expected to be  realized  upon final
                        settlement.   The  DCAA  has  audited  CASI's  contracts
                        through  1996.  An allowance  for doubtful  accounts and
                        potential  disallowances has been established based upon
                        the  portion of billed  and  unbilled  receivables  that
                        management believes may be uncollectible.

                        DRM revenue is recognized on retainers  according to the
                        terms  of  each  contract.   Revenue  is  recognized  on
                        contingent  success  fees  as  each  dispute  with  each
                        insurer is resolved and a binding  settlement  agreement
                        has been executed by all parties.

                        Cash and Cash Equivalents
                        Applied   considers   cash  and   highly   liquid   debt
                        instruments with original  maturities of three months or
                        less at the  date of  purchase  to be cash  equivalents.
                        Applied's    investments   in   cash   equivalents   are
                        diversified among securities with high credit ratings in
                        accordance with Applied's investment policy.

                        Concentration of Credit Risk and Significant Customers
                        Applied  maintains  its  cash in bank  deposit  accounts
                        which, at times,  may exceed  federally  insured limits.
                        Applied has not experienced any losses in such accounts.
                        With  respect to trade  receivables,  Applied  generally
                        does not require collateral as the majority of Applied's
                        services are performed for the U.S. Government and prime
                        contractors  that  serve  the U.S.  Government.  Applied
                        believes  it is not  exposed to any  significant  credit
                        risk on cash, cash equivalents and trade receivables.


--------------------------------------------------------------------------------
                                                                            F-13

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


2.   Summary of         Sales to major  customers  which  exceeded 10 percent of
     Significant        revenues are as foll0ws:
     Accounting
     Policies                                   Years Ended December 31,
     Continued                             --------------------------------
                                           2000          1999         1998
                                           ----          ----         ----

                        Customer A       $ 11,618     $ 12,287     $ 10,673
                        Customer B       $  1,476     $  3,692     $  4,061
                        Customer C       $    742     $  1,006     $  1,972

                        The contract with Customer A ended on December 31, 2000.

                        Risk and Uncertainty
                        Applied's   operations   involving  the  separation  and
                        destruction  of PCBs  requires  a  permit  from the EPA.
                        Currently, Applied has a valid nationwide permit related
                        to the  treatment  of PCBs in  certain  substances.  The
                        current  permit  expires  September  15,  2001.  If this
                        permit is not renewed,  Applied will not be permitted to
                        service any contracts which utilize Applied's separation
                        and destruction  technology  related to the treatment of
                        PCB's.  Presently,  there is no  information  to suggest
                        that the EPA will not  renew  Applied's  permit or grant
                        them the requested revision.

                        Impairment of Long-Lived Assets
                        Applied  reviews its  long-lived  assets for  impairment
                        whenever  events or  changes in  circumstances  indicate
                        that  the  carrying  amount  of the  assets  may  not be
                        recoverable  through  undiscounted future cash flows. If
                        it is determined  that an  impairment  loss has occurred
                        based on expected cash flows, such loss is recognized in
                        the Statement of Operations.

                        During the year ended December 31, 2000 the  unamortized
                        goodwill  associated  with  the  purchase  of  CASI  was
                        determined  to be  impaired  and was  written off in the
                        amount of $6,586.  This was a non-cash  expense  for the
                        year 2000.

--------------------------------------------------------------------------------
                                                                            F-14

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------







2.   Summary of         Property and Equipment
     Significant        Property   and   equipment   are   recorded   at   cost.
     Accounting         Improvements  which  substantially  increase  the useful
     Policies           lives of assets are capitalized. Maintenance and repairs
     Continued          are expensed as incurred.  Upon  retirement or disposal,
                        the  related  cost  and  accumulated   depreciation  are
                        removed  from the  respective  accounts  and any gain or
                        loss  is  recorded  in  the  Statement  of   Operations.
                        Provisions   for   depreciation   are  computed  on  the
                        straight-line method based on the estimated useful lives
                        of the assets which range from 2-10 years.

                        Intangible Assets
                        Goodwill  represents the fair value of securities issued
                        plus  the  fair  value  of net  liabilities  assumed  in
                        connection  with the  acquisitions  of CASI and DRM (see
                        Note 6).  Goodwill is being amortized on a straight-line
                        basis  over  its  estimated   life  (20  to  30  years).
                        Completed  technology  represents certain technology and
                        related patents acquired in connection with the purchase
                        of third-party interests in Commodore Laboratories, Inc.
                        ("Labs").  Completed  technology  and  patents are being
                        amortized on a straight-line  basis over their estimated
                        7 and 17 year lives, respectively.  Covenants to compete
                        are  amortized  over 5 years  which  is the  life of the
                        covenant (see Note 6).  Applied  annually  evaluates the
                        existence  of  impairment  on the basis of  whether  the
                        goodwill,   covenants   not  to  compete,   patents  and
                        completed  technology  are  fully  recoverable  from the
                        projected  undiscounted  net cash flows of the assets to
                        which they relate.

                        Income Taxes
                        Income taxes are determined in accordance with Statement
                        of Financial  Accounting  Standards  ("SFAS") 109, which
                        requires  recognition of deferred income tax liabilities
                        and assets for the expected  future tax  consequences of
                        events  that  have  been   included  in  the   financial
                        statements or tax returns.  Under this method,  deferred
                        income tax liabilities  and assets are determined  based
                        on the difference  between  financial  statement and tax
                        bases of assets and liabilities  using enacted tax rates
                        in  effect  for the year in which  the  differences  are
                        expected  to  reverse.  SFAS 109 also  provides  for the
                        recognition  of deferred tax assets if it is more likely
                        than not that the  assets  will be  realized  in  future
                        years.

--------------------------------------------------------------------------------
                                                                            F-15

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------




2.   Summary of         Research and Development
     Significant        Research  and  development  expenditures  are charged to
     Accounting         operations as incurred.
     Policies
     Continued          Fair Value of Financial Instruments
                        The fair value of financial instruments is determined by
                        reference  to various  market  data and other  valuation
                        techniques as appropriate.  Accounts  receivable,  notes
                        receivable,  cash  equivalents,  long  term debt and the
                        line  of  credit  are  financial  instruments  that  are
                        subject to possible  material market variations from the
                        recorded  book value.  The Company has  reflected in the
                        financial  statements  debt  discounts  which  are being
                        amortized over the estimated  lives of the  obligations.
                        The debt  discounts  bring the  obligations  to a market
                        rate of  interest.  The fair  value  of these  financial
                        instruments  approximate  the recorded  book value as of
                        December 31, 2000 and 1999.

                        Stock-Based Compensation
                        Compensation  costs  attributable  to stock  option  and
                        similar  plans are  recognized  based on any  difference
                        between the quoted market price of the stock on the date
                        of the grant over the amount the employee is required to
                        pay to acquire the stock (in the intrinsic  value method
                        under Accounting Principles Board Opinion 25). SFAS 123,
                        "Accounting  for  Stock-Based   Compensation,"  requires
                        companies  electing  to  continue  to use the  intrinsic
                        value method to make pro forma disclosures of net income
                        and earnings per share as if the fair value based method
                        of accounting had been applied.  Applied has adopted the
                        disclosure only provisions of SFAS 123.

