SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                       __________________________________

                                    FORM 10-K




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

                   For the fiscal year ended December 31, 2001

                                       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:

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

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

         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 __


<PAGE>

         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
April 15, 2002 with an  aggregate  market value of  approximately  $2,228,248.40
(based  upon the  last  sale  price of the  common  stock on April  15,  2002 as
reported by the American Stock Exchange).

           As of April 15, 2002; 57,645,290 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, 2001

                               TABLE OF CONTENTS


<TABLE>
<S>                                                                                                              <C>
PART 1............................................................................................................1
------
         ITEM 1.  BUSINESS........................................................................................1
                  General.........................................................................................1
                  Soil Decontamination--Commodore Solution Technologies, Inc......................................3
                  Environmental Insurance Claim Resolution - Dispute Resolution Management, Inc...................8
                  Environmental Management - Commodore Advanced Sciences, Inc.....................................9
                  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.....................................................................................19
         ITEM 3.  LEGAL PROCEEDINGS..............................................................................20
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................21

PART II..........................................................................................................21
-------
         ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................21
                  Market Information.............................................................................21
                  Dividend Information...........................................................................21
                  Recent Sales of Unregistered Securities........................................................22
         ITEM 6.  SELECTED FINANCIAL DATA........................................................................28
         ITEM 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
                    OPERATIONS...................................................................................29
                  Overview.......................................................................................29
                  Results of Operations..........................................................................29
                  Liquidity and Capital Resources................................................................33
                  Net Operating Loss Carryforwards...............................................................37
                  Forward Looking Statements.....................................................................37
         ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................38
         ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................38
         ITEM 9.  CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND  FINANCIAL
                    DISCLOSURE...................................................................................38
</TABLE>


<PAGE>
<TABLE>
<S>                                                                                                              <C>
PART III.........................................................................................................39
--------
         ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................39
                  Executive Officers and Directors...............................................................39
                  Key Employees..................................................................................41
                  Board Committees...............................................................................42
                  Compensation of Directors......................................................................43
                  Compliance with Section 16(a) of the Exchange Act..............................................43
         ITEM 11. EXECUTIVE COMPENSATION.........................................................................44
                  Summary Compensation...........................................................................44
                  Stock Options..................................................................................46
                  Employment Agreements..........................................................................47
                  Compensation Committee Interlocks and Insider Participation....................................47
                  Report of the Compensation Committee on Executive Compensation.................................48
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................52
                  Security Ownership of Certain Beneficial Owners................................................52
                  Security Ownership of Management...............................................................54
         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................56
                  Organization and Capitalization of the Company.................................................56
                  Services Agreement.............................................................................60
                  Sale of Company Common Stock by Environmental..................................................60
                  February 1998 Intercompany Note................................................................62
                  September 1997 Intercompany Convertible Note...................................................62
                  Sale of Series D Preferred Stock by Environmental..............................................63
                  License of SET Technology......................................................................63
                  Future Transactions............................................................................64

PART IV..........................................................................................................65
-------
         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K...............................65

SIGNATURES.......................................................................................................73
----------

SUPPLEMENTAL INFORMATION.........................................................................................74
------------------------
</TABLE>



<PAGE>

     Preliminary Note Regarding Certain Risks and Forward-Looking Statements
     -----------------------------------------------------------------------

         This Annual Report on Form 10-K contains "forward-looking  statements."
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  projected  future results,  future plans,  objectives or
goals or future conditions or events are also forward-looking statements. Actual
results are inherently difficult to predict. Any such forward-looking statements
are 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 and
uncertainties that would affect any such forward-looking statements. These risks
and uncertainties  include,  but are not limited to: the Company's critical need
for additional cash to sustain existing operations and meet existing obligations
and capital  requirements;  the Company's dependence on its subsidiary,  Dispute
Resolution Management, Inc., to meet its cash needs; the Company's need to raise
additional  capital to meet  obligations  relating to the  purchase of DRM or to
renegotiate such obligations;  the ability of the Company to implement its waste
processing operations, including obtaining commercial waste processing contracts
and processing waste under such contracts in a timely and cost effective manner;
the  timing  and  award of  contracts  by the U.S.  Department  of Energy fo the
cleanup of waste sites  administered  by it; the Company's  ability to integrate
acquired  companies;  the acceptance and  implementation  of the Company's waste
treatment  technologies in the government and commercial sectors;  the Company's
ability to obtain and  perform  under  other large  technical  support  services
projects;  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.


                                     PART I
                                     ------

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

GENERAL

         Commodore   Applied   Technologies,   Inc.   (the   "Company")   is  an
environmental solutions company offering 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.

                                       1
<PAGE>

         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 that we view
as 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  with 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.

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

o        implementing  the SET  technology  in  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  ventures  or  acquisitions,  to further
         expand the business offerings and services of DRM to their existing and
         future clientele; and

                                       2
<PAGE>

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
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

                                       3
<PAGE>

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.  As of
December 31, 2001,  the Company has not generated any revenues  relating to this
contract and the equipment remains in storage at this facility.

         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 meet 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
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

                                       4
<PAGE>

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;

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.  As of  December  31,  2001,  the  SET  technology  has  not  generated
profitable operations or any significant revenues.

                                       5
<PAGE>

         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.

         The  Nationwide  Permit  expired in September  2001, and may be renewed
subject to providing any requested additional information to the EPA at the time
of renewal. 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 will be issued  pending the final site selection for the full or
part-time  operation  of any SET system for the  treatment  of PCB  wastes.  The
revised  permit will require the Company to fund closure costs  associated  with
the  implementation  of any SET  system for the  treatment  of PCB  wastes.  The
closure costs are calculated on a site-by-site  basis and are funded accordingly
by the Company.

         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
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.

         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.


                                       6
<PAGE>


The following table displays  selected test results from 1996-2001.  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>

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


                                       7
<PAGE>


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.

         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 19 full-time
employees  comprised of attorneys,  MBAs and former insurance claim managers and
professionals.

                                       8
<PAGE>

         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.

         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 DOD,
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

                                       9
<PAGE>

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 market position in
the  consulting and front-end  analysis  phase,  Advanced  Sciences is poised 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 85% owned  subsidiary  of Commodore
Environmental Services, which owns 14.54% 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.


                                       10
<PAGE>

Contracts

         Rocky Flats Environmental Technology Site (RFETS) Contracts:  Commodore
Advanced  Sciences (CAS) has two contract  vehicles at RFETS; a subcontract with
Kaiser-Hill   Company  LLC  (Kaiser-Hill),   prime  integrating  and  management
responsible for cleanup of RFETS, and a lower-tier  subcontract with Accelerated
Systems LLC.  Under its fixed unit rate type  subcontract  with Kaiser Hill, CAS
provides  20  personnel  who sample  surface  water or soils,  collect  SDWA and
bioassay  samples in  radiological  controlled  areas,  and ship the  samples to
Kaiser-Hill controlled laboratories. CAS' subcontract has recently been extended
through  September  2002 to enable  Kaiser Hill to compete  for the  subcontract
scope and make a new award by October 2002.  CAS believes it is on a competitive
team for the re-bidding of this subcontract work. CAS also provides  engineering
design  and  documentation  support  services  to Kaiser  Hill  under a time and
materials type task order executed via its Basic Ordering  Agreement  (BOA) with
Accelerated Systems. The BOA extends through June 2003.

         Denver  Regional  Water  Council  of  Governments:  Commodore  Advanced
Sciences' is contracted annually to sample surface waters, streams,  groundwater
wells and watersheds to Chatfield damn located southwest of Denver.  The current
contract term is complete December 2002.

         Tetra Tech Contract:  Commodore Advanced Sciences is in the fourth year
of its five-year  subcontract  under Tetra Tech's  general  engineering  support
contract  with  Bechtel  Jacobs  Co,  LLC.  Bechtel  Jacobs is  responsible  for
environmental oversight of the U.S. DOE's Oak Ridge, TN site. CAS, provides 1 to
3 engineering personnel on a time and material basis to Tetra Tech on a contract
basis through September 2002.

         General Services  Administration  Contract:  In January 2000, Commodore
Advanced   Sciences  was  awarded  a  5-year  contract  for   environmental  and
engineering  services by the GSA's Federal Supply Service.  Work is performed by
task  orders not to exceed a $15  million  contract  ceiling.  GSA's  needs were
diverted  to  facility  security  and  Anthrax  sampling  due to the  events  of
September 11 and beyond causing CAS its expected  backlog to $2 million  through
December 2003. 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:  Commodore Advanced
Sciences,  LLC,  under a fixed price type  subcontract  with a  three-year  base
period is providing facility  maintenance,  surveillance and inspection services
for American  Technologies,  Inc.  (ATI) in support of Bechtel Jacobs Company at
the East  Tennessee  Technology  Park  (ETTP) at Oak Ridge,  TN. The base period
concludes March 31, 2002.

         Parsons  Infrastructure and Technology Group, Inc.:  Commodore Advanced
Sciences,  Inc. (CAS), provides two to three engineering personnel on a time and
material  basis to Parsons who  supports  BWXT,  the  operating  and  management
contractor at the Y12 facility in Oak Ridge, TN. The time and material  contract
runs through  September 2002. CAS provides  general  engineering,  draftsmen and
maintenance of engineering drawings for the Y12 facility management group.

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

                                       11
<PAGE>

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
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's SET process and the ammonia jet
cutting system was unable to compete successfully in the Army's ACWA program.

         Government  Technologies and Teledyne  Environmental  each owned 50% of
the equity, profit and losses of the LLC. Teledyne Environmental and the Company
agreed to cease the operations of and dissolve their  Teledyne-Commodore  LLC as
of October 22, 2001. In dissolving the LLC, the companies have  determined  that
the application of SET technology to chemical weapons demilitarization under the
U.S.  Army's  ACWA II  program is not likely to occur.  Last year,  the  Program
Manager of the ACWA II program determined that its chemical weapons  destruction
plans for stockpiles in Colorado and Kentucky would not include the technologies
offered by the LLC.  Dissolution of the LLC will enable the companies to realize
significant  savings in operations  expenses.  The companies  have not ruled out
further collaboration in the future with respect to demilitarization of chemical
weapons.  Under the dissolution agreement,  the Company obtained,  from the LLC,
equipment used by the LLC and the  intellectual  property rights of the relevant
technologies  it  licensed  to the  LLC as  they  applied  to  chemical  weapons
destruction.  The Company has valued the equipment  obtained from the LLC on our
current  financial  statements  at a net  book  value  ($30,000)  at the time of
dissolution.

         Nuvotec,  Inc.,  Joint  Venture.  In April 2002,  Commodore  Government
Environmental  Technologies,  Inc. ("Government  Technologies"),  a wholly-owned
subsidiary of the Company, entered into a LLC agreement with Technical Resources
International,  Inc., ("TRI"), a wholly owned subsidiary of Nuvotec,  Inc., as a
non-exclusive  means by which each party (and their  affiliates) will pursue the
mixed  waste  treatment  on a limited,  domestic  basis.  TRI is a  provider  of
contract  services  to the  Department  of Energy  (the "DOE") and to the public
utilities market. The purpose of the joint venture,  known as Nuvoset,  LLC (the
"LLC"), a Delaware limited liability  company,  encompasses all aspects of mixed
waste characterization,  treatment, storage, transportation and disposal through
the  use,  application  and  commercialization  of the  technologies  of the LLC
partners.


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, 2001,  sales of  approximately  47% of the Company's
environmental  management services were to private sector customers and sales of
approximately 53% were derived from contracts with federal,  state and municipal
government agencies.  Contracts to private sector customers generally may not be

                                       12
<PAGE>

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 53% of the Company's  revenues in 2001.
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 2001,
Advanced  Sciences'  Rocky Flats Contract and Oak Ridge  Contract  accounted for
approximately  72% and 28%,  respectively of the Advanced  Sciences'  sales. 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
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 for  environmental  services exceed
$10 billion per year. The DOD and DOE are expected to account for  approximately

                                       13
<PAGE>

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  was 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  was 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.

BACKLOG

         At  December  31,  2001,  total  possible  backlog  for the Company was
approximately  $11,000,000  as compared  with  approximately  $25,000,000  as of
December 31, 2000. Approximately $2,000,000 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  $9,000,000 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,  options  that  have  yet  to be  formally  exercised,  proposals  in
evaluation  by  our  customers  or  new  bids.   The  Company   estimates   that
approximately  $1,600,000  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 $423,000,
$993,000,  and $1,145,000  for the years ended December 31, 2001,  2000 and 1999
respectively.

