UNITED STATES
                       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, 2004

                                       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.)

      150 East 58th Street, Suite 3238
      New York, New York                                  10155
      (Address of Principal Executive Offices)            (Zip Code)

Registrant's telephone number, including area code:  (212) 308-5800

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

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             Title of Each Class                  Name of Each Exchange on Which Registered
             -------------------                  -----------------------------------------
<S>                                               <C>
Common stock, par value $0.001 per share          NASD Over the Counter Bulletin Board (OTCBB)
</TABLE>

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. [ ]

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined by Exchange Act Rule 12b-2). Yes ___ No __X__.

         Non-affiliates  of the  registrant  held  shares of common  stock as of
March 31, 2005 with an  aggregate  market value of  approximately  $1,864,680.19
(based  upon the  last  sale  price of the  common  stock on March  31,  2005 as
reported by the NASD Over the Counter Bulletin Board).

         As of March 31, 2005,  140,178,626  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, 2004

                                TABLE OF CONTENTS

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<S>      <C>                                                                                                     <C>
PART 1............................................................................................................6
         ITEM 1.  BUSINESS........................................................................................6
                  General.........................................................................................6
                  Soil Decontamination--Commodore Solution Technologies, Inc......................................7
                  Environmental Management - Commodore Advanced Sciences, Inc....................................12
                  Markets and Customers..........................................................................15
                  Raw Materials..................................................................................16
                  Backlog........................................................................................16
                  Research and Development.......................................................................16
                  Intellectual Property..........................................................................17
                  Competition....................................................................................17
                  Environmental Regulation.......................................................................19
                  Employees......................................................................................20
         ITEM 2.  PROPERTIES.....................................................................................21
         ITEM 3.  LEGAL PROCEEDINGS..............................................................................22
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................22

PART II..........................................................................................................23
         ITEM 5. MARKET FOR  REGISTRANT'S COMMON EQUITYAND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
             EQUITY SECURITIES...................................................................................23
                  Market Information.............................................................................23
                  Issuance of Common Stock Subsequent to December 31, 2004.......................................23
                  Dividend Information...........................................................................24
                  Recent Sales of Unregistered Securities........................................................25
         ITEM 6. SELECTED FINANCIAL DATA.........................................................................28
         ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........29
                  Overview.......................................................................................29
                  Critical Accounting Policies...................................................................30
                  Results of Operations..........................................................................31
                  Off-Balance Sheet Arrangements.................................................................33
                  Liquidity and Capital Resources................................................................34
                  Net Operating Loss Carryforwards...............................................................39
                  New Accounting Pronouncements..................................................................39
                  Forward Looking Statements.....................................................................40
         ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................41
         ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................41
</TABLE>

<PAGE>
<TABLE>
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<S>      <C>                                                                                                     <C>
         ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........41
         ITEM 9A. CONTROLS AND PROCEDURES........................................................................42
         ITEM 9B. OTHER INFORMATION..............................................................................42

PART III.........................................................................................................45
         ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................45
                  Executive Officers and Directors...............................................................45
                  Key Employees..................................................................................48
                  Board Committees...............................................................................49
                  Audit Committee and Financial Expert...........................................................49
                  Compensation of Directors......................................................................49
                  Compliance with Section 16(a) of the Exchange Act..............................................50
         ITEM 11.  EXECUTIVE COMPENSATION........................................................................51
                  Summary Compensation...........................................................................51
                  Stock Options..................................................................................53
                  Employment Agreements..........................................................................54
                  Compensation Committee Interlocks and Insider Participation....................................54
                  Report of the Compensation Committee on Executive Compensation.................................54
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................58
                  Equity Compensation Plan Information...........................................................58
                  Ten Year Option Repricings.....................................................................59
                  Shareholder Return Performance.................................................................61
                  Security Ownership of Certain Beneficial Owners................................................62
                  Security Ownership of Management...............................................................64
         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................67
         ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................................................70