                        Segment Information
                        In 1998,  Applied adopted SFAS 131,  "Disclosures  about
                        Segments of an Enterprise and Related Information." SFAS
                        131 provides that the internal organization that is used
                        by  management  for  making   operating   decisions  and
                        assessing   performance   is  the  source  of  Applied's
                        reportable  segments.  SFAS 131 also requires disclosure
                        about products and services,  geographic areas and major
                        customers.  The  adoption of SFAS 131 did not affect the
                        results of operations  or financial  position of Applied
                        (see Note 18).

--------------------------------------------------------------------------------
                                                                            F-16

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


2.   Summary of         Use of Estimates
     Significant        The preparation of consolidated  financial statements in
     Accounting         conformity with generally accepted accounting principles
     Policies           requires  management to make  estimates and  assumptions
     Continued          that   affect  the   reported   amounts  of  assets  and
                        liabilities and the disclosure of contingent  assets and
                        liabilities at the date of the financial  statements and
                        the reported amounts of revenues and expenses during the
                        reporting period. Actual results could differ from those
                        estimates.

                        Reclassifications
                        Certain amounts in prior years have been reclassified to
                        conform with the current year presentation.


3.   Receivables        The  components  of Applied's  trade receivables  are as
                        follows as of December 31, 2000 and 1999:

                                                        2000            1999
                                                      --------       ---------
                          Contract receivables:
                           Amounts billed             $  4,807       $   3,637
                           Retainages                       25              25
                           Other                             -               8
                                                      --------       ---------
                                                         4,832           3,670
                         Less:  Allowance for
                           doubtful accounts
                           and potential
                           disallowances                  (296)           (118)
                                                      --------       ---------

                             Total receivables - net  $  4,536       $   3,552
                                                      ========       =========

                        The balances  billed but not paid by customers  pursuant
                        to  retainage  provisions  are due upon  completion  and
                        acceptance of the contracts.

                        Substantially  all of CASI trade receivables are pledged
                        to collateralize its line of credit (see Note 8).


--------------------------------------------------------------------------------
                                                                            F-17

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


4.   Property           Property and equipment consist of the following:
     and
     Equipment                                    Average         December 31,
                                                Useful Life     2000       1999
                                                --------------------------------


                        Machinery and equipment      10       $ 2,386  $ 3,022
                        Furniture and fixtures        5           417      277
                        Computer equipment            4           944    1,275
                        Leasehold improvements        5            19       82
                                                              ----------------
                                                                3,766    4,656

                        Less:  accumulated depreciation
                          and amortization                     (1,783)  (2,412)

                           Total property and equipment       $ 1,983  $ 2,244
                                                              ================


5.   Other Assets       Applied  has  an  investment  in a  joint  venture  with
                        Teledyne Environmental, Inc. (LLC). Due to uncertainties
                        over  the  success  of  various  claims  made by the LLC
                        against various government agencies,  Applied recorded a
                        reserve of $43 in the  fourth  quarter of 1998 to reduce
                        its  investment to $0 at December 31, 1998.  Applied did
                        not  record  its equity in the losses of the LLC in 2000
                        and 1999 as the LLC agreement states that members of the
                        LLC can only be asked to fund approved capital calls and
                        Applied  has no  obligation  to fund these 2000 and 1999
                        losses.  The  Company  recorded  losses  of  $0,  $0 and
                        $(2,383) for the years ended December 31, 2000, 1999 and
                        1998,  respectively,  from its  investment  in the joint
                        venture.

--------------------------------------------------------------------------------
                                                                            F-18

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


5.   Other              Summarized  information  of  the  LLC's  net  assets and
     Assets             results  of  operations  are  as follows at December 31,
     Continued          1998:

                          Current assets                       $   2,049
                          Non-current assets                       1,549
                          Current liabilities                      3,873
                          Revenues                                 1,788
                          Expenses                                 6,467

                          Investment in LLC:
                          Opening balance                      $     554
                          Capital contribution                     2,581
                          Advances to LLC, net of repayments        (752)
                          Loss reserve                               (43)
                          Equity in net loss                      (2,340)
                                                               ---------

                                   Net amount                  $       -
                                                               =========


6.   Acquisition        On August 30, 2000,  Applied  completed a stock purchase
     of Dispute         agreement with Dispute Resolution Management, Inc. (DRM)
     Resolution         and its two  shareholders.  This  agreement  amended and
     Management         restated in its entirety  the terms of an agreement  and
                        plan of merger, dated August 30, 2000, which Applied had
                        previously entered into with DRM and its shareholders.

                        Under terms of the current agreement,  Applied purchased
                        81% of the issued and  outstanding  capital stock of DRM
                        from the two  shareholders.  The  consideration to these
                        shareholders (and their designees) consisted of:

                           a)  10.5 million shares of Applied  common stock.  Of
                               these 10.5 million shares, 9.5 million shares are
                               subject to a one-year option to repurchase any or
                               all shares.  The option  expires  August 30, 2001
                               for the 9.5 million shares.
                           b)  5  million  shares  of  Applied  common  stock in
                               exchange for an option to purchase the  remaining
                               19%  interest in DRM.  The option  expires  after
                               five  years and the  option  price  will be based
                               upon the  relative  appraised  values  of DRM and
                               Applied at the time of purchase.


--------------------------------------------------------------------------------
                                                                            F-19

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


6.   Acquisition           c)  Five-year warrants to purchase up to an aggregate
     of Dispute                of 1.0 million  shares of Applied common stock at
     Resolution                an exercise price of $2.00 per share.
     Management            d)  Quarterly earn-out  distributions equal to 35% of
                               the  cash  flow of DRM  over an  earn-out  period
                               commencing  as of  September  1, 2000 and  ending
                               December 31, 2005. Applied has agreed that if DRM
                               has not distributed to these shareholders a total
                               of $10.0 million in cash in earn-out  payments by
                               December  31,  2003,  Applied  will  make  up the
                               difference  between  $10.0 million and the actual
                               cash distributed.  This difference can be paid in
                               cash or Applied  common shares at Applied's  sole
                               discretion.

                        Applied has an absolute and  irrevocable  obligation  to
                        repurchase,  by the end of the one-year  option  period,
                        that  number of 9.5  million  shares of  Applied  common
                        stock  necessary  to provide the holders of those shares
                        with a total of $14.5 million. It is Applied's intention
                        to exercise its option to reacquire  these shares during
                        the  one-year  period and sell these  shares to generate
                        the cash necessary to meet the $14.5 million obligation.
                        The  obligation  has been recorded as a note payable and
                        interest  has been imputed on the note payable to record
                        debt of $13,122.