                                       14
<PAGE>

INTELLECTUAL PROPERTY

         The Company  currently  has  fifty-five  (55)  issued U.S.  and foreign
patents.  Additionally, the Company has fifty (50) 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 years. As patents are issued,
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.

COMPETITION

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.

         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.

                                       15
<PAGE>

         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.


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. Several large domestic and
international  companies  and  numerous  small  companies,  many  of  whom  have
substantially   greater   financial  and  other   resources  than  the  Company,
characterize this market.  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
2001 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 accepted in
these   sectors  as  a   superior,   more   cost-effective   method  to  achieve
decontamination of a variety of materials.

                                       16
<PAGE>


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 2002. 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  competitors in this
market  sector  include  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
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

                                       17
<PAGE>

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.

         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  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

                                       18
<PAGE>

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.  Various
revisions to the equipment and process parameters are being made to the existing
permit.  The revised  permit will be issued pending the final site selection for
the full or  part-time  operation  of any SET  system for the  treatment  of PCB
wastes.  The revised  permit will  require  the  Company to fund  closure  costs
associated  with the  implementation  of any SET system for the treatment of PCB
wastes.  The closure costs are calculated on a site-by-site basis and are funded
accordingly by the Company.

EMPLOYEES

         As of March 31,  2002,  the  Company  (including  all of its direct and
indirect  subsidiaries) had a total of 52 full-time and 13 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.
-------  -----------

         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, 2001 and 2002 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.

         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  $3,800  per  month,  pursuant  to  a
month-to-month lease arrangement.

         Advanced Sciences' principal  executive and administrative  offices are
located in Albuquerque,  New Mexico. Advanced Science leases approximately 3,750
square feet of space for rental payments in the amount of $4,305 per month under
a month-to-month  lease.  Advanced Sciences also leases various spaces for field
operations in Carlsbad and Los Alamos,  New Mexico,  Oak Ridge,  Tennessee,  and
Lakewood, Colorado.

                                       19
<PAGE>

         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  2,581  square  feet of space  for  rental
payments  in the  amount of $3,925 per month  under a lease that will  expire in
December 2004.  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
-------  -----------------

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 of liability will be.

         As of March 31, 2002, no litigation has been filed against the Company,
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 15, 2002, 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.
-------  ----------------------------------------------------

         The annual  meeting  for the year 2001 and 2002 will be held during the
year 2002. All  shareholders  of record as of the announced  record date will be
notified  of the meeting in a timely  manner.  All  shareholders  of record will
receive the appropriate financial and proxy materials prior to the meeting.

                                       20
<PAGE>


                                     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 March 15, 2002,
there  were 215  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 2001
      First Quarter................................................         $0.75        $0.19        $0.11        $0.02
      Second Quarter...............................................          0.28         0.13         0.07         0.01
      Third Quarter................................................          0.17         0.06         0.03         0.01
      Fourth Quarter...............................................          0.18         0.06         0.02         0.01

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
</TABLE>


DIVIDEND INFORMATION

         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. Through December 31, 2001, the Company had paid $134,000 in cash
dividends and the Company has accrued an additional  $428,000 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. On January 9, 2002 the
Company  paid  $36,657  in  common  stock  dividends  representing  the  accrued
dividends on all of the converted  Series E shares to date. See "Recent Sales of
Unregistered Securities -- November 1999 Private Placement of Series E Preferred
Stock."

                                       21
<PAGE>



         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.  Through  December  31,  2001,  the Company had paid $92,000 in cash
dividends and the Company has accrued an additional  $388,000 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. On January 9,
2002 the Company paid  $83,248.93  in common stock  dividends  representing  the
accrued  dividends on all of the converted  Series F shares to date. See "Recent
Sales of  Unregistered  Securities  -- March 2000 Private  Placement of Series F
Preferred Stock."

         Common 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

         On June 13,  2001,  the  Company  issued  and sold to  Milford  Capital
Management, Inc. and the Shaar Fund, Ltd. (hereinafter known as "Milford/Shaar")
one-year,  15% Senior Secured Promissory Notes (the  "Milford/Shaar  Bridge Loan
Notes") in the aggregate principal amount of $1,000,000.  In connection with the
Milford/Shaar Bridge Loan Notes, the Company issued to Milford/Shaar a five-year
warrant for 333,333 shares of the Company's common stock at an exercise price of
$0.22 per share. The Company pledged its equipment and SET related  intellectual
property as  collateral  for the  Milford/Shaar  Bridge Loan Notes.  The Company
shall pay  Milford/Shaar  principal  and interest on a monthly basis in arrears.
The Milford/Shaar  Bridge Loan Notes may be prepaid at any time without penalty.
The Company  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.

         The Company  made all payments on the  Milford/Shaar  Bridge Loan Notes
until  November 13, 2001.  The Company asked for and received a  forbearance  of
payments on the Milford/Shaar Bridge Loan Notes from November 13, 2001 until May
13, 2002.

         On May 23, 2001, a private investor purchased $250,000 of the Company's
common  stock at the market  price.  The  Company  issued the  private  investor
1,923,077  shares  of common  stock of the  Company  as a result  of the  equity
purchase.  In connection with the purchase of the shares of the Company's common
stock,  the  Company  issued the private  investor a 2-year  warrant for 500,000
shares of the  Company's  common stock at an exercise  price of $0.22 per share.
The Company  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.

                                       22
<PAGE>

         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,  Chairman of the Board and Chief Executive  Officer of the Company.  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 the  Company's  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. The remaining  principal balance of $250,000 is
outstanding  as of April 15, 2002. The Company has not been notifed of a default
of the Brewer Note as of April 15, 2002. The Company believes that this issuance
of  convertible  debt  is  exempt  from  the  registration  requirements  of the
Securities  Act under  Section 4(2) thereof as a  transaction  not involving any
public offering of securities. 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
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 Company's common stock, transferred to the investors
a total of 1,000,000  shares of the Company's  common stock.  All holders of the
Weiss Group Note have granted payment extensions until May 31, 2002.

         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 AMEX on such date) to all  holders of
the Weiss Group Note in  consideration  of the extension of the due date of such
loans by such  persons  from  February  12, 2001 to June 30,  2001.  The Company
believes that this transaction is exempt from the  registration  requirements of
the Securities Act under Section 4(2) thereof as a transaction not involving any
public offering of securities.

         Effective  January 24, 2002,  the Company  issued  warrants to purchase
500,000  shares of its common stock at an exercise price of $0.15 per share (the
closing  price of our common  stock on the AMEX on such date) to all  holders of
the Weiss Group Note in  consideration  of the extension of the due date of such
loans by such persons from June 30, 2001 to May 31, 2002.  The Company  believes
that  this  transaction  is exempt  from the  registration  requirements  of the
Securities  Act under  Section 4(2) thereof as a  transaction  not involving any
public offering of securities. See "MD&A - Liquidity and Capital Resources."


                                       23
<PAGE>

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  AMEX  for  the  ten  trading  days  immediately  preceding  the  date of
conversion so long as the Company's common stock continues to trade on the AMEX.
In May 2003,  the  Series F  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 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  30,  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.

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 AMEX
for the ten trading days immediately preceding the date of conversion so long as
the  Company's  common stock  continues to trade on the AMEX.  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.

                                       24
<PAGE>

         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  transferto
Environmental,  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,  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.

         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  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

                                       25
<PAGE>

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,  and there are no issued and outstanding
shares of the Company's Series B, Series C or Series D Preferred 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) the
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."

         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,

                                       26
<PAGE>

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.



                                       27
<PAGE>

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

         The following table presents selected financial data of the Company, as
of December 31, 2001,  and for the years ended  December 31, 1997,  1998,  1999,
2000 and 2001.  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>
                                         1997               1998            1999              2000             2001
                                        ----------        --------       ---------        ----------        ---------
<S>                                     <C>               <C>            <C>              <C>               <C>
Revenue:
    Contract revenue................    $   19,493        $ 17,470       $  18,147        $   20,631        $  10,551
Cost of sales:
    Cost of sales...................        16,325          15,421          16,127            14,452            3,369
    Research and development........         3,074           2,722           1,145               993              423
    General and administrative......        12,196           8,118           4,037             6,989            6,643
    Depreciation and amortization...         1,282           1,150             696             1,471            2,491
    Impairment of Machinery                                                                                       776
    Impairment of Patents                                                                                         627
    Impairment of Goodwill..........                                                           6,586               --
    Minority interests..............           (82)            300              --               341              203
                                        ----------        --------       ---------        ----------        ---------

Loss from operations................       (13,302)        (10,241)         (3,858)          (10,201)          (3,981)

    Interest income.................           745             337              39                67               76
    Interest expense................        (1,310)         (1,066)           (166)           (1,307)          (2,354)
    Equity in net losses of
       subsidiary...................        (1,827)         (2,383)             --                --             (295)
                                        ----------        --------       ---------        ----------        ---------

Loss before income taxes ...........       (15,694)        (13,353)         (3,985)          (11,441)          (6,554)
    Income taxes....................            --              --              --                --               --
                                        ----------        --------       ---------        ----------        ---------

Net loss ...........................    $  (15,694)         (13,353)     $  (3,985)       $  (11,441)       $  (6,554)
                                        ----------        --------       ---------        ----------        ---------

Net loss per share -- basic
    and diluted.....................    $    (0.73)       $  (0.58)      $   (0.16)       $    (0.34)       $   (0.13)
                                        ----------        --------       ---------        ----------        ---------

Weighted average number of shares...        21,844          23,194          24,819            35,866           53,241
                                        ----------        --------       ---------        ----------        ---------


Consolidated Balance Sheet Data:

                                           1997            1998            1999             2000             2001
                                        ----------        --------       ---------        ----------        ---------

Cash and cash equivalents.........      $   13,151        $  1,777       $   1,797        $    1,980        $   1,271
Total assets......................          29,696          15,617          16,047            37,473           26,462
Long term debt....................              19              --             716             5,182            4,430
Total liabilities.................          10,521           3,709           6,096            29,199           26,631
Minority interests................           6,645              --              --               419              622
Stockholders' equity..............          11,654          11,908           9,951             7,855            1,571

</TABLE>

                                       28
<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, 2001 compared to Year ended December 31, 2000

         Revenues  were  $10,551,000  for the  year  ended  December  31,  2001,
compared to  $20,631,000  for the year ended  December 31, 2000. The decrease in
revenues  is due to the  decreases  in  revenue  contribution  by CAS and of the
Company's 81% interest in DRM, acquired August 30, 2000.

         In the case of Advanced Sciences, revenues were $4,409,000 for the year
ended  December  31,  2001,  compared  to  $16,786,000  for the year ended 2000.
Revenues  in 2001  were  primarily  from  engineering  and  scientific  services
performed for the United States  government under a variety of contracts similar

                                       29
<PAGE>

to those in place in 2000.  Advanced  Sciences had two major  customers in 2001,
each of which  represents more than 10% of annual revenue.  The combined revenue
for these two  customers  was  $4,409,000  or 100% of the  Company's  total 2001
revenue. The decline in revenues at Advanced Sciences is primarily the result of
fewer contracts and overall,  less subcontract work being performed in 2001. 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  $13,962,000 for 2000 to $3,080,000 for 2001. A reduction in cost
of sales at Advanced  Sciences  resulted from fewer contracts and overall,  less
work performed resulting in 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  $5,961,000  for  the  year  ended
December 31, 2001,  compared to $7,609,316 on a full year basis,  $3,574,000 for
the four month Company  ownership  basis,  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. The decrease in total
year  earnings was the result.  The decrease in revenues is primarily due to the
interruption  of  business  activities   concerning  insurance  settlements  and
recoveries in the fourth  quarter of 2001 as a result of acts of terrorism.  The
various insurers, in which DRM negotiates and receives their settlements, halted
or delayed their settlements until the insurers could  operationally  absorb the
impact of the  terrorist  acts in the United  States.  The insurers have resumed
traditionally settlement practices starting the first quarter of 2002.

         Revenues in 2001 were primarily from  completed  settlement  agreements
between their clients and major insurers. DRM has several client engagements, of
which  two  represented  more than 10% of DRM's  annual  revenue.  The  combined
revenue for these two  customers was  $3,376,000  or 57% of the Company's  total
2001 revenue. 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.   Selling,   general  and  administrative  costs
increased  from  $3,954,000  (on a full year basis) for 2000 to  $4,223,000  for
2001.  This increase  reflects DRM's  increased  investment in the expanding the
office  locations,  staffing and  marketing  efforts,  which have resulted in an
increase  in new  business,  and  contracts  that will  produce  revenues in the
following 18-32 month periods.  Anticipated losses on contracts are provided for
by a charge to income during the period such losses are first identified.