PART IV..........................................................................................................71
         ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K...............................71

SIGNATURES.......................................................................................................80

SUPPLEMENTAL INFORMATION.........................................................................................81
</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:

         o    the  Company's  critical  need  for  additional  cash  to  sustain
              existing  operations  and meet  existing  obligations  and capital
              requirements (the Company's  auditor's opinion on our fiscal 2002,
              2003 and 2004  financial  statements  contains  a "going  concern"
              qualification  in which they  express  doubt  about the  Company's
              ability to continue in business, absent additional financing);

         o    the ability to generate  profitable  operations from a large scale
              remediation project;

         o    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.

         o    the timing and award of contracts by the U.S. Department of Energy
              for the cleanup of waste sites administered by it;

         o    the Company's ability to integrate acquired companies;

         o    the acceptance and implementation of the Company's waste treatment
              technologies in the government and commercial sectors;

         o    the  Company's  ability to obtain and  perform  under  other large
              technical support services projects; developments in environmental
              legislation  and  regulation;

         o    developments in environmental legislation and regulation;

         o    the ability of the Company to obtain future financing on favorable
              terms;

         o    other circumstances affecting anticipated revenues and costs;

         o    the expiration of the Company's nationwide EPA permit in September
              2001 (The Company  believes that the permit may be renewed subject
              to  providing   additional   information.   The  Company  has  not
              resubmitted information for a new permit); and

         o    the  ability  of  the  Company  to  replicate  on a  large  scale,
              economically  viable  basis,  the results of its  technology  test
              results.

         These risks and uncertainties could cause actual results of the Company
to differ  materially  from those  projected or implied by such  forward-looking
statements.


                                       5
<PAGE>
                                     PART I
                                     ------

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

GENERAL

         Commodore   Applied   Technologies,   Inc.   (the   "Company")   is  an
environmental  solutions  company  offering a range of engineering and technical
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)"),  and (ii) providing services related to,  environmental  management
for  on-site  and  off-site   identification,   investigation   remediation  and
management of hazardous, mixed and radioactive waste.

         We believe  that SET is the only  patented,  non-thermal,  portable and
scalable  process that is currently  available for treating and  decontaminating
soils,  liquids  and  other  materials  containing  PCBs,  pesticides,  dioxins,
chemical weapons and warfare agents and other toxic contaminants.

         The  Company's   corporate   mission  is  to  serve  the  environmental
remediation  market  from its primary  operating  center to  profitably  provide
government and industry with  engineering  and  remediation  solutions to legacy
waste environmental problems. Our strategy focuses the Company on the unique and
high profit niches of hazardous materials conversion and waste remediation.

         Demand  for our  environmental  technologies  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; and

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

         Our  business  strategy  is to expand  our  environmental  technologies
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; and

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

         The Company currently has identified two operating segments.  These two
segments are as follows:  Commodore  Advanced  Sciences,  Inc.,  which primarily
provides  various  engineering,  sampling,  and  public  relations  services  to
Government agencies on a cost plus basis; and Commodore  Solutions,  Inc., which
is commercializing technologies to treat mixed and hazardous wastes.

                                       6
<PAGE>

         The Company  currently  requires  additional  cash to sustain  existing
operations and to meet current obligations and ongoing capital requirements. The
Company's   current   monthly   operating   expenses  exceed  cash  revenues  by
approximately $100,000 at December 31, 2004.

         The  Company's  auditor's  opinion  on our fiscal  2002,  2003 and 2004
financial  statements  contains a "going  concern"  qualification  in which they
express  doubt  about the  Company's  ability to continue  in  business,  absent
additional financing.

         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  Government  Environmental  Technologies,  Inc., and
Commodore Advanced Sciences,  Inc. The Company's principal executive offices are
located at 150 East 58th Street,  Suite 3238, New York, New York 10155,  and its
telephone number at that address is (212) 308-5800.


SOIL DECONTAMINATION--COMMODORE SOLUTION TECHNOLOGIES, INC.