                        The former  owners of DRM have  entered  into  five-year
                        employment  agreement  with DRM  providing  for starting
                        salaries of $262 per year, with annual  increases of not
                        more  than  5%.  In  addition,  these  individuals  have
                        entered into five-year  non-competition  agreements with
                        DRM.

                        Applied has valued the consideration given as follows:

                         9.5 million option common shares             $  13,122
                         5.0 million common shares                        5,469
                         1.0 million common shares                        1,094
                         Warrants to purchase 1.0 million shares            959
                         Future payment guarantee                        10,000
                         Imputed interest on future payment guarantee    (2,588)
                                                                      ----------

                                  Total                               $  28,056
                                                                      ==========



--------------------------------------------------------------------------------
                                                                            F-20

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------





6.   Acquisition        DRM's equity at the  date of acquisition  was $414.  81%
     of Dispute         of this equity was $336.
     Resolution
     Management         Applied    recorded   the    difference    between   the
                        consideration  given  $28,056 and its  ownership  in DRM
                        equity $336 as follows:

                          Covenants not to compete                   $   2,625
                          Goodwill                                      25,095
                                                                     ---------
                                   Total                             $  27,720
                                                                     =========

                        Covenants not to compete are amortized over their 5 year
                        life. Goodwill is amortized over 20 years.

                        The Company  recorded $341 of minority  interest expense
                        related  to the  minority  shareholders  portion  of DRM
                        income  for  the  period   August  30,   2000  (date  of
                        acquisition) through December 31, 2000.

                        Supplemental   twelve   month  pro  forma   consolidated
                        operations  as though DRM had been  acquired  January 1,
                        2000, is as follows:

                                                                     Proforma
                                            DRM January 1,           Year Ended
                              Commodore       2000 to               December 31,
                               Applied      August 30, 2000            2000
                              ---------     ---------------         ------------
Revenues                     $   20,631         $   4,271           $  24,902
Net income (loss)            $  (11,441)        $   2,182           $  (9,259)
(Loss) earnings per share    $     (.34)        $     .06           $    (.28)



7.   Other              Other accrued liabilities consist of the following:
     Accrued
     Liabilities                                               2000     1999

                        Compensation and employee benefits    $   652  $   994
                        Accrued consulting                        185        -
                        Dividend payable                          408        -
                        Loss reserve                              357      357
                        Related parties                           185      185
                        Severance payments                         76      171
                        Other                                     626      733
                                                              ----------------

                                                              $  2,489 $ 2,440
                                                              ================

--------------------------------------------------------------------------------
                                                                            F-21

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


8.   Line of            At  December  31,  2000 and 1999,  CASI had a $1,459 and
     Credit             $948  outstanding  balance,  respectively,  on revolving
                        lines of credit.  In October 2000,  CASI  refinanced its
                        line of credit and a note  payable with the current line
                        of credit.  The current  line of credit is not to exceed
                        85% of eligible receivables or $2,500 and is due October
                        2002 with  interest  payable  monthly  at prime plus 2.0
                        percent (11.5% at December 31, 2000). The credit line is
                        collateralized  by the assets of CASI and is  guaranteed
                        by  Applied.   The  line  of  credit  contains   certain
                        financial  covenants and restrictions  including minimum
                        ratios that CASI must  satisfy.  As of December 31, 2000
                        the  Company  was  not  in  compliance   with  the  loan
                        covenants.


9.   Notes Payable      Notes payable consist of the following at December 31:


                                                                2000      1999
                                                               -----------------


                        Obligation to minority shareholders
                        of DRM wherein the minority
                        shareholders are to receive $14,500
                        cash from the Company through the
                        repurchase of the 9.5 million
                        option common shares issued to the
                        minority shareholders' (see note 6).
                        The Company has imputed an interest
                        rate of 10.5% on the obligation which
                        is secured by Commodore's ownership
                        of DRM.                                $ 14,500  $    -

                        Unamortized discount for imputed
                        interest rate                              (919)      -

                        Notes payable to individuals with
                        interest at 12%, due February 13,
                        2001, secured by DRM accounts
                        receivable.  In connection with this
                        note, one of the majority
                        shareholders of the Company sold 1
                        million shares of the Company's
                        common stock it owned to the note
                        holders at a discount. The discounted
                        amount of $500,000 is recorded as
                        interest expense over the term
                        of the loan.                                500       -


--------------------------------------------------------------------------------
                                                                            F-22

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


9.   Notes Payable      Note payable to an officer of the
     Continued          Company with  interest at 9.75%.
                        The note is unsecured and is
                        convertible into common  stock of the
                        Company at the market  rate of the
                        common stock. The note was originally
                        due March 15, 2001 but has been
                        extended until December 31, 2001. The
                        Company also has imputed a discount
                        for warrants for $89 issued in
                        connection with the note which is
                        being amortized over the original
                        term of the note.                           500       -

                        Unamortized discount imputed for
                        warrants                                    (29)      -

                        Note payable to an insurance company
                        with interest at 8.18%, secured by an
                        insurance contract and due December
                        2001.                                       130       -
                                                               -----------------

                                                               $ 14,682  $    -
                                                               =================

10.  Long-Term          The Company has the following long-term debt at December
     Debt               31:

                                                                2000      1999
                                                               -----------------

                        Obligation to the minority shareholders
                        of DRM wherein the Company has
                        guaranteed to distribute 35% of the
                        cash flows of DRM to the 19% minority
                        shareholders in amounts not less than
                        $10,000 by December 31, 2003 (see note
                        6). The Company has imputed interest
                        on the obligation at 10.5%, and the
                        obligation is secured by the Company's
                        ownership of DRM. The Company has also
                        estimated the current and long-term
                        portions of the obligatio              $ 10,000  $    -

                        Unamortized discount for imputed
                        interest rate                            (2,389)      -


--------------------------------------------------------------------------------
                                                                            F-23

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


10.  Long-Term          Notes payable to an entity requiring
     Debt               monthly payments of $11, plus interest
     Continued          at 8.5% secured by an insurance
                        contract                                    221       -

                        Note payable to a financial institution
                        requiring monthly payments of $17 plus
                        interest at prime plus 1.5% (10.0% at
                        December 31, 1999), secured by property
                        and equipment. The note was refinanced
                        with the line of credit in 2000               -     916
                                                               -----------------

                                                                  7,832     916

                        Less current maturities                  (2,650)   (200)
                                                               -----------------

                                                               $  5,182  $  716
                                                               ================

                        Future maturities on long-term debt are as follows:

                            Year
                            ----
                            2001                                    $    2,650
                            2002                                         2,645
                            2003                                         2,537
                                                                    ----------

                              Total                                 $    7,832
                                                                    ==========

11.   Income Taxes      Applied  provides for deferred income taxes on temporary
                        differences  which represent tax effects of transactions
                        reported for tax purposes in periods  different than for
                        book purposes.