         In the case of  Solution,  revenues  were  $181,000  for the year ended
December  31, 2001 as compared  with  $271,000  for the year ended  December 31,
2000. The decrease is primarily due to the decrease in  feasibility  studies and
commercial processing. Revenues in 2001 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  $181,000 or 100% of the  Solution's  total 2001  revenue.  The  decrease in
revenues at  Solution is  primarily  the result of less  subcontract  work being
performed in 2001.  Cost of sales was  $289,000 for the year ended  December 31,
2001 as compared to $490,000 for the year ended  December 31, 2000. The decrease
in cost of sales is attributable  to lower sales and marketing  expenses for the
SET technology.  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, 2001, the Company incurred research and
development  costs of  $423,000,  as  compared  to  $993,000  for the year ended
December 31, 2000. 100% of the research and development  costs are  attributable
to the  operations  of Solution.  In 2001,  the Company  invested  more money in

                                       30
<PAGE>

capital  expenditures and less in laboratory work and consultants than it had in
2000. DRM and Advanced  Sciences did not incur research and development costs in
the years 2000 and 2001.

         General and  administrative  expenses  for the year ended  December 31,
2001 were $6,643,000,  as compared to $6,989,000 for the year ended December 31,
2000. This decrease  reflects the impact of some of the  restructuring  steps in
the Company throughout 2001.

         In the case of  Advanced  Sciences,  general and  administrative  costs
decreased from $2,355,000 for the year ended December 31, 2000 to $1,219,000 for
the year ended  December 31,  2001.  This  decrease  reflects the impact of some
restructuring steps in Advanced Sciences  (including  principally a reduction in
personnel)  the Company made  through-out  2001 due to the  inability to replace
certain  completed  contracts.  In the case of DRM,  general and  administrative
costs  recognized by the Company were $4,223,000 for the year ended December 31,
2001.  These costs represent the salaries and bonuses issued to all employees of
DRM. Solution incurred general and administrative costs of $700,000 for the year
ended  December 31, 2001 as compared with  $504,000 for the year ended  December
31, 2000.  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 2002.

         The  increase in interest  expense of  $1,047,000  from 2000 to 2001 is
primarily related to amortization of non-cash interest costs associated with the
Company's  purchase of 81% of DRM on August 30, 2000  ($1,716,000),  Brewer Note
($29,000), Milford/Shaar ($53,000) and the Weiss Group Note ($275,000).

         In 2001, the Company took a machinery impairment charge of $776,000 and
a patent  impairment  charge of  $627,000 in order to record the  machinery  and
patents at fair market value. In taking this charge,  the Company considered the
machinery's and the associated  patents'  operating  history and cash flows, its
inability  to  obtain  material  commercial  contracts  in 2001  and the  future
prospects for additional contracts in 2002.


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
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

                                       31
<PAGE>

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
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.

                                       32
<PAGE>

         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.


LIQUIDITY AND CAPITAL RESOURCES

         At December  31,  2001 and  December  31,  2000 ASI had a $108,000  and
$1,459,000 outstanding balance, respectively, on its revolving lines of credit.

         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.

         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
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.

                                       33
<PAGE>

         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 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. The remaining  principal balance of $250,000 is
outstanding  as of April 15,  2002.  The  Company  has not been  notified of the
holder's intent to declare a default on the Brewer Note.

         In October  2001,  ASI  refinanced  their line of credit with  Commerce
Funding  Corporation (the "Commerce  Credit Line").  The Commerce Credit Line is
not to exceed 85  percent  of  eligible  receivables  or  $1,000,000  and is due
October 2002 with interest  payable monthly at prime plus 2 percent (7.0 percent
as of November 12,  2001).  The Commerce  Credit Line is  collateralized  by the
receivables  of ASI and is guaranteed by the Company.  The Commerce  Credit Line
contains certain financial  covenants and restrictions  including minimum ratios
that ASI must satisfy.  ASI was in compliance with the covenants of the Commerce
Credit Line at April 15, 2002.

         In addition,  the Commerce  Credit Line  agreement  stipulates  that no
payments  shall  be made by ASI to the  Company  other  than  monthly  scheduled
payments of principal with respect to the $8,280,000  subordinated  indebtedness
owed  by  ASI  to  the  Company  (which  is  eliminated  in  consolidation)  and
intercompany  indebtedness not to exceed $20,000 in any month. In addition,  ASI
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 October  2001,  ASI repaid their line of credit with KBK  Financial,
Inc. (the "KBK Credit  Line").  The KBK Credit Line was not to exceed 85 percent
of eligible  receivables  or  $2,500,000  and was due October 2002 with interest
payable monthly at prime plus 2 percent (8.00 percent as of September 30, 2001).
The KBK Credit Line was  collateralized  by the assets of ASI and was guaranteed
by the Company.  The KBK Credit Line contained certain  financial  covenants and
restrictions  including  minimum  ratios  that  ASI  must  satisfy.  ASI  was in
compliance  with the  covenants of the KBK Credit Line through the  repayment in
October 2001.

                                       34
<PAGE>

         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.  All holders of the Weiss Group Note have
granted payment extensions until May 31, 2002.

         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 all  holders  of the  Weiss  Group  Note in  consideration  of  such  persons
extension of the due date of such loans from February 12, 2001 to June 30, 2001.

         Effective  January 24, 2002,  the Company  issued  warrants to purchase
500,000  shares of its common stock at an exercise price of $0.15 per share (the
closing price of our common stock on the American  Stock  Exchange on such date)
to all  holders  of the  Weiss  Group  Note in  consideration  of  such  persons
extension of the due date of such loans from June 30, 2001 to May 31, 2002.

         On May 23, 2001, a private investor purchased $250,000 of the Company's
common  stock at the market  price.  The  Company  issued the  private  investor
1,923,077  shares  of common  stock of the  Company  as a result  of the  equity
purchase.  In connection with the purchase of the shares of the Company's common
stock,  the  Company  issued the private  investor a 2-year  warrant for 500,000
shares of the Company's common stock at an exercise price of $0.22 per share.

         On June 13,  2001,  the  Company  issued  and sold to  Milford  Capital
Management, Inc. and the Shaar Fund, Ltd. (hereinafter known as "Milford/Shaar")
one-year,  15% Senior Secured Promissory Notes (the  "Milford/Shaar  Bridge Loan
Notes") in the aggregate principal amount of $1,000,000.  In connection with the
Milford/Shaar Bridge Loan Notes, the Company issued to Milford/Shaar a five-year
warrant for 333,333 shares of the Company's common stock at an exercise price of
$0.22 per share. The Company pledged its equipment and SET related  intellectual
property as  collateral  for the  Milford/Shaar  Bridge Loan Notes.  The Company
shall pay  Milford/Shaar  principal  and interest on a monthly basis in arrears.
The Milford/Shaar Bridge Loan Notes may be prepaid at any time without penalty.

         The Company  made all payments on the  Milford/Shaar  Bridge Loan Notes
until  November 13, 2001.  The Company asked for and received a  forbearance  of
payments on the Milford/Shaar Bridge Loan Notes from November 13, 2001 until May
13, 2002.

         The Company has an irrevocable obligation to repurchase from the former
shareholders  of DRM, by May 16, 2002,  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.
The original  repurchase  obligation  deadline of August 30, 2001,  subsequently
extended through May 16, 2002 by a series of extensions  (initially  extended to
September 29, 2001,  further  extended to October 29, 2001,  further extended to
January 16,  2002 and  subsequently  extended  until May 16,  2002).  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

                                       35
<PAGE>

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  originally  intended 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 15, 2002, the closing price of the Company's  common stock
on the American Stock Exchange, Inc. was $0.09 per share.

         The Company  currently  requires  additional  cash to sustain  existing
operations and meet current  obligations  (including  those described above) and
the  Company's  ongoing  capital  requirements.   Excluding  the  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 2001 financial statements
contains a "going concern"  qualification  in which they express doubt about the
Company's ability to continue in business, absent additional financing.

         For the year ended December 31, 2001,  the Company  incurred a net loss
of  $6,554,000,  as  compared  to a net loss of  $11,441,000  for the year ended
December 31, 2000.

         As shown in the financial  statements  for the years ended December 31,
2001, 2000, and 1999, the Company incurred losses of $6,554,000, $11,441,000 and
$3,985,000  respectively.  The  Company  has also  experienced  net cash  inflow
(outflows)   from  operating   activities  of  $1,910,000,   ($2,002,000),   and
($2,905,000) for the years ended December 31, 2001, 2000 and 1999  respectively.
At December 31, 2001, 2000 and 1999 the Company had working capital (deficit) of
$(19,571,000),  $(16,876,000)  and $621,000  respectively.  The negative working
capital  balance for the year ended  December 31, 2001 is  primarily  due to the
payment   obligations  of  the  Company  to  the  former   shareholders  of  DRM
($14,500,000 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,
2001,  2000  and  1999 the  Company  had  stockholders'  equity  of  $1,571,000,
$7,855,000   and  $9,951,000   respectively.   The  Company's  net  decrease  in
stockholders'  equity from  December  31, 2000 to December 31, 2001 is primarily
due to the loss for the period ($6,554,000).

         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.

                                       36
<PAGE>

NET OPERATING LOSS CARRYFORWARDS

         The  Company  has net  operating  loss  carryforwards  (the  "NOLs") of
approximately  $31,000,000,  which  expire in the years 2010 through  2021.  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.

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
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 and
uncertainities  that would  affect any such  forward-looking  statements.  These
risks and uncertainties  include, but are not limited to: the Company's critical
need for  additional  cash to  sustain  existing  operations  and meet  existing
obligations  and  capital   requirements;   the  Company's   dependence  on  its
subsidiary,  Dispute  Resolution  Management,  Inc., to meet its cash needs; the
Company's need to raise additional  capital to meet obligations  relating to the
purchase of DRM or to renegotiate such  obligations;  the ability of the Company
to implement its waste processing  operations,  including  obtaining  commercial
waste processing contracts and processing waste under such contracts in a timely
and cost  effective  manner;  the  timing  and  award of  contracts  by the U.S.
Department  of Energy for the  cleanup of waste  sites  administered  by it; the
Company's  ability  to  integrate   acquired   companies;   the  acceptance  and
implementation  of the Company's waste treatment  technologies in the government
and commercial sectors;  the Company's ability to obtain and perform under other
large  technical  support  services  projects;   developments  in  environmental
legislation  and  regulation;  the  ability  of the  Company  to  obtain  future
financing on favorable  terms;  and other  circumstances  affecting  anticipated

                                       37
<PAGE>

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.


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

         None.

                                       38
<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 April  15,  2002 are as
follows:

Name                            Age         Position
-------------------------- ---------------- -----------------------------------
Shelby T. Brewer, Ph.D.          63         Chairman of the Board, President
                                            and Chief Executive Officer
-------------------------- ---------------- -----------------------------------
James M. DeAngelis               41         Chief Financial and Administrative
                                            Officer, Treasurer
-------------------------- ---------------- -----------------------------------
Bentley J. Blum                  60         Director
-------------------------- ---------------- -----------------------------------
Herbert A. Cohen                 68         Director
-------------------------- ---------------- -----------------------------------
Paul E. Hannesson                61         Director
-------------------------- ---------------- -----------------------------------
David L. Mitchell                71         Director
-------------------------- ---------------- -----------------------------------
Edward L. Palmer                 84         Director
-------------------------- ---------------- -----------------------------------
William R. Toller                70         Director
-------------------------- ---------------- -----------------------------------


         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

                                       39
<PAGE>

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.

         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.

         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

                                       40
<PAGE>

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.


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 15,  2002,  are as
follows:

Name                      Age     Position
----
William J. Russell        51      Chairman and Chief Executive Officer, DRM
Tamie P. Speciale         39      President and Chief Operating Officer, DRM
O. Mack Jones             61      President of Advanced Sciences

                                       41
<PAGE>


         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  potentially  responsible  person 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 has been serving as Acting President of Advanced Sciences
since  February  2001.  Mr.  Jones  also has served 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  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.


BOARD COMMITTEES

         The Company's  Board of Directors has (i) an Audit Committee and (ii) a
Compensation,  Stock  Option  and  Benefits  Committee.  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.

                                       42
<PAGE>


         As of December 31, 2001,  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, 2001,  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.


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, 2001,  and upon a
review of Forms 5 and amendments  thereto  furnished to the Company with respect
to the year ended December 31, 2001, 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, 2001.