         The Company,  through  Commodore  Solutions,  Inc.  ("Solutions"),  has
developed and has commercialized 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  completed  the  contract  in July  2001,  remediating
approximately  340 tons of  excavated  soils to levels  deemed  unregulated  for
disposal by the U.S.  Environmental  Protection Agency (the "EPA").  The Company
believes   this  is  the  first  time  a   non-thermal   process   has   treated
PCB-contaminated  soils to levels  allowing  them to be replaced in the original
excavation.

         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,
non-Commodore technology 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

                                       7
<PAGE>

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.

         In January 2001 the Company  entered into a contract with Waste Control
Specialists, LLC ("WCS") for the treatment of various mixed waste streams stored
at the WCS facility near Andrews,  Texas.  This work employed the Company's SL-2
SET system and was completed in August 2001. No large scale waste  treatment was
performed at this site.  The contract was  terminated by the Company  because of
the failure of WCS to obtain a waste treatment permit in a timely manner in 2003
and all of the Company's SET equipment was removed from the WCS site.

         In November  2001 the Company  entered  into a contract  with  American
Ecology  Recycle Center ("AERC",  Oak Ridge,  Tennessee) for the treatment of 32
drums of Freon still bottom mixed wastes, as well as consultation  regarding the
regulatory requirements for the treatment. Work commenced in November, employing
the  Company's  SL-2 SET system,  and was  essentially  completed in 2002. As an
adjunct to that work, the Company entered into a contract with the University of
California  (prime contractor for the Department of Energy's Los Alamos National
Laboratory)  in March 2002 to dispose  approximately  12,000 pounds of activated
sodium remaining from tests involving the Clinch River Breeder Reactor performed
by Rensselaer  Polytechnic Institute twenty five years ago. The Company believes
this is the first time  activated  sodium (Na22) has been employed as a reactant
to treat other regulated waste materials (the AERC still bottoms).

         In July  2002  the  Company  acquired  all the SET  equipment  formerly
associated  with the  Teledyne-Commodore  LLC. The Company plans to utilize this
equipment for treating Department of Energy ("DOE") legacy mixed waste materials
for  disposal  at major DOE sites in the  United  States.  The  Company  has not
utilized this equipment to date.

         In October 2003 the Company  entered into a contract with ToxCo Metals,
("ToxCo"),  Oak Ridge.  Advanced  Sciences,  teamed with ToxCo,  was  performing
sodium  disposition  for the  Department  of Energy at ToxCo's  facility  in Oak
Ridge,  Tennessee.  This contract commenced late in 2003, and was expected to be
completed  late in 2004. The DOE canceled the contract in late 2004 because they
determined  that the sodium was subject to the Secretary of Energy's  moratorium
on releasing scrap metals for recycling.

         In December 2003 the Company entered into a contract with Envirocare of
Utah  ("Envirocare"),  Clive, Utah for the treatment of mixed wastes, as well as
consultation   regarding  the   regulatory   requirements   for  the  treatment.
Preliminary feasibility testing commenced in March 2004, employing the Company's
SL-2 SET system.  The Company is hopeful this may result in the first multi-year
installation  and contract for the SET  technology  but no  commercial  work has
resulted to date.

                                       8
<PAGE>

         The Company has generated  aggregate  revenues of less than  $1,600,000
from the implementation of the SET technology since 1999.

The SET Technology

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

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

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

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

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

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

                                       9
<PAGE>

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

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

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

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

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

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

         EPA Nationwide  Permit. In order to treat PCBs within the United States
on all non-Superfund sites, a treating entity must obtain a permit from the EPA.
Most EPA permits  granted to date for PCB destruction are solely for single-site
incineration  treatment centers. In August 1995, SET was demonstrated to the EPA
in order to obtain the  Nationwide  Permit,  which was issued to the  Company in
March 1996. The Nationwide Permit allows the Company to use SET on-site to treat
PCB-contaminated  soil at any location in the United States. In addition to soil
treatment,  the Nationwide  Permit allows the Company to treat PCB  contaminated
metallic  surfaces and waste oils,  as well as  wastewater  (the  wastewater  is
treated by a non-SET process).  The Company has also  successfully  demonstrated
SET as a  treatment  process for organic  materials  contaminated  with PCBs and
radionuclides  and has received a draft  revised EPA permit for these  matrices.
This  permit  revision  covers the  destruction  of PCBs in soils,  waste  oils,
organic materials, water, and on metallic surfaces.