--------------------------------------------------------------------------------
                                                                            F-24

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


11.  Income Taxes       The  provision  for  income  taxes for the  years  ended
     Continued          December  31  results  in an  effective  tax rate  which
                        differs from federal income tax rates as follows:

                                           2000          1999         1998
                                        ------------------------------------

  Expected tax benefit at federal
    statutory rate                      $  (3,890)   $  (1,355)   $  (1,882)
  State income tax benefit, net of
    federal income tax benefit               (686)        (239)        (332)
  Loss on sale of subsidiary                    -            -       (2,866)
  Loss of NOLs in connection with
    sale of affiliate                           -            -        3,689
  Change in valuation allowance             3,790        1,594          476
  Interest accretion                          333            -          796
  Other                                       453            -          119
                                        -----------------------------------

      Income tax benefit                $       -    $       -    $       -
                                        ===================================

                        The  components  of the net  deferred tax as of December
                        31, are as follows:

                                          2000          1999         1998
                                        ------------------------------------

  Reserve for uncollectable
   receivables and potential
   disallowances                        $     242    $       -    $     480
  Net operating loss carryforward          15,703       14,394       12,254
  Goodwill                                  2,239            -            -
  In process technology                       837          837          903
                                        -----------------------------------

                                           19,021       15,231       13,637

  Valuation allowance                     (19,021)     (15,231)     (13,637)
                                        -----------------------------------

      Net deferred taxes                $       -    $       -    $       -
                                        ===================================

                        Applied conducts a periodic examination of its valuation
                        allowance.  Factors considered in the evaluation include
                        recent  and  expected   future  earnings  and  Applied's
                        liquidity  and equity  positions.  As of December  2000,
                        1999 and  1998,  Applied  has  established  a  valuation
                        allowance  for the  entire  amount of net  deferred  tax
                        assets.


--------------------------------------------------------------------------------
                                                                            F-25

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


11.  Income Taxes       Applied has net operating loss ("NOL")  carryforwards at
     Continued          December 31, 2000 of approximately  $39,000 which expire
                        in years 2010 through 2020.  The NOL  carryforwards  are
                        limited  to use  against  future  taxable  income due to
                        changes in ownership and control.


12.  Stockholders'      Series A Convertible Preferred Stock At January 1, 1998,
     Equity             Applied  had  9,600  shares  of  Series  A   Convertible
                        Preferred  Stock  outstanding.  The Series A Convertible
                        Preferred Stock had a liquidation preference of $100 per
                        share  plus   accumulated  and  unpaid   dividends  (the
                        "Liquidation   Preference")   and   paid  a  7%   annual
                        cumulative  dividend.  The Series A Preferred  Stock was
                        convertible  by investors  into that number of shares of
                        Common Stock equal to the Liquidation Preference divided
                        by  the  Conversion  Price.  The  Conversion  Price  was
                        defined as the amount  equal to the lesser of (i) $4.64,
                        representing  100% of the  average of the  closing  sale
                        prices  of the  Common  Stock  for the five  consecutive
                        trading days preceding the issuance date of the Series A
                        Preferred  Stock,  or  (ii)  88% of the  average  of the
                        closing  sale  prices of the  Common  Stock for the five
                        consecutive  trading days immediately  prior to the date
                        of  conversion   (beneficial  conversion  feature).  The
                        Conversion  Price was  subject to certain  floors  based
                        upon the trading price of Applied Common Stock.

                        The Series A Preferred  Stock was  subject to  mandatory
                        redemption at the  Liquidation  Preference  upon certain
                        events,  including  (i) the average  share price for any
                        sixty   consecutive  days  was  less  than  $2.00,  (ii)
                        Applied's Common Stock was not listed on any exchange or
                        over-the-counter  market for fifteen consecutive trading
                        days,   or  (iii)   Applied   was   required  to  obtain
                        stockholder approval under exchange regulations in order
                        to issue  shares  of Common  Stock and  failed to obtain
                        such approval within ninety calendar days.

                        In  1998,  all  9,600  outstanding  shares  of  Series A
                        Preferred  Stock were  converted  into 336,866 shares of
                        Common Stock based upon  conversion  prices ranging from
                        $2.48 to $3.69  per  share.  At the time of  conversion,
                        Applied recorded $14 of preferred  dividends  related to
                        the   accumulated   and  unpaid   dividends   on  shares
                        converted.


--------------------------------------------------------------------------------
                                                                            F-26

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


12.  Stockholders'      Series B, C & D Convertible Preferred Stock
     Equity             Effective  September 28, 1998,  Applied  authorized  and
     Continued          issued three new series of Preferred Stock.  Series B, C
                        and D  Preferred  Stock  were  authorized  up to 25,000,
                        15,000 and 25,000 shares, respectively, all at $.001 par
                        value.

                        Each  of  the  Series  B,  C and D  Preferred  Stock  is
                        convertible  into common  shares of Applied;  each has a
                        par value of $.001 and a stated value of $100 per share;
                        each  carries  a  dividend  rate of $6.00  per share per
                        annum  from  the  date of  issuance,  payable  quarterly
                        commencing  December 31, 1998,  when, and if declared by
                        the  Board of  Directors;  and  each has  non-cumulative
                        dividends.  During 1998 the Company issued 20,909 shares
                        of Series  B,  10,189  shares  of  Series C, and  20,391
                        shares of Series D  Convertible  Preferred  Stock for an
                        aggregate  amount of $2,001  (see Note 15).  Applied did
                        not declare  any  dividend  payment as of  December  31,
                        1998.

                        The  Series B, C and D  Convertible  Preferred  Stock is
                        convertible  into  Common  Stock  at any  time  prior to
                        redemption  at a  conversion  rate of  142.9  shares  of
                        Common   Stock  for  each   share  of  Series  B  and  D
                        Convertible  Preferred  Stock and 133.3 shares of Common
                        Stock for each share of Series C  Convertible  Preferred
                        Stock (an  effective  conversion  price of $.70 and $.75
                        per share of Common Stock, respectively). The conversion
                        price   is   subject   to   adjustment   under   certain
                        circumstances, including Applied taking action to change
                        the  number  of  Common  Shares  outstanding,   such  as
                        declaring a stock dividend.

                        In  November  1999,  all of the  outstanding  shares  of
                        Series  B,  C  and D  Convertible  Preferred  Stock  was
                        converted into 7,258,533 shares of common stock.

                        Series E Convertible  Preferred Stock Effective November
                        4,  1999,  Applied  issued  335,000  shares  of Series E
                        Convertible  Preferred  Stock with a stated value of $10
                        per share.


--------------------------------------------------------------------------------
                                                                            F-27

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


12.  Stockholders'      This stock has a dividend  rate of 12% per annum through
     Equity             April  30,  2000  and   thereafter  5%  per  annum  paid
     Continued          quarterly.  In addition the stock has a special dividend
                        at the rate of 7.5% per annum  which  began to accrue on
                        May  1,  2000,  payable  on  May 1,  2001.  The  special
                        dividend  will  not be paid on any  stock  converted  to
                        common stock on or before April 30, 2001.