                                       43
<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 2001, 2000 and 1999 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         ($)          ($)         ($)            ($)            (#)       ($)            ($)
    ------------------       --------  --------------  -------  --------------  ------------  ---------------------   --------------
           (a)                (b)          (c)          (d)         (e)            (g)            (g)        (h)           (i)


<S>                           <C>       <C>             <C>     <C>                 <C>      <C>             <C>        <C>
Shelby T. Brewer, Ph.D.(1)    2001       90,317(2)      -0-         -0-             -0-       200,000(3)     -0-           -0-
Chief Executive Officer       2000       58,707(2)      -0-         -0-             -0-       640,000(3)     -0-           -0-
                              1999          -0-         -0-         -0-             -0-           -0-        -0-           -0-

Paul E. Hannesson             2001       77,242(4)      -0-         -0-             -0-           -0-        -0-           -0-
Former Chief Executive        2000      358,934(4)      -0-         -0-             -0-           -0-        -0-           -0-
Officer                       1999      331,416(4)      -0-      12,000(5)          -0-     2,400,000(6)     -0-        33,638(7)

Kenneth L. Adelman, Ph.D.     2001          -0-         -0-         -0-             -0-           -0-        -0-           -0-
Former Executive Vice         2000          -0-         -0-         -0-             -0-           -0-        -0-           -0-
President                     1999          -0-         -0-     238,756(8)          -0-           -0-        -0-           -0-

James M. DeAngelis(9)         2001      133,453(10)     -0-         -0-             -0-       300,000(11)    -0-           -0-
Senior Vice President         2000      164,368(10)     -0-         -0-             -0-           -0-        -0-           -0-
& Chief Financial Officer     1999      147,614(10)     -0-         -0-             -0-       200,000(11)    -0-        12,225(12)

William E. Ingram             2001       20,645(13)     -0-         -0-             -0-           -0-        -0-           -0-
Former Vice President &       2000      147,842(13)     -0-         -0-             -0-           -0-        -0-           -0-
Controller                    1999      150,426(13)     -0-         -0-             -0-       100,000(14)    -0-           -0-

O. Mack Jones(15)             2001      134,805(16)     -0-         -0-             -0-       100,000(17)    -0-           -0-
President                     2000      143,755(16)     -0-         -0-             -0-           -0-        -0-           -0-
Advanced Sciences             1999      152,663(16)     -0-         -0-             -0-       200,000(17)    -0-           -0-

Peter E Harrod                2001       49,460(18)     -0-         -0-             -0-           -0-        -0-           -0-
Former President              2000      187,036(18)     -0-         -0-             -0-           -0-        -0-           -0-
Advanced Sciences             1999      170,501(18)     -0-         -0-             -0-       200,000(19)    -0-           -0-

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

                                       44
<PAGE>

(1)      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.

(2)      Represents  the amount of Mr.  Brewer's  base salary  allocated  to the
         Company.  Mr.  Brewer's  base  salary  for 2001 was  $250,000  of which
         $160,000  originally  deferred  until  December 31,  2001,  and remains
         unpaid as of March 25,  2002.  Mr.  Brewer's  base  salary for 2000 was
         $90,000.

(3)      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.

(4)      Represents the amount of Mr.  Hannesson's  base salary allocated to the
         Company.  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.

(5)      Represents the amount of Mr. Hannesson's automobile allowance allocated
         to the  Company.  Mr.  Hannesson  was  replaced  by  Shelby  T.  Brewer
         effective  January 15, 2001.  Mr.  Hannesson  remains a director of the
         Company.

(6)      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.

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

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

(9)      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.

(10)     Represents the amount of Mr.  DeAngelis'  base salary  allocated to the
         Company.  Mr.  DeAngelis'  total base  salary for 2001 was  $165,000 of
         which $33,000 originally  deferred until December 31, 2001, and remains
         unpaid as of March 25, 2002.  Mr.  DeAngelis'  base salary for 2000 and
         1999 was $165,000 and $145,000 respectively.

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

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

(13)     Represents  the amount of Mr.  Ingram's  base salary  allocated  to the
         Company.  Mr.  Ingram's  total base salary for 2001,  2000 and 1999 was
         $150,000. Mr. Ingram resigned his management position effective January
         12, 2001.

(14)     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.

(15)     Mr.  Jones served as Vice  President  and Field  Operations  Manager of
         Solutions  from April 1998 to January 2001 and as President of Advanced
         Sciences from February 2001 to present.

(16)     Represents  the  amount of Mr.  Jones'  base  salary  allocated  to the
         Company.  Mr.  Jones'  total base salary for 2001 was $165,000 of which
         $33,000 originally deferred until December 31, 2001, and remains unpaid
         as of March 25,  2002.  Mr.  Jones'  base  salary for 2000 and 1999 was
         $150,000.

(17)     Represents  shares of common stock  underlying stock options granted to
         Mr. Jones the Company in his capacity as an officer of the Company.

(18)     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.

(19)     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.


                                       45
<PAGE>


 STOCK OPTIONS

         The following table sets forth certain  information  concerning options
granted during the year ended December 31, 2001 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, 2001.
<TABLE>
<CAPTION>

                        Option Grants in Last Fiscal Year

                                                 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(5)
                            Options           Employees in          Price        Expiration      ---------------------------
     Name                  Granted (#)       Fiscal Year(4)      ($/Share)         Date             5% ($)          10% ($)
     ----               ----------------  --------------------  -------------  ---------------   ---------------------------
     (a)                       (b)                      (c)           (d)             (e)             (f)            (g)

<S>                         <C>                  <C>               <C>           <C>                    <C>        <C>
Shelby T. Brewer........    200,000(1)           21.74%            0.28          12/14/08               -0-        11,437

James M. DeAngelis......    300,000(2)           32.61%            0.28          12/14/08               -0-        17,156

O. Mack Jones...........    100,000(3)           10.87%            0.28          12/14/08               -0-         5,719
</TABLE>



         (1)  Options to purchase  200,000 shares of common stock were issued on
              March 9, 2001 of which 100% vested upon issuance.

         (2)  Options to purchase  300,000 shares of common stock were issued on
              March 9, 2001 of which 100% vested upon issuance.

         (3)  Options to purchase  100,000 shares of common stock were issued on
              March 9, 2001 of which 100% vested upon issuance.

         (4)  Percentages based on 920,000 stock options granted (the 1998 Plan)
              during the year ended December 31, 2001.

         (5)  The closing price for the  Company's  common stock on December 31,
              2001 was $0.13.  The closing price is used for all the  subsequent
              stock appreciation calculations.


                                       46
<PAGE>



         The  following  table sets forth  certain  information  concerning  the
exercise of options  and the value of  unexercised  options  held under the 1998
Plan at December 31, 2001 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)
-----------------------------------  ------------------  ---------------  ------------------------------  --------------------------
                (a)                         (b)                (c)                     (d)                              (e)

<S>                                         <C>                <C>            <C>                                    <C>
Shelby T. Brewer................            -0-                -0-             840,000 / -0-                         -0- /-0-

Paul E. Hannesson...............            -0-                -0-            1,147,500/ 1,000,000                   -0- /-0-

James M. DeAngelis..............            -0-                -0-             681,250 / -0-                         -0- / -0-

O. Mack Jones...................            -0-                -0-              437,500/ -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, 2001  ($0.13),  and the exercise
              price of the option ($0.28 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, 2001,  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

                                       47
<PAGE>

December 31, 2001 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.

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, 2001, 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,
2001,  addressing the Company's  compensation policies for 2001 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

                                       48
<PAGE>

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

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
2001  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 2001, 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. Brewer,  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
his areas of  responsibility  were achieved or exceeded.  Mr. Brewer  received a
base  salary  at an annual  rate of  $250,000  in 2001,  of which  $160,000  was
deferred  until  December 31, 2001 and remains  unpaid as of April 15, 2001, for
services rendered to the Company.

         The members of the Compensation Committee establish the amount actually
received by Mr.  Brewer each year as base  salary for  services  rendered to the
Company and its affiliates.  In establishing  Mr. Brewer's base salary for 2001,
the  Compensation  Committee  took into account the salaries of chief  executive
Officers at other similar public  companies,  future  objectives and challenges,
and Mr. Brewer's  individual  performance,  contributions  and  leadership.  The
Compensation  Committee reviewed in detail Mr. Brewer's  achievement of his 2000
goals and his individual  contributions  to the Company and its affiliates.  The
Compensation  Committee  concluded  that he had  achieved his 2000 goals and had
provided a  leadership  role in  achieving  the  Company's  and its  affiliates'
strategic  priorities for 2000. The  Compensation  Committee also considered Mr.
Brewer'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.  Brewer,  the

                                       49
<PAGE>

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.

         Mr.  Brewer's base salary  increased  from $90,000 for 2000 to $250,000
for 2001,  representing an increase of approximately  277%. On January 15, 2001,
Mr. Brewer agreed to defer a portion of his base salary (64%), reducing his base
salary to $90,000,  of which  $160,000 was deferred  until December 31, 2001 and
remains unpaid as of April 15, 2001.

         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. During 2001, no annual incentive
bonuses were paid to the individuals named in the Summary Compensation Table.

         Stock Options. The Compensation  Committee has the power to grant stock
options under the 1998 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 920,000,  2,243,769 and 3,259,323 stock options were granted
pursuant  to the 1998  Plan in 2001,  2000 and 1999  respectively.  200,000  and
640,000  of  such  options  were  granted  to  Mr.   Brewer  in  2001  and  2000
respectively, and 400,000, 0, and 3,100,000 of such options were granted (in the
aggregate) to other individuals named in the Summary Compensation Table in 2001,
2000 and 1999  respectively.  The number of stock options  granted in 2001, 2000
and  1999  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.

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 Internal  Revenue Code of 1986, as amended (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

                                       50
<PAGE>

Company expects that all compensation payments in 2001 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 2001,  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.


                                       51
<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 December 31,
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                                 8,382,302(5)                           14.54%
Services, Inc.(1)....................

Credit Agricole Deux Sevres(2).......                   7,759,048(6)                           13.43%

William J. Russell(3)................                   7,952,071(7)                           13.17%

Tamie P. Speciale(3).................                   7,952,071(8)                           13.17%

Bentley J. Blum(1)...................                   3,742,481(9)                            6.49%

</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.

                                       52
<PAGE>

              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.


                                       53
<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT

         The following table sets forth certain  information with respect to the
beneficial  ownership  of common  stock as of April 15,  2002 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)                           14.54%

Credit Agricole(2) ..................                      7,759,048(6)                           13.43%

William J. Russell(3)................                      7,600,000(7)                           13.17%

Tamie P. Speciale(3).................                      7,600,000(8)                           13.17%

Bentley J. Blum......................                      3,742,481(9)                            6.55%

Shelby T. Brewer, PhD................                      1,985,167(11)                           3.42%

Paul E. Hannesson....................                      1,491,978(10)                           2.59%

James M. DeAngelis...................                        734,679(12)                           1.30%

Herbert A. Cohen.....................                        141,000(16)                             *

David L. Mitchell....................                        140,000(17)                             *

Edward L. Palmer.....................                        140,000(18)                             *

William R. Toller....................                        140,000(19)                             *

All executive officers and Directors as a                 10,196,025                              17.62%
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.

         (5)  Excludes warrants to purchase an aggregate of 19,185,171 shares of
              common  stock at exercise  prices  ranging from $1.17 per share to
              $5.11 per share.  See "Market for  Registrant's  Common Equity and
              Related   Stockholder   Matters--Recent   Sales  of   Unregistered
              Securities" and "Certain Relationships and Related Transactions."

                                       54
<PAGE>


         (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 its 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. (Verify calculation - See table)

         (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) 140,000  shares of the  Company's  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, 2002,  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)  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 1998 Plan;  (iii)
              100,000 shares of 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) 16,500 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.

                                       55
<PAGE>

         (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. (Disclose on Table)

         (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. (Disclose on Table)

         (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)  140,000
              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 140,000  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 140,000  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 140,000  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."

         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%

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<PAGE>

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
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."

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<PAGE>

         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 entered into a stock purchase agreement
with DRM and its two shareholders, William J. Russell and Tamie P. Speciale.

         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)   10,500,000 shares of common stock, of which 9,500,000 subject to a
              one-year option to repurchase any or all shares,  which expired on
              August 30, 2001.

         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  1,000,000
              shares of the Company's 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
              pay to the two shareholders  the difference  between $10.0 million
              and the actual  cash  distributed.  The  Company  may, in its sole
              discretion,  pay such  difference by issuing  shares of its common
              stock.

         The Company has an irrevocable obligation to repurchase from the former
shareholders  of DRM, by May 16, 2002,  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 as of 30 days prior to purchase) as shall
be  necessary  to  provide  the  holders  of such  shares  with a total of $14.5
million.  The  original  repurchase  obligation  deadline  of August  30,  2001,
subsequently  extended through May 16, 2002 by a series of extensions (initially
extended to September 29, 2001,  further  extended to October 29, 2001,  further
extended to January 16, 2002 and  subsequently  extended until May 16, 2002). 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

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<PAGE>

the Company is unable to make such $14.5 million  payment when due, the pledgees
may  foreclose on the DRM stock,  and 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,  Chairman of the Board and Chief Executive  Officer of the Company.  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. The remaining  principal balance of $250,000 is
outstanding  as of April 15,  2002.  The  Company  has not been  notified of the
holder's intent to declare a default on the Restated Brewer Note.

         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 the  Company's  common  stock.  All holders of the Weiss
Group Note have granted payment extensions until May 31, 2002.

         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 AMEX on such date) to all  holders of
the Weiss Group Note in  consideration  of the extension of the due date of such
loans by such persons from February 12, 2001 to June 30, 2001.

         Effective  January 24, 2002,  the Company  issued  warrants to purchase
500,000  shares of its common stock at an exercise price of $0.15 per share (the
closing  price of our common  stock on the AMEX on such date) to all  holders of
the Weiss Group Note in  consideration  of the extension of the due date of such
loans by such persons from June 30, 2001 to May 31, 2002.

         On May 23, 2001, a private investor purchased $250,000 of the Company's
common stock at the market  price.  The Company  issued to the private  investor
1,923,077  shares  of common  stock of the  Company  as a result  of the  equity
purchase.  In connection with the purchase of the shares of the Company's common
stock,  the Company issued to the private  investor a 2-year warrant for 500,000
shares of the Company's common stock at an exercise price of $0.22 per share.

         On June 13,  2001,  the  Company  issued  and sold to  Milford  Capital
Management, Inc. and the Shaar Fund, Ltd. (hereinafter known as "Milford/Shaar")
one-year,  15% Senior Secured Promissory Notes (the  "Milford/Shaar  Bridge Loan
Notes") in the aggregate principal amount of $1,000,000.  In connection with the

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<PAGE>

Milford/Shaar Bridge Loan Notes, the Company issued to Milford/Shaar a five-year
warrant for 333,333 shares of the Company's common stock at an exercise price of
$0.22 per share. The Company pledged its equipment and SET related  intellectual
property as  collateral  for the  Milford/Shaar  Bridge Loan Notes.  The Company
shall pay  Milford/Shaar  principal  and interest on a monthly basis in arrears.
The Milford/Shaar Bridge Loan Notes may be prepaid at any time without penalty.

         The Company  made all payments on the  Milford/Shaar  Bridge Loan Notes
until  November 13, 2001.  The Company asked for and received a  forbearance  of
payments on the Milford/Shaar Bridge Loan Notes from November 13, 2001 until May
13, 2002.


SERVICES AGREEMENT

         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 Affiliated Parties when 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 the
Company's  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 the Company's common stock.

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<PAGE>

As of March 31, 1999,  Environmental  owned approximately 35% of the outstanding
shares of Company common stock. [Update]

         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 the  Company's  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.  (Verify whether these shares have
been issued and any effect or beneficial ownership  calculations)  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 the Company's  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 the  Company's  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 the Company's  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,  Environmental
may be required to issue additional  shares of the Company's 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 the  Company's  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").


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<PAGE>

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  semi-annually 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) the  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
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 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 on which 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 the 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
(approximately  110% of the $4.575  five day  average  closing  bid price of the
Company's common stock prior to August 22, 1997).

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<PAGE>

         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 the Company's common
stock), the Company issued to Environmental an additional warrant to purchase up
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 "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."

SALE OF SERIES D PREFERRED STOCK BY ENVIRONMENTAL

         (Did Environmental convert or sell these shares? See p. 27)
         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

                                       63
<PAGE>

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.

                                       64
<PAGE>

                                     PART IV
                                     -------

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
--------  ------------------------------------------------------
          FORM 10-K
          ---------

<TABLE>
<CAPTION>

The following documents are filed as part of this Annual Report:
                                                                                                    Page No.
Financial Statements.
         Commodore Applied Technologies, Inc.

         <S>                                                                                           <C>
         Independent Auditor's Report......................................................            F-1
         Consolidated Balance Sheet as of December 31, 2001 and 2000.......................            F-2
         Consolidated  Statements of Operations for the years ended December 31, 2002, 2000
         and 1999..........................................................................            F-4
         Consolidated Statements of Stockholders' Equity for the years
         ended December 31, 2001, 2000 and 1999                                                        F-5
         Consolidated Statements of Cash Flows for the years ended
         December 31, 2001, 2000 and 1999..................................................            F-7
         Notes to Consolidated Financial Statements........................................           F-11
</TABLE>

         All 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.


                                       65
<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)
4.21                Warrant  to  purchase  shares of common  stock of  Commodore
                    Applied Technologies,  Inc. issued to Avalon Research Group,
                    Inc. (16)

                                       66
<PAGE>

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)

                                       67
<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. (20)
10.40               Warrant  to  purchase  340,000  shares  of  common  stock of
                    Commodore  Applied  Technologies,  Inc.  issued  to Tamie P.
                    Speciale. (20)
10.41               Warrant  to  purchase  300,000  shares  of  common  stock of
                    Commodore  Applied   Technologies,   Inc.  issued  to  Diane
                    Archangeli. (20)
10.42               Warrant  to  purchase  20,000  shares  of  common  stock  of
                    Commodore Applied Technologies,  Inc. issued to Arthur Berry
                    & Company, Inc. (20)
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. (20)


                                       68
<PAGE>

10.45               Registration  Rights  Agreement,  dated  September  15, 2000
                    issued to Shelby T. Brewer. (20)
10.46               Stock Pledge  Agreement,  dated  September  15, 2000 between
                    Commodore  Environmental  Technologies,  Inc., and Shelby T.
                    Brewer. (20)
10.47               Warrant  to  purchase  100,000  shares  of  common  stock of
                    Commodore  Applied  Technologies,  Inc.  issued to Shelby T.
                    Brewer. (20)
10.48               Amended and Restated  Promissory  Note,  dated September 15,
                    2000,  issued to Shelby T. Brewer in the principal amount of
                    $500,000. (20)
10.49               Registration  Rights Agreement,  dated March 15, 2001 issued
                    to Shelby T. Brewer. (20)
10.50               Secured  Promissory Note, dated November 13, 2000, issued to
                    Klass  Partners  Ltd. in the  principal  amount of $250,000.
                    (20)
10.51               Secured  Promissory Note, dated November 13, 2000, issued to
                    Mathers Associates in the principal amount of $150,000. (20)
10.52               Secured  Promissory Note, dated November 13, 2000, issued to
                    Jon Paul Hannesson in the principal amount of $75,000. (20)
10.53               Secured  Promissory Note, dated November 13, 2000, issued to
                    Stephen A. Weiss in the principal amount of $25,000. (20)
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.
                    (20)
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. (20)
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. (20)
10.58               Dispute  Resolution  Management,  Inc.  Undertaking  Letter,
                    dated November 13, 2000. (20)
10.59               Nationwide  Permit  Extension for PCB Disposal issued by the
                    EPA to Commodore Remediation Technologies, Inc. (20)
10.60               Contract  between  Commodore  Solutions  and  Waste  Control
                    Specialists dated February 12, 2000. (20)
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. (20)
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. (20)
10.72               Klass  Partners  Ltd.  Agreement for Amendment of CXI Bridge
                    Loan  Documents,  dated April 16,  2001,  by the Company and
                    Klass Partners, Ltd. (20)
10.73               Warrant to purchase  300,000  shares of common  stock of the
                    Company issued to Mathers Associates. (20)
10.74               Warrant to  purchase  75,000  shares of common  stock of the
                    Company issued to Jon Paul Hannesson. (20)
10.75               Warrant to  purchase  75,000  shares of common  stock of the
                    Company issued to Krista S. Hannesson. (20)
10.76               Warrant to  purchase  50,000  shares of common  stock of the
                    Company issued to Stephen A. Weiss. (20)
*10.77              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,  Klass Partners,  Jon Paul Hannesson and Stephen
                    A. Weiss.

                                       69
<PAGE>

*10.78              Warrant to purchase  222,222  shares of common  stock of the
                    Company issued to Klass Partners.
*10.79              Warrant to purchase  166,667  shares of common  stock of the
                    Company issued to Mathers Associates.
*10.80              Warrant to  purchase  41,666  shares of common  stock of the
                    Company issued to Jon Paul Hannesson.
*10.81              Warrant to  purchase  41,666  shares of common  stock of the
                    Company issued to Krista S. Hannesson.
*10.82              Warrant to  purchase  27,778  shares of common  stock of the
                    Company issued to Stephen A. Weiss.
*10.83              Securities  Purchase  Agreement dated May 22, 2001,  between
                    Commodore Applied Technologies, Inc., and Dr. Marion Dana.
*10.84              Registration  Rights  Agreement dated May 22, 2001,  between
                    Commodore Applied Technologies, Inc., and Dr. Marion Dana.
*10.85              Warrant to purchase  500,000  shares of common  stock of the
                    Company issued to Dr. Marion Dana.
*10.86              Secured  Promissory  Note,  dated June 13,  2001,  issued to
                    Milford  Capital &  Management  in the  principal  amount of
                    $500,000.
*10.87              Secured  Promissory Note, dated June 13, 2001, issued to the
                    Shaar Fund, Ltd. in the principal amount of $500,000.
*10.88              Registration  Rights Agreement dated June 13, 2001,  between
                    Commodore Applied Technologies,  Inc., and Milford Capital &
                    Management.
*10.89              Registration  Rights Agreement dated June 13, 2001,  between
                    Commodore  Applied  Technologies,  Inc., and the Shaar Fund,
                    Ltd.
*10.90              Warrant to purchase  166,667  shares of common  stock of the
                    Company issued to Milford Capital & Management.
*10.91              Warrant to purchase  166,667  shares of common  stock of the
                    Company issued to the Shaar Fund, Ltd.
10.92               Amended  and  Restated  Stock  Purchase   Agreement,   dated
                    September   21,  2001,  by  and  among   Commodore   Applied
                    Technologies,  Inc.,  Dispute Resolution  Management,  Inc.,
                    William J. Russell and Tamie P. Speciale. (21)
10.93               Amended and Restated Stock Purchase Agreement, dated October
                    31, 2001, by and among Commodore Applied Technologies, Inc.,
                    Dispute Resolution Management,  Inc., William J. Russell and
                    Tamie P. Speciale. (22)
*10.94              Forbearance   Agreement  dated  January  11,  2002,  between
                    Commodore Applied Technologies,  Inc., and Milford Capital &
                    Management.
*10.95              Forbearance   Agreement  dated  January  11,  2002,  between
                    Commodore  Applied  Technologies,  Inc., and the Shaar Fund,
                    Ltd.
*10.96              Forbearance  Agreement  dated  February  13,  2002,  between
                    Commodore Applied Technologies,  Inc., and Milford Capital &
                    Management.
*10.97              Forbearance  Agreement  dated  February  13,  2002,  between
                    Commodore  Applied  Technologies,  Inc., and the Shaar Fund,
                    Ltd.
*10.98              Forbearance   Agreement   dated  March  13,  2002,   between
                    Commodore Applied Technologies,  Inc., and Milford Capital &
                    Management.

                                       70
<PAGE>

*10.99              Forbearance   Agreement   dated  March  13,  2002,   between
                    Commodore  Applied  Technologies,  Inc., and the Shaar Fund,
                    Ltd.
*10.100             LLC  Agreement,  dated  April  2,  2002,  between  Technical
                    Resources, Inc. (a wholly owned subsidiary of Nuvotec, Inc.)
                    and Commodore Government Environmental Technologies, Inc.
16.1                Letter regarding change in certifying accountant. (12)
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).

                                       71
<PAGE>

(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).

(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).

(20)     Incorporated  by  reference  and filed as an  Exhibit  to  Registrant's
         Annual  Report on Form  10-K/A for the fiscal year ended  December  31,
         2000 filed with the Securities and Exchange  Commission on May 04, 2001
         (File No. 1-11871).

(21)     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 26, 2001 (File No. 1-11871).

(22)     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 31, 2001 (File No. 1-11871).




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


         1.   The Company filed a Current  Report on Form 8-K, dated January 18,
              2001, with respect to a press release regarding the appointment of
              Shelby T. Brewer as our new President and Chief Executive  Officer
              and the  resignation  of Paul E.  Hannesson as President and Chief
              Executive Officer.