                        The  Series  E   Convertible   Preferred   Stock  has  a
                        liquidation  preference of $10 per share.  In connection
                        with the issuance of the Series E Convertible  Preferred
                        Stock,  the Company issued warrants to purchase  572,500
                        shares of common stock at a purchase price equal to 110%
                        of the  market  price  on the date of  closing  ($1.20).
                        These warrants were valued at $60 and expire on November
                        4, 2004.

                        The Series E Convertible  Preferred Stock is convertible
                        into common stock at any time on or after April 30, 2000
                        at a conversion  price equal to the  arithmetic  mean of
                        the  closing  prices of common  stock as reported in the
                        American   Stock  Exchange  for  the  ten  trading  days
                        immediately preceding the date of conversion.

                        During the year ended December 31, 2000 35,000 shares of
                        Series E Convertible Preferred Stock were converted into
                        330,992 shares of common stock.

                        Series F Convertible Preferred Stock
                        In March 2000, Applied issued 266,700 shares of Series F
                        Convertible  Preferred  Stock with a stated value of $10
                        per share.  Transaction  costs on the  issuance  totaled
                        $230 resulting in net proceeds to the Company of $1,770.

                        The stock has a dividend  rate of 12% per annum  through
                        September  30,  2000 and  thereafter  5% per annum  paid
                        quarterly.  In addition the stock has a special dividend
                        at the  rate of 7.5% per  annum  which  began to  accrue
                        October 1, 2000, payable on October 1, 2001. The special
                        dividend  will not be paid on stock  converted to common
                        stock on or before September 30, 2001.

                        The  Series  F   Convertible   Preferred   Stock  has  a
                        liquidation  preference of $10 per share.  In connection
                        with the  issuance  of  Series F  Convertible  Preferred
                        Stock,  the Company issued warrants to purchase  363,475
                        shares of common  stock at  $1.93875  per  share.  These
                        warrants expire on March 16, 2005.

--------------------------------------------------------------------------------
                                                                            F-28

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


12.  Stockholders'      The Series F Convertible  Preferred Stock is convertible
     Equity             into common stock at any time on or after  September 30,
     Continued          2000. On conversion,  the investor will receive for each
                        converted  preferred  share the greater number of common
                        stock as  determined  by (1) the face  value  per  share
                        ($10) plus accrued  dividends  divided by the average of
                        the closing  prices over a ten  consecutive  trading day
                        period ending on the trading day  immediately  preceding
                        the conversion date, or (2) $7.50 (the cash invested for
                        each preferred share) divided by $1.93875.

                        During the year ended December 31, 2000 10,000 shares of
                        Series F  Convertible  Preferred  Stock was converted to
                        109,589 shares of commons stock.

                        The holders of all series of convertible preferred stock
                        have  the  right,  voting  as a  class,  to  approve  or
                        disapprove  of the  issuance  of any  class or series of
                        stock  ranking  senior  to  or  on  a  parity  with  the
                        convertible  preferred stock with respect to declaration
                        and payment of dividends or the  distribution  of assets
                        on   liquidation,   dissolution  or   winding-up.   Upon
                        liquidation,  dissolution  or  winding  up  of  Applied,
                        holders of Series E and Series F  Convertible  Preferred
                        Stock are entitled to receive liquidation  distributions
                        equivalent  to $10.00 per share before any  distribution
                        to  holders  of the Common  Stock or any  capital  stock
                        ranking  junior to the  Series E  Convertible  Preferred
                        Stock.


13.  Stock Options      Applied  has  adopted  the  intrinsic  value  method  of
     and Stock          accounting  for stock options and warrants  under APB 25
     Warrants           with footnote disclosures of the pro forma effects as if
                        the FAS 123 fair value method had been adopted.

                        Had  compensation  expense for Applied's  employee stock
                        options been  determined  based on the fair value at the
                        grant date for awards in 2000,  1999 and 1998 consistent
                        with the  provisions of FAS 123,  Applied's net loss per
                        share would have been increased to the pro forma amounts
                        indicated below:

                                            2000          1999         1998
                                        ---------------------------------------

   Net loss - as reported               $   (11,441)   $  (3,985)   $  (13,353)
   Net loss - pro forma                 $   (12,619)   $  (6,335)   $  (15,749)
   Loss per share - as reported         $      (.34)   $   (0.16)   $    (0.58)
   Loss per share - pro forma           $      (.37)   $   (0.26)   $    (0.68)



--------------------------------------------------------------------------------
                                                                            F-29

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


13.  Stock Options      FAS 123  requires  stock  options to be valued  using an
     and Stock          approach such as the Black-Scholes option pricing model.
     Warrants           The Black-Scholes model calculates the fair value of the
     Continued          grant  based upon the  following  assumptions  about the
                        underlying  stock:  The expected  dividend  yield of the
                        stock is  zero,  the  assumed  volatility  is 165%,  the
                        expected  risk-free rate of return is 4.6 - 6.5 percent,
                        calculated  as  the  rate  offered  on  U.S.  Government
                        securities  with the same term as the  expected  life of
                        the  options,  and  the  expected  term  is the  maximum
                        possible term under the option.

                        Stock Options
                        In December 1998,  Applied adopted its 1998 Stock Option
                        Plan  pursuant  to  which   officers,   directors,   key
                        employees  and/or  consultants  of Applied  can  receive
                        non-qualified   stock  options  to  purchase  up  to  an
                        aggregate  5,000,000  shares of Applied's  Common Stock.
                        During  1999 and 2000  Applied  increased  the number of
                        shares   authorized   by  5,000,000   shares  each  year
                        resulting in 15,000,000 shares currently available under
                        the 1998 stock option plan.  Exercise prices  applicable
                        to stock  options  issued  under this Plan  represent no
                        less  than  100% of the  fair  value  of the  underlying
                        common  stock as of the  date of  grant.  Stock  options
                        granted under the plan may vest  immediately  or for any
                        period up to five years.

                        Applied  amended  stock  options to  purchase  1,826,234
                        shares  granted  under  the 1996  Stock  Option  Plan to
                        extend the term to 10 years and to change  the  exercise
                        price  to  $.44,  100%  of  the  fair  market  value  of
                        Applied's on the date of the amendment.