         2.   The Company filed a Current  Report on Form 8-K,  dated  September
              26,  2001,   regarding  a  30-day   extension  to  its  repurchase
              obligation  under  the  Stock  Purchase   Agreement  with  Dispute
              Resolution Management, Inc., until October 29, 2001.

         3.   The Company filed a Current  Report on Form 8-K, dated October 31,
              2001,  regarding an 80-day extension to its repurchase  obligation
              under  the  Stock  Purchase   Agreement  with  Dispute  Resolution
              Management, Inc., until January 16, 2002.

         4.   The Company filed a Current  Report on Form 8-K, dated January 16,
              2002,  regarding a 120-day extension to its repurchase  obligation
              under  the  Stock  Purchase   Agreement  with  Dispute  Resolution
              Management, Inc., until May 16, 2002.

                                       72
<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:  April 15, 2002               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.


/s/ Shelby T. Brewer      Chairman of the Board and Chief         April 15, 2002
-----------------------   Executive Officer (principal
Shelby T. Brewer          executive officer)

/s/ James M. DeAngelis    Senior Vice President and Chief         April 15, 2002
-----------------------   Financial Officer (principal
James M. DeAngelis        financial officer)

/s/ Bentley J. Blum       Director                                April 15, 2002
-----------------------
Bentley J. Blum

/s/ Herbert A. Cohen      Director                                April 15, 2002
-----------------------
Herbert A. Cohen

/s/ Paul E. Hannesson     Director                                April 15, 2002
-----------------------
Paul E. Hannesson

/s/ David L. Mitchell     Director                                April 15, 2002
-----------------------
David L. Mitchell

/s/ Edward L. Palmer      Director                                April 15, 2002
-----------------------
Edward L. Palmer

/s/ William R. Toller     Director                                April 15, 2002
-----------------------
William R. Toller

                                       73
<PAGE>

SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT

         The Company has not sent to its security  holders any annual  report or
proxy material during the 2001 fiscal year.

                                       74
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2001 and 2000
<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, 2001 and 2000            F-2


     Consolidated Statements of Operations for the years ended
       December 31, 2001, 2000 and 1999                                     F-3


     Consolidated Statements of Stockholders' Equity for
       the years ended December 31, 2001, 2000 and 1999                     F-4


     Consolidated Statements of Cash Flows for the years
       ended December 31, 2001, 2000 and 1999                               F-6


     Notes to Consolidated Financial Statements                             F-9


<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, 2001 and 2000 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the years ended December 31, 2001, 2000, and 1999. 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 auditing standards generally accepted
in the  United  States of  America.  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, 2001 and 2000, and the
results of their  operations  and their cash flows for the years ended  December
31, 2001,  2000, and 1999, in conformity  with accounting  principles  generally
accepted in the United States of America.

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 a working capital deficit and
has suffered  recurring losses 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
February 22, 2002

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

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


                                                                              2001              2000
                                                                       ------------------------------------
              Assets
              ------
<S>                                                                    <C>                  <C>
Current assets:
     Cash and cash equivalents                                         $            1,271   $         1,980
     Accounts receivable, net                                                         817             4,536
     Prepaid assets and other current assets                                          373               625
                                                                       ------------------------------------

              Total current assets                                                  2,461             7,141

Property and equipment, net                                                           724             1,983

Intangible assets:
     Goodwill, net of accumulated amortization of $1,686
       and $419, respectively                                                      23,409            24,676
     Covenants not to compete, net of accumulated
       amortization of $700 and $175, respectively                                  1,925             2,450
     Patents and completed technology, net of accumulated
       amortization of $1,375 and $613, respectively                                  100               862
                                                                       ------------------------------------

              Total intangible assets                                              25,434            27,988

Other assets                                                                           36               361
                                                                       ------------------------------------

              Total assets                                             $           28,655   $        37,473
                                                                       ------------------------------------



------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                                                        COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                                            AND SUBSIDIARIES
                                                                                  Consolidated Balance Sheet

                                                                                  December 31, 2001 and 2000
                                                                        (Amounts in thousands except shares)
------------------------------------------------------------------------------------------------------------


                                                                                2001             2000
                                                                          ----------------------------------
              Liabilities and Stockholders' Equity
              ------------------------------------
<S>                                                                       <C>                <C>
Current liabilities:
     Accounts payable                                                     $          1,422   $         2,490
     Related party payable                                                             160               247
     Current portion of long-term debt                                               2,650             2,650
     Line of credit                                                                    108             1,459
     Notes payable                                                                  15,655            14,682
     Other accrued liabilities                                                       2,037             2,489
                                                                          ----------------------------------

              Total current liabilities                                             22,032            24,017

Long-term debt                                                                       4,430             5,182
                                                                          ----------------------------------

              Total liabilities                                                     26,462            29,199

Minority interest in subsidiary                                                        622               419
Commitments and contingencies                                                            -                 -
Stockholders' Equity:
     Convertible Preferred Stock, Series E and F, par value
       $.001 per share, aggregate liquidation value of
       $5,403,000 and $7,332,000 at December 31, 2001 and
       2000, respectively, 12% cumulative dividends, 601,700
       shares authorized, 410,200 shares and 556,700 shares
       issued and outstanding at December 31, 2001 and 2000,
       respectively                                                                      -                 1
     Common Stock, par value $.001 per share, 125,000,000
       shares authorized, 55,417,354 and 48,330,385 issued
       and outstanding, at December 31, 2001 and 2000,
       respectively                                                                     55                48
     Additional paid-in capital                                                     66,759            66,495
     Accumulated deficit                                                           (65,243)          (58,689)
                                                                          ----------------------------------

              Total stockholders' equity                                             1,571             7,855
                                                                          ----------------------------------

              Total liabilities and stockholders' equity                  $         28,655   $        37,473
                                                                          ----------------------------------


------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.                    F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


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

                                                              Years Ended December 31, 2001, 2000 and 1999
                                                              (Amounts in thousands except per share data)
----------------------------------------------------------------------------------------------------------

                                                                       2001         2000          1999
                                                                   ---------------------------------------

<S>                                                                <C>           <C>           <C>
Revenue                                                            $     10,551  $     20,631  $    18,147
                                                                   ---------------------------------------

Costs and expenses:
   Cost of revenues                                                       3,369        14,452       16,127
   Research and development                                                 423           993        1,145
   General and administrative                                             6,643         6,989        4,037
   Depreciation and amortization                                          2,491         1,471          696
   Impairment of machinery                                                  776             -            -
   Impairment of patents                                                    627             -            -
   Impairment of goodwill                                                     -         6,586            -
   Minority interest                                                        203           341            -
                                                                   ---------------------------------------

         Total costs and expenses                                        14,532        30,832       22,005
                                                                   ---------------------------------------

Loss from operations                                                     (3,981)      (10,201)      (3,858)

Interest income                                                              76            67           39
Interest expense                                                         (2,354)       (1,307)        (166)
Equity in losses of unconsolidated subsidiary                              (295)            -            -
                                                                  ---------------------------------------

Loss before income taxes                                                 (6,554)      (11,441)      (3,985)
Income tax benefit                                                            -             -            -
                                                                   ---------------------------------------

Net loss                                                           $     (6,554) $    (11,441) $    (3,985)
                                                                   ---------------------------------------

Net loss per share - basic and diluted                             $       (.13) $       (.34) $      (.16)
                                                                   ---------------------------------------

Number of weighted average shares outstanding                            53,241        35,866       24,819
                                                                   ---------------------------------------


----------------------------------------------------------------------------------------------------------
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 Stockholders' Equity

                                                                          Years Ended December 31, 2001, 2000, and 1999
                                                                                   (Amounts in thousands except shares)
-----------------------------------------------------------------------------------------------------------------------



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

<S>                                     <C>         <C>       <C>           <C>         <C>              <C>
Balance January 1, 1999                  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)                 -

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)                 -


-----------------------------------------------------------------------------------------------------------------------
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
                                                                                                              Continued

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



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

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

Conversion of Series E and F
Preferred Stock into common
stock                                  (146,500)         (1)    4,072,225           4             (3)                 -


Sale of common stock for cash                 -           -     1,973,077           2            146                  -

Sale of warrants for cash                     -           -             -           -            105                  -

Conversion of debt to common
stock                                         -           -     1,041,667           1            249                  -

Issuance of warrants in
financing agreements                          -           -             -           -            175                  -

Preferred stock dividends                     -           -             -           -           (408)                 -

Net loss                                      -           -             -           -              -             (6,554)
                                       --------------------------------------------------------------------------------

Balance, December 31, 2001              410,200      $    -    55,417,354    $     55    $    66,759      $     (65,243)
                                       --------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
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 Cash Flows

                                                             Years Ended December 31, 2001, 2000, and 1999
                                                  (Amounts in thousands, except shares and per share data)
----------------------------------------------------------------------------------------------------------

                                                                   2001           2000           1999
                                                              --------------------------------------------
Cash flows from operating activities:
<S>                                                           <C>              <C>             <C>
   Net loss                                                   $       (6,554)  $     (11,441)  $    (3,985)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation, amortization and impairment                         2,491           1,471           696
     Loss on disposition of property and equipment                         -              12             -
     Interest expense from common stock                                  167             333             -
     Impairment of goodwill                                                -           6,586             -
     Impairment of machinery                                             776               -             -
     Impairment of patents                                               627               -             -
     Loss from unconsolidated subsidiary                                 295               -             -
     Provision for related party bad debt                                  -             109             -
     Minority interest in subsidiary income                              203             341             -
     Amortization of debt discount                                     1,903             718             -
   Changes in assets and liabilities:
     Accounts receivable, net                                          3,719            (827)         (410)
     Restricted cash                                                       -              21             -
     Prepaid assets                                                      208             414           (95)
     Accounts payable and accrued liabilities                         (1,928)            261           889
                                                              --------------------------------------------

         Net cash provided by (used in)
         operating activities                                          1,907          (2,002)       (2,905)
                                                              --------------------------------------------

Cash flows from investing activities:
   Equipment purchased or constructed                                    (51)           (114)         (353)
   Patents acquired                                                        -             (36)         (113)
   Purchase of Dispute Resolution Management, Inc.,
     net of cash acquired                                                  -             508             -
   Contribution from minority interest in DRM                              -              78             -
   Advances to related parties, net                                      (87)            (97)         (135)
   Contributions to affiliate                                              -            (325)            -
                                                              --------------------------------------------

         Net cash (used in) provided by
         investing activities                                           (138)             14          (601)
                                                              --------------------------------------------

  Cash flows from financing activities:
     Proceeds from sale of common stock and warrants                     253             597             1
     Proceeds from sale of preferred stock                                 -           1,771         2,090
     Preferred stock dividends                                             -            (214)          (63)
     (Repayments)/borrowings under line of credit                     (1,351)           (256)          587
     Borrowings on debt and warrants                                   1,000           1,000         1,000
     Payments on long term debt and notes payable                     (2,380)           (727)          (89)
                                                              --------------------------------------------

           Net cash (used in) provided by
           financing activities                                       (2,478)          2,171         3,526
                                                              --------------------------------------------

  (Decrease) increase in cash and cash equivalents                      (709)            183            20

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

  Cash and cash equivalents, end of year                      $        1,271   $       1,980   $     1,797
                                                              --------------------------------------------

----------------------------------------------------------------------------------------------------------
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
                                                                                                 Continued
----------------------------------------------------------------------------------------------------------

<S>                                                           <C>              <C>             <C>
Supplemental disclosure of
  cash flow information:

     Cash paid during the year for:

              Interest                                        $          281   $         158   $       166
                                                              --------------------------------------------

              Income taxes                                    $            -   $           -   $         -
                                                              --------------------------------------------
</TABLE>


Non-Cash Investing and Financing Activities:

2001
----

         o    A debtholder  converted $250 of debt to 1,041,667 shares of common
              stock

         o    The  Company  recorded  $408 of unpaid  dividends  to  holders  of
              preferred stock

         o    The Company financed prepaid assets with notes payable of $123

         o    The Company issued warrants valued at $70 with a debt issuance

         o    The  Company  received  equipment  with book  value of $30 from an
              unconsolidated subsidiary

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

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

<PAGE>


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

2000 - Continued
----

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


         o    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.

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

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

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

         o    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).

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

<PAGE>




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

                                                      December 31, 2001 and 2000
                                  (In thousands except share and per share data)
--------------------------------------------------------------------------------

1.   Summary of         Background
     Significant        Commodore  Applied  Technologies,  Inc. and subsidiaries
     Accounting         ("Applied"),   is   engaged  in  the   destruction   and
     Policies           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.


                        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., was accounted
                        for under the  lower of cost or market at  December  31,
                        2000. During the year ended December 31, 2001, the joint
                        venture was  dissolved,  and the Company's  share of the
                        related  loss was  included in losses of  unconsolidated
                        subsidiaries.


--------------------------------------------------------------------------------
                                                                             F-9

<PAGE>


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

1.   Summary of         Cash and Cash Equivalents
     Significant        Applied   considers   cash  and   highly   liquid   debt
     Accounting         instruments with original  maturities of three months or
     Policies           less at the date of purchase to be cash equivalents.
     Continued
                        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.

                        Sales to major  customers  which  exceeded 10 percent of
                        revenues are as follows:


                                             Years Ended December 31,
                                    ------------- -------------- ---------------
                                        2001          2000            1999
                                    ------------- -------------- ---------------

                      Customer A    $      3,252  $       1,476  $        3,692
                      Customer B    $      1,148  $         742  $        1,006
                      Customer C    $          -  $      11,618  $       12,287

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

                        Risk and Uncertainty
                        Applied's   operations   involving  the  separation  and
                        destruction  of PCBs  requires  a  permit  from the EPA.
                        Applied  had a valid  nationwide  permit  related to the
                        treatment  of PCBs in  certain  substances.  The  permit
                        expired September 15, 2001.  Applied is currently in the
                        process of applying  for a renewal of the permit.  Until
                        the  permit is  reviewed,  Applied is not  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.

--------------------------------------------------------------------------------
                                                                            F-10

<PAGE>


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


1.   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 3-5 years.

                        Intangible Assets
                        Goodwill  represents the fair value of securities issued
                        plus  the  fair  value  of net  liabilities  assumed  in
                        connection  with the  acquisition  of DRM (see  Note 6).
                        Goodwill is being  amortized  on a  straight-line  basis
                        over its  estimated 20 year life.  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).

                        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,  2001 the  Company
                        recorded  an  impairment  on its  equipment  and related
                        patents  of  completed  technology  of  $776  and  $627,
                        respectively.

                        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.

--------------------------------------------------------------------------------
                                                                            F-11

<PAGE>


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


1.   Summary of         Revenue Recognition
     Significant        Substantially all of Applied's revenues are generated by
     Accounting         its subsidiaries, CASI and DRM. CASI revenues consist of
     Policies           engineering  and scientific  services  performed for the
     Continued          U.S.  Government  and prime  contractors  that serve the
                        U.S.  Government  under a variety of contracts,  most of
                        which provide for unit prices.  Revenue under unit price
                        contracts are recorded when the services are provided.

                        Prior to 2001,  most of CASI's  contracts  provided  for
                        reimbursement  of costs  plus  fixed  fees.  Direct  and
                        indirect  contract costs incurred in reimbursement  plus
                        cost  contracts  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.

                        Research  and   Development
                        Research  and  development  expenditures  are charged to
                        operations as incurred.

                        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-12

<PAGE>


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


1.   Summary of         Stock-Based Compensation
     Significant        Compensation  costs  attributable  to stock  option  and
     Accounting         similar  plans are  recognized  based on any  difference
     Policies           between the quoted market price of the stock on the date
     Continued          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.

                        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, 2001 and 2000.

                        Use of Estimates
                        The preparation of consolidated  financial statements in
                        conformity with accounting principles generally accepted
                        in the United States of America  requires  management to
                        make estimates and assumptions  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.

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

<PAGE>


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



2.   Going              The accompanying  consolidated financial statements have
     Concern            been  prepared  under the  assumption  that Applied will
                        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,  Applied incurred losses for the years ended
                        December  31,  2001,  2000 and 1999.  Applied also has a
                        working  capital  deficit  at  December  31,  2001.  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.  No  assurances  can be
                        given,  however, that the Company will be able to obtain
                        any of these potential sources of cash.



3.   Receivables        The  components of Applied's  trade  receivables  are as
                        follows as of December 31, 2001 and 2000:

                                                      2001            2000
                                                --------------------------------

 Contract receivables:
   Amounts billed                               $          1,202  $       4,807
   Retainages                                                 26             25
                                                --------------------------------

                                                           1,228          4,832

 Less:  Allowance for doubtful accounts
   and potential disallowances                              (411)          (296)
                                                --------------------------------

          Total receivables, net                $            817  $       4,536
                                                --------------------------------


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

<PAGE>


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


3.   Receivables        The balances  billed but not paid by customers  pursuant
     Continued          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).


4.   Property           Property and equipment consist of the following:
     and
     Equipment                              Average          December 31
                                          Useful Life     2001        2000
                                         --------------------------------------

  Machinery and equipment                      3           $   599    $  2,386
  Furniture and fixtures                       5               469         417
  Computer equipment                           4               882         944
  Leasehold improvements                       5                19          19
                                                       ------------------------

                                                             1,969       3,766

  Less:  accumulated depreciation
    and amortization                                        (1,245)     (1,783)
                                                       ------------------------

    Total property and equipment                           $   724    $  1,983
                                                       ------------------------


                        During the year ended  December  31, 2001 an  impairment
                        loss  of  $776  was  recorded   against  the   machinery
                        equipment.


5.   Other Assets       Applied  had  an  investment  in a  joint  venture  with
                        Teledyne  Environmental,  Inc.  (LLC).  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.  During the year ended  December 31,  2001,  the
                        joint venture was dissolved,  and the Company's share of
                        the  related  loss to  dissolve  the joint  venture  was
                        included in losses of unconsolidated  subsidiaries.  The
                        Company  recorded  a loss of $295,  for the  year  ended
                        December  31,  2001,  from its  investment  in the joint
                        venture.

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

<PAGE>


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


5.   Other Assets       The   Company   received   its   equipment   back  as  a
     Continued          distribution  in  dissolving  the  joint  venture.   The
                        Company  recorded the equipment at the net book value of
                        the joint venture which is the lower of cost or market.

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 existing 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  has  been  extended  and
                             currently expires May 16, 2002.
                        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.
                        c)   Five-year  warrants to purchase up to an  aggregate
                             of 1.0 million shares of Applied 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.  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.

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

<PAGE>


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



6.   Acquisition        Applied has an absolute and  irrevocable  obligation  to
     of Dispute         repurchase, by the end of the option period, that number
     Resolution         of 9.5 million shares of Applied common stock  necessary
     Management         to provide the  holders of those  shares with a total of
     Continued          $14.5 million. It is Applied's intention to exercise its
                        option to reacquire  these shares  during the period and
                        sell these shares to generate the cash necessary to meet
                        the  $14.5  million   obligation.   The  obligation  was
                        recorded as a note payable and interest has been imputed
                        on the  note  payable  to  record  debt  at the  time of
                        acquisition 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
                                                                  --------------

                        DRM's  equity  at the  date  of  acquisition  was  $414.
                        Applied's 81% share of this equity was $336.

                        Applied    recorded   the    difference    between   the
                        consideration  given of $28,056 and its ownership in DRM
                        equity of $336 as follows:

                        Covenants not to compete                  $       2,625
                        Goodwill                                         25,095
                                                                  --------------

                                  Total                           $      27,720
                                                                  --------------


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

<PAGE>


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


6.   Acquisition        Covenants  not  to compete  are  amortized  over their 5
     of Dispute         year life.  Goodwill is amortized over 20 years.
     Resolution
     Management
     Continued

7.   Other              Other accrued liabilities consist of the following:
     Accrued
     Liabilities                                        2001           2000
                                                ------------------------------

     Dividend payable                           $         816 $           408
     Compensation and employee benefits                   658             652
     Loss reserve                                         200             357
     Related parties                                      185             185
     Accrued consulting                                     -             185
     Severance payments                                     -              76
     Other                                                 178             626
                                                ------------------------------

                                                $       2,037 $         2,489
                                                ------------------------------

8.  Line of             At  December  31,  2001  and  2000,  CASI had a $108 and
    Credit              $1,459 outstanding balance, respectively, on a revolving
                        line of credit.  The 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 (6.75% at December 31, 2001). 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.

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

<PAGE>


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


9.  Notes Payable       Notes payable consist of the following at December 31:


                                                    2001            2000
                                               -------------------------------

 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.  The obligation was
 originally due in August 2001 and has been
 extended through May 2002                      $       14,500 $       14,500


 Unamortized discount for imputed interest
 rate through original maturity date of
 August 2001.                                                -           (919)

 Notes payable to individuals with interest at
 15%, due in aggregate monthly installments,
 beginning in July 2001, of $83,33 plus
 interest, maturing through June 2002.  In
 connection with the notes, Applied issued
 warrants to purchase 333,334 shares of stock
 which were valued at $70,000 and recorded as a
 discount on the notes to be amortized over
 their respective terms                                     583             -

 Unamortized discount for warrants                          (18)            -


--------------------------------------------------------------------------------
                                                                            F-19

<PAGE>


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


9.  Notes Payable
    Continued

 Notes payable to individuals with interest at
 12%, originally due February 13, 2001 and
 extended until May 31, 2002, 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
 was recorded as interest expense over the
 original term of the loan                                  216           500

 Note payable to an officer of the 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.  During
 2001 the officer converted $250,000 of the note
 for 1,041,667 shares of 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 issued
 for $89 in connection with the note which is
 being amortized over the original term of the
 note                                                       250           500

 Unamortized discount imputed for warrants                    -           (29)

 Notes payable to an insurance company with
 interest at 8.18%, secured by an insurance
 contract and due December 2001.
                                                           124            130
                                               -------------------------------

                                                $       15,655 $       14,682
                                               -------------------------------


--------------------------------------------------------------------------------
                                                                            F-20

                                                                          <PAGE>


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



10.   Long-Term         The Company has the following long-term debt at December
      Debt              31:

                                                    2001            2000
                                               -------------------------------

 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 obligation                             $        8,583 $       10,000

 Unamortized discount for imputed interest
 rate                                                  (1,592)        (2,389)

 Notes payable to an entity requiring monthly
 payments of $11, plus interest at 8.5%
 secured by an insurance contract                          89            221
                                               -------------------------------

                                                         7,080          7,832

 Less current maturities                                (2,650)        (2,650)
                                               -------------------------------

                                                $        4,430 $        5,182
                                               -------------------------------

                        Future maturities on long-term debt are as follows:

                        Year
                        ----
                        2002                                      $       2,650
                        2003                                              4,430
                                                                  -------------

                        Total                                     $       7,080
                                                                  -------------

--------------------------------------------------------------------------------
                                                                            F-21

<PAGE>


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


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.

                        The  provision  for  income  taxes for the  years  ended
                        December  31  results  in an  effective  tax rate  which
                        differs from federal income tax rates as follows:

                                          2001         2000          1999
                                      -----------------------------------------

 Expected tax benefit at federal
   statutory rate                     $     (2,228) $     (3,890) $     (1,355)
 State income tax benefit, net of
   federal income tax benefit                 (393)         (686)         (239)
 Interest accretion                            753           333             -
 Other                                         226           453             -
 Change in valuation allowance               1,642         3,790         1,594
                                      -----------------------------------------

      Income tax benefit              $          -  $           - $           -
                                      -----------------------------------------

                        The  components  of the net  deferred tax as of December
                        31, are as follows

                                          2001          2000
                                      ---------------------------

      Reserve for uncollectable
        receivables and potential
        disallowances                 $         226   $      242
      Depreciation and Amortization             (41)          88
      Net operating loss carryforward        11,500       10,192
      Impairment charges                      2,480        2,034
      Other                                      99           66
                                      ---------------------------

                                             14,264       12,622

      Valuation allowance                   (14,264)     (12,622)
                                      ---------------------------

          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  2001,
                        2000 and  1999,  Applied  has  established  a  valuation
                        allowance  for the  entire  amount of net  deferred  tax
                        assets.

--------------------------------------------------------------------------------
                                                                            F-22

<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, 2001 of approximately  $31,000 which expire
                        in years 2010 through 2021.  The NOL  carryforwards  are
                        limited  to use  against  future  taxable  income due to
                        changes in ownership and control.

12.  Stockholders'      Series B, C & D Convertible Preferred Stock
     Equity             Effective  September 28, 1998,  Applied  authorized  and
                        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-23

<PAGE>


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


12.  Stockholders'      Series E Convertible Preferred Stock - Continued
     Equity             This stock has a dividend  rate of 12% per annum through
     Continued          April  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 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  years  ended  December  31,  2001 and 2000,
                        70,000  shares and 35,000 shares of Series E Convertible
                        Preferred Stock were converted into 2,000,000 shares and
                        330,992  shares of  common  stock,  respectively.  As of
                        December  31, 2001 there are 230,000  shares of Series E
                        preferred stock outstanding.