                        A summary  of the status of  options  granted  under the
                        Plan as of December 31, 2000,  1999 and 1998 and changes
                        during the periods then ended is presented below:

<TABLE>
<CAPTION>


                                2000                 1999                  1998
                         -----------------------------------------------------------------
                                    Weighted             Weighted                Weighted
                                    Average               Average                 Average
                                   Exercise              Exercise                 Exercise
                          Shares    Price      Shares      Price       Shares      Price
                        ------------------------------------------------------------------
<S>                    <C>          <C>       <C>         <C>          <C>         <C>

Options outstanding -
beginning of year       7,169,747   $  .61    4,155,012   $   1.08     2,912,375   $  6.06
Granted                 2,243,769     1.05    3,259,323       0.56     3,901,371      0.59
Exercised              (1,326,866)     .46       (2,142)      0.44             -         -
Forfeited                (557,594)     .59     (242,396)      4.86             -         -
Rescinded                       -       -             -               (2,658,734)     5.83
                       -------------------------------------------------------------------

Options outstanding -
end of year             7,529,056   $ 0.87    7,169,797   $   0.61     4,155,012      1.08
                       ===================================================================
</TABLE>

--------------------------------------------------------------------------------
                                                                            F-30

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

13.  Stock Options      The   following   table   summarizes  information  about
     and Stock          employee stock options outstanding at December 31, 2000:
     Warrants
     Continued

<TABLE>
<CAPTION>
                       Options Outstanding                   Options Exercisable
                -----------------------------------------------------------------------
                                   Weighted          Weighted                  Weighted
Range of                            Average          Average                    Average
Exercisable        Number           Remaining         Exercise     Number       Exercise
 Prices          Outstanding     Contractural Life     Price     Exercisable      Price
---------------------------------------------------------------------------------------
 <S>              <C>              <C>                 <C>        <C>           <C>

 $ 0.25 - $0.44   2,125,920        8.00 years          $0.43      1,456,740     $ 0.44
 $ 0.50 - $0.50   2,147,500        2.58 years          $0.50              -          -
 $ 0.63 - $1.44   2,898,261        8.00 years          $0.96      1,627,004       0.86
 $ 2.00 - $6.00     357,375        5.92 years          $4.36        357,375       4.86
                  --------------------------------------------------------------------

                  7,529,056        6.36 years          $0.87      3,441,119       1.10
                  ====================================================================

</TABLE>

                        Stock Warrants
                        Outstanding warrants (vested and not vested) at December
                        31, 2000 are as follows:
<TABLE>
<CAPTION>

  Granted                                         Number of       Current
  1998 and        Granted         Granted         Warrants        Exercise       Expiration
  Prior            1999            2000            2000            Price           Date
------------------------------------------------------------------------------------------------

<S>            <C>              <C>              <C>              <C>             <C>
   500,000            -                 -           500,000       $   7.20        August 2001
 5,750,000     2,547,959        2,001,848        10,299,807           4.69        June 2001
   500,000            -                 -           500,000          13.86        August 2001
 7,500,000     3,405,444        2,764,141        13,669,585           5.50        December 2003
    19,407             -                -            19,407           5.80        August 2002
    60,000             -                -            60,000           3.68        September 2002
 1,000,000       356,092          270,568         1,626,660           3.09        August 2002
   514,000       148,267          127,596           789,863           2.93        March 2003
 1,500,000       266,861           49,020         1,815,881           1.24        February 2004
         -       312,500                -           312,500           1.20        November 2004
         -       250,000                -           250,000           1.20        November 2004
         -             -           25,000            25,000           1.94        March 2005
         -             -          250,000           250,000           1.94        March 2005
         -             -          113,475           113,475           1.94        March 2005
         -             -          100,000           100,000           1.06        September 2002
         -             -        1,000,000         1,000,000           2.00        August 2005
-----------------------------------------------------------

17,343,407     7,287,123        6,701,648        31,332,178
</TABLE>


                        There were no warrants  exercised in 2000, 1999 or 1998.
                        As of December 31, 2000 all warrants are exercisable.


--------------------------------------------------------------------------------
                                                                            F-31

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------




14.  Earnings Per       All   earnings   per   share    amounts    reflect   the
     Share              implementation  of SFAS 128 "Earnings per Share".  Basic
                        earnings  per share are  computed by dividing net income
                        available to common shareholders by the weighted average
                        number of shares outstanding during the period.  Diluted
                        earnings  per share  are  computed  using  the  weighted
                        average  number  of  shares  determined  for  the  basic
                        computations  plus the  number of shares  that  would be
                        issued assuming all contingently  issuable shares having
                        a dilutive effect on earnings per share were outstanding
                        for the period.

<TABLE>
<CAPTION>



                                                Year Ended December 31,
                                    -----------------------------------------------
                                         2000             1999             1998
                                    -----------------------------------------------

<S>                                 <C>               <C>              <C>
Net loss                            $    (11,441)     $     (3,985)    $    (13,353)
Preferred stock dividends                   (634)              (63)             (14)
                                    -----------------------------------------------

Net loss available to common
 shareholders                       $    (12,075)     $     (4,048)    $    (13,367)

Weighted average common shares
 outstanding (basic)                  35,866,000        24,819,000       23,194,000
Series B Convertible Preferred
 Stock                                         -                 -              (*)
Series C Convertible Preferred
 Stock                                         -                 -              (*)
Series D Convertible Preferred
 Stock                                         -                 -              (*)
Series E Convertible Preferred
 Stock                                       (*)               (*)                -
Series F Convertible Preferred
 Stock                                       (*)                 -                -
Employee Stock Options                       (*)               (*)              (*)
Warrants issued in connection
 with various transactions                   (*)               (*)              (*)
                                    -----------------------------------------------

Weighted average common shares
 outstanding (diluted)                35,866,000        24,819,000       23,194,000
                                    ===============================================

Net loss per share - basic
 and diluted                        $       (.34)     $       (.16)    $       (.58)

</TABLE>

--------------------------------------------------------------------------------
                                                                            F-32

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


14.  Earnings Per       (*) Due to Applied's loss from continuing  operations in
     Share              2000, 1999 and 1998, the incremental  shares issuable in
     Continued          connection with these  instruments are anti-dilutive and
                        accordingly not considered in the calculation.


15.  Related Party      The  Company  has  the  following material related party
     Transactions       transactions:

                        Effective  September 20, 2000,  Applied  received a $500
                        loan from an affiliated individual. This loan matures on
                        December 31, 2001 and bears  interest at 9.75%,  payable
                        monthly.  The note can be converted  into Applied common
                        shares  at an  exchange  rate  of one  share  for  every
                        $1.0625 of loan value. In addition, the Company issued a
                        warrant to purchase  100,000  Applied  common  shares at
                        $1.0625.  The warrant expires September 20, 2002 and was
                        valued  at $89,  which  will be  amortized  to  interest
                        expense over the life of the related debt.

                        The  Company  at  December  31,  2000  has   obligations
                        relating  to the  purchase of 81% of DRM (see Notes 6, 9
                        and 10).

                        During the year ended December 31, 2000 a shareholder of
                        the Company sold, at a discount, 1,000,000 common shares
                        that it owned of Applied to individuals  who loaned $500
                        to  Applied.  The  discount  amount  of $500 was used to
                        offset  receivables from related parties and result in a
                        net related party payable of $247.

                        The Company has  receivables  from entities under common
                        control of $-0- and $265 at December  31, 2000 and 1999,
                        respectively.  The Company  also has payables to related
                        parties  of $185 at both  December  31,  2000  and  1999
                        recorded in accrued liabilities. The Company expensed as
                        bad debt $109 of related  party  receivables  during the
                        year ended December 31, 2000.