                        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.

--------------------------------------------------------------------------------
                                                                            F-24

<PAGE>


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


12.  Stockholders'      Series F Convertible Preferred Stock - Continued
     Equity             The  Series  F   Convertible   Preferred   Stock  has  a
     Continued          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.

                        The Series F Convertible  Preferred Stock is convertible
                        into common stock at any time on or after  September 30,
                        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  years  ended  December  31,  2001 and 2000,
                        76,500  shares and 10,000 shares of Series F Convertible
                        Preferred  Stock were converted to 2,072,225  shares and
                        109,589  shares  of  common  stock,  respectively.   The
                        Company has 180,200 shares of Series F convertible stock
                        outstanding at December 31, 2001.

                        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.

                        Cumulative  unpaid  dividends on Preferred Stock is $816
                        and $408 at December 31, 2001 and 2000.

--------------------------------------------------------------------------------
                                                                            F-25

<PAGE>


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


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 2001,  2000 and 1999 consistent
                        with the  provisions of FAS 123,  Applied's net loss per
                        share would have been increased to the pro forma amounts
                        indicated below:

                                    2001            2000            1999
                               ------------------------------------------------

 Net loss - as reported        $       (6,554) $     (11,441) $        (3,985)
 Net loss - pro forma          $       (6,810) $     (12,619) $        (6,335)
 Loss per share - as reported  $         (.13) $        (.34) $         (0.16)
 Loss per share - pro forma    $         (.14) $        (.37) $         (0.26)


                        FAS 123  requires  stock  options to be valued  using an
                        approach such as the Black-Scholes option pricing model.
                        The Black-Scholes model calculates the fair value of the
                        grant  based upon the  following  assumptions  about the
                        underlying  stock:  The expected  dividend  yield of the
                        stock is  zero,  the  assumed  volatility  is 212%,  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.

--------------------------------------------------------------------------------
                                                                            F-26

<PAGE>


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


13.  Stock Options      A summary  of the status of  options  granted  under the
     and Stock          Plan as of December 31, 2001,  2000 and 1999 and changes
     Warrants           during the periods then ended is presented below
     Continued

<TABLE>
<CAPTION>

                         2001                 2000                  1999
                 ------------------------------------------------------------------
                  Shares      Weighted      Shares    Weighted    Shares      Weighted
                              Average                  Average                Average
                              Exercise                 Exercise               Exercise
                               Price                    Price                  Price
                 ------------------------------------------------------------------
<S>              <C>         <C>        <C>          <C>         <C>         <C>

  Options
  outstanding -
  beginning of
  year           7,529,056  $    0.86   7,169,747    $      .61  4,155,012   $   1.08
  Granted          920,000       0.28   2,243,769          1.05  3,259,323       0.56
  Exercised              -          -  (1,326,866)          .46     (2,142)      0.44
  Forfeited     (3,329,648)      0.49    (557,594)          .59   (242,396)      4.86
                 --------------------------------------------------------------------

  Options
  outstanding -
  end of year    5,119,408  $   0.99    7,529,056    $    0.87   7,169,797   $   0.61
                 --------------------------------------------------------------------

</TABLE>

                        The  following  table   summarizes   information   about
                        employee stock options outstanding at December 31, 2001:


                        Options Outstanding             Options Exercisable
              -----------------------------------------------------------------
                              Weighted
                              Average      Weighted                 Weighted
   Range of                  Remaining     Average                  Average
  Exercisable    Number     Contractual    Exercise     Number      Exercise
    Prices     Outstanding      Life        Price     Exercisable    Price
 ------------------------------------------------------------------------------
 $0.25 - $0.44    2,257,200    7.00 years     $0.37    2,384,765  $     0.38
 $0.63 - $1.44    2,504,833    7.00 years     $0.99    1,289,827  $     0.89
 $2.00 - $6.00      357,375    4.10 years     $4.86      357,375  $     4.86
              -----------------------------------------------------------------

                  5,119,408    6.80 years     $0.99    4,031,937  $     0.94
              -----------------------------------------------------------------


--------------------------------------------------------------------------------
                                                                            F-27

<PAGE>


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



13.  Stock              Stock Warrants
     Options            Outstanding warrants (vested and not vested) at December
     and Stock          31, 2001 are asfollows:
     Warrants
     Continued


   Granted                                  Number of  Current
  1998 and  Granted    Granted    Granted   Warrants   Exercise     Expiration
    Prior     1999      2000       2001       2001      Price          Date
 -------------------------------------------------------------------------------

 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
         -          -          -  1,000,000  1,000,000      0.22  May 2003
         -          -          -    333,334    333,334      0.22  June 2006
 ------------------------------------------------------

10,593,407  4,739,164  4,699,800  1,333,334 21,365,705
 ------------------------------------------------------

                        There were no warrants  exercised in 2001, 2000 or 1999.
                        As of December 31, 2001 all warrants are exercisable.

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.


--------------------------------------------------------------------------------
                                                                            F-28

<PAGE>


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



14.  Earnings Per
     Share
     Continued                                 Years Ended December 31,
                                    --------------------------------------------
                                         2001            2000           1999
                                    --------------------------------------------

 Net loss                           $       (6,554) $     (11,441) $     (3,985)
 Preferred stock dividends                    (408)          (634)          (63)
                                    --------------------------------------------

 Net loss available to
   common shareholders              $       (6,962) $     (12,075) $     (4,048)
                                    --------------------------------------------

 Weighted average common shares
 outstanding (basic)                    53,241,000     35,866,000    24,819,000
 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)                  53,241,000     35,866,000    24,819,000
                                      -------------- -------------- ------------

 Net loss per share - basic and
 diluted                            $         (.13) $        (.34) $       (.16)
                                      -------------- -------------- ------------

                        (*) Due to Applied's loss from continuing  operations in
                        2001, 2000 and 1999, the incremental  shares issuable in
                        connection with these  instruments are anti-dilutive and
                        accordingly not considered in the calculation.

--------------------------------------------------------------------------------
                                                                            F-29

<PAGE>


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



15.  Related Party      The Company  had 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.  During 2001
                        the  individual  converted  $250 of  debt  to  1,041,667
                        shares of common stock leaving a note payable of $250 to
                        the individual at December 31, 2001.

                        The   Company  at   December   31,  2001  and  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  $160  and  $247  as of
                        December 31, 2001 and 2000, respectively.

                        In addition, the Company has payables to related parties
                        of $185 at  December  31,  2001  and  2000  recorded  in
                        accrued  liabilities.  The Company  expensed as bad debt
                        $109 of related party receivables  during the year ended
                        December 31, 2000.

                        The Company  has notes  payable  and  long-term  debt to
                        officers and  shareholders  of the Company.  See Notes 9
                        and 10.

--------------------------------------------------------------------------------
                                                                            F-30

<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
     Contingencies      non-cancelable  operating leases  for  office  space and
                        other  equipment. Future  obligations  under the  leases
                        are as follows:

                           2002                                 $           216
                           2003                                             147
                           2004                                             116
                           2005                                              11
                                                                ---------------

                                                                $          490
                                                                ---------------

                        Rent expense  approximated  $429, $403 and $332 in 2001,
                        2000 and 1999, 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.  No bonuses
                        are accrued at December 31, 2001 and 2000.

                        Employment  Agreements
                        The Company has entered into employment  agreements with
                        the two former  owners of DRM which provide for salaries
                        of not less than $275 each through December 31, 2002 and
                        not less than $290 each through December 31, 2003.

                        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.

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  $0, $48 and $91  during  the years  ended
                        December 31, 2001, 2000 and 1999, respectively.

--------------------------------------------------------------------------------
                                                                            F-31

<PAGE>


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



18.  Segment            Using  the   guidelines  set  forth  in  SFAS  No.  131,
     Information        "Disclosures About Segments of an Enterprise and Related
                        Information,"  Applied has identified  three  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.

                        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-32

<PAGE>
<TABLE>
<CAPTION>


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

                   2001
                   ----
                                                                                                  Corporate
                                                                                                   Overhead
                                               Total         CASI       Solution        DRM         & Other
                                            ------------------------------------------------------------------

<S>                                         <C>            <C>         <C>          <C>           <C>
Revenue                                     $     10,551   $    4,409  $       181  $      5,961  $          -

Costs and expenses:
     Cost of sales                                 3,369        3,080          289             -             -
     Research and development                        423            -          423             -             -
     General and administrative                    6,643        1,219          313         4,223           888
     Depreciation and
       amortization                                2,491            -          515            41         1,935
     Impairment of machinery                         776            -            -             -           776
     Impairment of patents                           627            -            -             -           627
     Minority interest                               203            -            -             -           203
                                            ------------------------------------------------------------------

         Total costs and expenses                 14,532        4,299        1,540         4,264         4,429
                                            ------------------------------------------------------------------

Income (loss) from operations                     (3,981)         110       (1,359)        1,697        (4,429)

Interest income                                       76           38            -            38             -
Interest expense                                  (2,354)           -          (86)            -        (2,268)
Equity in losses of
   unconsolidated subsidiary                        (295)           -            -             -          (295)
                                            ------------------------------------------------------------------

Net (loss) income                           $     (6,554)  $      148  $    (1,445) $      1,735  $     (6,992)
                                            ------------------------------------------------------------------

Total assets                                $     28,655   $    1,277  $       600  $      3,995  $     22,783
                                            ------------------------------------------------------------------

Expenditures for long-lived
  assets                                    $         51   $        -  $         -  $         51  $          -
                                            ------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------
                                                                                                          F-33
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


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


         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)
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  $        -
                                       -------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------
                                                                                                      F-34
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


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



            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)               -
   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
                                          -------------------------------------------------------------------


-------------------------------------------------------------------------------------------------------------
                                                                                                         F-35
</TABLE>

<PAGE>



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


19.  Recent             In June 2001, the Financial  Accounting  Standards Board
     Accounting         ("FASB") issued SFAS No. 141,  "Business  Combinations,"
     Pronounce-         and  SFAS  No.  142,   "Goodwill  and  Other  Intangible
     ments              Assets."  SFAS No. 141 requires  the purchase  method of
                        accounting for all business combinations initiated after
                        June  30,  2001  and that  certain  acquired  intangible
                        assets in a business combination be recognized as assets
                        separate  from  goodwill.  SFAS No.  142  requires  that
                        goodwill  and other  intangibles  determined  to have an
                        indefinite life are no longer to be amortized but are to
                        be tested for impairment at least annually. SFAS No. 142
                        requires that an impairment test related to the carrying
                        values of  existing  goodwill  be  completed  within the
                        first six months of 2002.  Impairment losses on existing
                        goodwill,  if any,  would be recorded as the  cumulative
                        effect of a change  in  accounting  principle  as of the
                        beginning  of  2002.  The  adoption  of this  accounting
                        standard may have a significant  impact on the Company's
                        future results of operations and financial condition.

                        In June 2001, the FASB issued SFAS No. 143,  "Accounting
                        for Asset Retirement Obligations." SFAS No. 143 requires
                        an asset  retirement  obligation  to be recorded at fair
                        value  during the period  incurred  and an equal  amount
                        recorded  as an  increase  in the  value of the  related
                        long-lived  asset.  The capitalized  cost is depreciated
                        over the useful life of the asset and the  obligation is
                        accreted to its present value each period.  SFAS No. 143
                        is effective for the Company  beginning  January 1, 2003
                        with  earlier  adoption   encouraged.   The  Company  is
                        currently  evaluating  the impact the standard will have
                        on  its  future  results  of  operations  and  financial
                        condition.

                        In August 2001, the FASB issued SFAS No. 144 "Accounting
                        for the  Impairment or Disposal of  Long-Lived  Assets",
                        effective  beginning  January  1,  2002.  SFAS  No.  144
                        retains the  requirement to recognize an impairment loss
                        only where the carrying  value of a long-lived  asset is
                        not recoverable from its undiscounted  cash flows and to
                        measure such loss as the difference between the carrying
                        amount and fair value of the asset.  SFAS No. 144, among
                        other  things,  changes the criteria that have to be met
                        to classify an asset as held-for-sale  and requires that
                        operating   losses  from   discontinued   operations  be
                        recognized  in the period  that the losses are  incurred
                        rather  than as of the  measurement  date.  The  Company
                        adopted the  accounting  standard  effective  January 1,
                        2002  which  may  have  a  significant   impact  on  the
                        Company's financial condition or results of operations.



--------------------------------------------------------------------------------
                                                                            F-36