--------------------------------------------------------------------------------
                                                                            F-33

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


15.  Related Party      During 1996,  Applied  advanced an  aggregate  amount of
     Transactions       $1.5  million to  Lanxide  Performance  Materials,  Inc.
     Continued          ("LPM"),  a  wholly-owned  subsidiary  of Lanxide  Corp.
                        Lanxide is related to  Commodore by  substantial  common
                        ownership.  The promissory  notes became due on February
                        28, 1998.  At December  31, 1997 a $814 reserve  against
                        this receivable existed,  reducing the net receivable to
                        its  estimated  fair  value.  In  March  1998,   Applied
                        realized  this  receivable  by exchanging it for amounts
                        due  under  the  Intercompany  Convertible  Note  with a
                        carrying  value  of  $3,889.   In  connection  with  the
                        exchange,  Applied  issued a  warrant  to  Commodore  to
                        purchase  514,000  shares  of Common  Stock at  exercise
                        price of $4.50 expiring August 2001. The $340 fair value
                        of  the  warrant  was  recorded  as  additional  paid-in
                        capital.

                        In   February,   1998,   Commodore   provided  a  $5,450
                        uncollaterized  loan to Applied,  evidenced by Applied's
                        8% non-convertible  note (the "1998 Intercompany Note").
                        Pursuant  to the  terms of the 1998  Intercompany  Note,
                        interest on the unpaid principal  balance was payable at
                        the  rate of 8% per  annum  semiannually  in  cash.  The
                        unpaid  principal amount of the 1998  Intercompany  Note
                        was due and  payable,  together  with accrued and unpaid
                        interest, on December 31, 1999, or earlier under certain
                        circumstances.

                        In connection with the loan, Applied amended a five-year
                        warrant to purchase  7,500,000  shares of Applied Common
                        Stock  issued to Commodore on December 2, 1996 to, among
                        other things,  reduce the exercise  price of the warrant
                        from $15.00 per share to $10.00 per share.  In addition,
                        Applied  issued to  Commodore  an  additional  five-year
                        warrant to  purchase  1,500,000  shares of Applied at an
                        exercise price of $10.00 per share.  The new warrant and
                        the  modification  of the  existing  warrant  issued  in
                        connection with this  transaction  were valued at $1,369
                        in the  aggregate  and  recorded as  additional  paid-in
                        capital.  Through the date of the extinguishment of this
                        note, the discount  associated  with this allocation was
                        being  recognized  using  the  effective  interest  rate
                        method  over the term of the loan.  Amortization  of the
                        discount for 1998 was $542.

                        As  of  September  28,  1998,  carrying  values  of  the
                        Intercompany Notes were $5,660.


--------------------------------------------------------------------------------
                                                                            F-34

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------



15.  Related Party      On September 28, 1998,  Applied  repaid all amounts owed
     Transactions       to  Commodore by  exchanging  i) its 87% interest in the
     Continued          Common Stock of  Separation,  ii) 20,909 shares of newly
                        created  Series  B  Convertible  Preferred  Stock,  iii)
                        10,189  shares  of newly  created  Series C  Convertible
                        Preferred  Stock,  iv)  20,391  shares of newly  created
                        Series  D  Convertible   Preferred   Stock,  v)  a  $357
                        receivable from Separation and vi) a modification of the
                        new  warrants   granted  in  connection  with  the  1998
                        Intercompany Notes reducing the exercise price to $1.50.
                        The value of the  consideration  given was less than the
                        carrying amount of the Intercompany Notes.  Accordingly,
                        due  to the  relationships  of the  parties  involved  a
                        $3,154 gain was recorded as a contribution  to equity on
                        debt restructuring as follows:

                        Carrying value of Intercompany Notes           $  5,660
                        Value of 87% interest in a receivable
                          from Separation                                   500
                        Value of Series B Convertible Preferred
                          Stock                                             813
                        Value of Series C Convertible Preferred
                          Stock                                             396
                        Value of Series D Convertible Preferred
                          Stock                                             792
                        Value of modification warrant                         5
                                                                       ---------
                        Value of consideration given                     (2,506)
                                                                       ---------

                        Equity contribution on debt restructuring      $  3,154
                                                                       =========

                        The value of the 87%  interest in and  receivables  from
                        Separation,  Preferred  Stock  and  modification  of the
                        warrant were determined by independent appraisal.

                        As  of  September  28,  1998,   the  carrying  value  of
                        Applied's 87% interest in the Common Stock of Separation
                        and  Applied's  $357   receivable  from  Separation  was
                        $(4,164).  Accordingly,  a $4,664 contribution to equity
                        (representing the difference  between the book value and
                        the fair value of Applied's investment in Separation) on
                        the sale of affiliate  was also  recorded in  connection
                        with the transaction.


--------------------------------------------------------------------------------
                                                                            F-35

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


16.  Commitments        Operating Leases
     and                Applied and its subsidiaries  are committed  under  non-
     Contingencies      cancelable operating leases for  office  space and other
                        equipment.  Future  obligations  under the leases are as
                        follows:

                                   2001               $     258
                                   2002                      69
                                   2003                      64
                                   2004                      64
                                   2005                      11
                                                      ---------

                                                      $     466
                                                      =========

                        Rent expense  approximated  $403, $332 and $502 in 2000,
                        1999 and 1998, respectively.

                        Executive Bonus Plan
                        Applied has a five-year Executive Bonus Plan (the "Bonus
                        Plan") under which a number of executives  and employees
                        of Applied are entitled to formula bonuses. Applied paid
                        $622 of 1997  executive  bonuses  in  January  1998.  No
                        bonuses are accrued at December 31, 2000 and 1999.

                        Litigation
                        Applied  has  matters  of  litigation   arising  in  the
                        ordinary  course of  business  which in the  opinion  of
                        management  will not have a material  adverse  effect on
                        its financial condition or results of operations.

                        Guarantee
                        The Company,  along with several  other  entities,  in a
                        prior year  guaranteed a performance  bond of Separation
                        relating to the Port of Baltimore contract.  The Company
                        was notified on June 28, 2000 that the performance  bond
                        is being  called.  It is not known,  at this  time,  the
                        amount, if any, the Company's share will be. The maximum
                        exposure is approximately $390.

--------------------------------------------------------------------------------
                                                                            F-36

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------



17.  401(K)             The Company has  adopted a 401(K)  savings  plan for all
     Savings Plan       employees   who   qualify   as  to  age   and   service.
                        Contributions  by the  Company  are  discretionary.  The
                        Company  made  annual   contributions  to  the  plan  of
                        approximately  $48,  $91 and $108 during the years ended
                        December 31, 2000, 1999 and 1998, respectively.


18.  Segment            Using  the   guidelines  set  forth  in  SFAS  No.  131,
     Information        "Disclosures About Segments of an Enterprise and Related
                        Information,"  Applied has  identified  four  reportable
                        segments as follows:

                          1.  CASI,    which    primarily    provides    various
                              engineering,  legal, sampling and public relations
                              services  to  Government  agencies  on a cost plus
                              basis.

                          2.  Solution,  which,  through CASI,  has equipment to
                              treat mixed and hazardous waste through a patented
                              process using sodium and anhydrous ammonia.

                          3.  DRM from August 30, 2000 (date of  acquisition) to
                              December  31,  2000,  which  provides a package of
                              services  to  help  companies   recover  financial
                              settlements  from  insurance  policies  to  defray
                              costs associated with environmental liabilities.

                          4.  Separation,  from January 1, 1998 to September 28,
                              1998  (date of sale to  Commodore)  (see Note 15),
                              which provides water and contaminant separation by
                              use of a patented process.

                        Common  overhead  costs are allocated  between  segments
                        based on a record of time spent by executives.

                        Applied  evaluates  segment  performance  based  on  the
                        segment's net income (loss). The accounting  policies of
                        the  segments  are the  same as those  described  in the
                        summary of significant  accounting  policies.  Applied's
                        foreign and export sales and assets  located  outside of
                        the  United  States  are  not  significant.   Summarized
                        financial  information  concerning  Applied's reportable
                        segments is shown in the following tables.


--------------------------------------------------------------------------------
                                                                            F-37

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


         2000                                                                                         Corporate
         ----                                                                                          Overhead
                                         Total           CASI         Solution           DRM           & Other
                                  --------------------------------------------------------------------------------

<S>                                 <C>             <C>            <C>             <C>              <C>
Revenue                             $       20,631  $      16,786  $          271  $         3,574  $           -

Costs and expenses:
     Cost of sales                          14,452         13,962             490                -              -
     Research and development                  993              -             993                -              -
     General and administrative              6,989          2,355             504            1,761          2,369
     Depreciation and
       amortization                          1,471              -             378               12          1,081
     Impairment of goodwill                  6,586              -               -                -          6,586
     Minority interest                         341              -               -                -            341
                                  --------------------------------------------------------------------------------

         Total costs and expenses           30,832         16,317           2,365            1,773         10,377
                                  --------------------------------------------------------------------------------

Income (loss) from operations              (10,201)           469          (2,094)           1,801        (10,377)

Interest income                                 67              -               -               10             57
Interest expense                            (1,307)          (123)            (86)             (12)        (1,086)
Equity in losses of
  unconsolidated subsidiary                      -              -               -                -
Income taxes                                     -              -               -                -              -
                                  --------------------------------------------------------------------------------

Net income (loss)                   $      (11,441) $         346  $       (2,180) $         1,799  $     (11,406)
                                  --------------------------------------------------------------------------------

Total assets                        $       37,473  $       4,255  $        1,724  $         2,562  $      28,932
                                  --------------------------------------------------------------------------------

Expenditures for long-lived
  assets                            $          302  $          40  $          132  $           130  $           -
                                  --------------------------------------------------------------------------------

</TABLE>

--------------------------------------------------------------------------------
                                                                            F-38

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>


         1999                                                                                  Corporate
         ----                                                                                  Overhead
                                                  Total           CASI        Solution          & Other
                                            -----------------------------------------------------------------

<S>                                         <C>              <C>           <C>            <C>
Revenue                                     $        18,147  $      17,973 $         174  $                -

Costs and expenses:
     Cost of sales                                   16,127         15,865           262                   -
     Research and development                         1,145              -         1,145                   -
     General and administrative                       4,037          1,428           175               2,434
     Depreciation and
       amortization                                     696             64           247                 385
     Minority interest                                    -              -             -                   -
                                            -----------------------------------------------------------------

         Total costs and expenses                    22,005         17,357         1,829               2,819
                                            -----------------------------------------------------------------

Income (loss) from operations                        (3,858)           616        (1,655)             (2,819)

Interest income                                          39              -             -                  39
Interest expense                                       (166)          (103)          (63)                  -
Equity in losses of
  unconsolidated subsidiary                               -              -             -                   -
Income taxes                                              -              -             -                   -
                                            -----------------------------------------------------------------

Net income (loss)                           $        (3,985) $         513 $      (1,718) $           (2,780)
                                            -----------------------------------------------------------------

Total assets                                $        16,047  $       4,108 $       2,035  $           11,713
                                            -----------------------------------------------------------------

Expenditures for long-lived
  assets                                    $           353  $          12 $         337  $                4
                                            -----------------------------------------------------------------
</TABLE>


--------------------------------------------------------------------------------
                                                                            F-39

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


         1998                                                      Separation
         ----                                                       (Through                         Corporate
                                                                 September 28,                        Overhead
                                        Total          CASI          1998)            Solution        & Other
                                  -------------------------------------------------------------------------------

<S>                                <C>             <C>         <C>               <C>               <C>
Revenue                            $       17,470  $    17,346 $              18 $               - $         106

Costs and expenses:
     Cost of sales                         15,421       14,986                 -               375            60
     Research and development               2,722            -             1,169             1,320           233
     General and administrative             8,188        1,835             1,896               440         3,947
     Depreciation and
       amortization                         1,150          103               287               422           338
     Minority interest                        300            -               300                 -             -
                                  -------------------------------------------------------------------------------

         Total costs and expenses          27,711       16,924             3,652             2,557         4,578
                                  -------------------------------------------------------------------------------

Income (loss) from operations             (10,241)         422            (3,634)           (2,557)       (4,472)

Interest income                               337            1                94                 -           242
Interest expense                           (1,066)        (125)                -                 -          (941)
Equity in losses of
  unconsolidated subsidiary                (2,383)           -                 -                 -        (2,383)
                                  -------------------------------------------------------------------------------

Net (loss) income                  $      (13,353) $       298 $          (3,540)$          (2,557)$      (7,554)
                                  -------------------------------------------------------------------------------

Total assets                       $       15,617  $     3,506 $               - $           1,932 $      10,179
                                  -------------------------------------------------------------------------------

Expenditures for long-lived
  assets                           $        2,704  $       135 $             762 $           1,669 $         138
                                  -------------------------------------------------------------------------------

</TABLE>

--------------------------------------------------------------------------------
                                                                            F-40

<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------


20.  Recent             In June 1999, the FASB issued SFAS No. 137,  "Accounting
     Accounting         for  Derivative   Instruments  and  Hedging  Activities-
     Pronounce-         Deferral of the  Effective  Date of FASB  Statement  No.
     ments              133."  SFAS 133  establishes  accounting  and  reporting
                        standards  for  derivative   instruments   and  requires
                        recognition of all  derivatives as assets or liabilities
                        in the statement of financial  position and  measurement
                        of  those   instruments  at  fair  value.  SFAS  133  is
                        effective  for  fiscal  years  beginning  after June 15,
                        2000. The Company believes that the adoption of SFAS 133
                        will not  have  any  material  effect  on the  financial
                        statements of the Company.



--------------------------------------------------------------------------------
                                                                            F-41

<PAGE>