         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.  The Company  believes
that various revisions to the equipment and process parameters are being made to
the existing  permit.  The Company  believes  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.

                                       10
<PAGE>

         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.

         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

                                       11
<PAGE>

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 Department of
Energy ("DOE") and the Department of Defense ("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 and  radiological  waste sites.
Advanced Sciences currently operates a network of three offices located in three
states, with its principal executive offices located in Richland, Washington.

         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. 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

                                       12
<PAGE>

Environmental Services, which owns 4.95 % of the Company.  Advanced Sciences has
at its  disposal,  on a per project  basis,  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 DOE and the 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.

Contracts

         eDAM - Advanced Science was awarded an environmental  sampling and data
integration contract by Bechtel Jacobs Company LLC of Oak Ridge, TN in September
2004. CASI is the lead small business member of the Commodore  Advanced Sciences
Team   (CAST),   which  also   includes   team  members   Science   Applications
International, Inc. (SAIC), and RCS Corporation (RCS).

         The  Environmental  Data  Acquisition  and Management  (eDAM)  contract
awarded to CAST is valued at over $14  million  for the base and option  periods
September  2004-2008.  The eDAM  contract  scope of work  includes  three  major
components:   execution  of  environmental  sampling,  sample  management,   and
environmental   information  management.   Sampling  includes  collecting  soil,
groundwater,  surface water, air, sediment,  biological, waste characterization,
and building D&D samples in support of site  closures and CERCLA,  RCRA,  NPDES,
and TSCA  compliance  at all three U. S.  Department  of Energy  (DOE) Oak Ridge
sites: ETTP, ORNL, and Y-12.

         The Company has completed the  pre-mobilization and mobilization phases
of its eDAM  contract  and is now in full  operations.  The Company has opened a
satellite  office at the K-25  site,  and has  staffed  the eDAM  contract  with
twenty-eight  full time  employees.  The Company  believes the eDAM contract may
attract more DOE client  groups than are  contemplated  in the base scope of the
contract. The Company is seeking to extend its environmental  monitoring service
capabilities  to other DOE sites,  such as Portsmouth,  OH and Paducah,  KY. The
current contract backlog for work is $5.4 million in 2005.

         Duratek- Advanced Sciences was awarded a one-year contract from Duratek
Federal  Services,  Inc.  beginning in January  2005,  to perform  environmental
monitoring  services at two engineered  landfills on the Oak Ridge  Reservation.
Environmental monitoring services will include sample collection,  packaging and
shipping to offsite  analytical  laboratories.  Samples will be  collected  from
surface water, groundwater,  and landfill leachate collection locations on storm
event, weekly, monthly, and quarterly bases.

         UT Battelle:  Advanced  Sciences  provides one engineering  person on a
time and material basis to UT Battelle, supporting the site closure at Oak Ridge
National Laboratories (ORNL). The Advanced Sciences personnel provide structural
engineering  assessment  services  under this  contract.  The time and  material
contract remains on-going through 2005.

         Denver  Regional  Water Council of  Governments:  Advanced  Sciences is
contracted  annually to sample surface waters,  streams,  groundwater  wells and
watersheds to Chatfield  Watershed  Authority located  southwest of Denver.  The
contract is ongoing  through  2005.  A similar and ongoing  contract  for Cherry
Creek Basin Water Authority is also ongoing.

         Tetra Tech Contract:  Advanced  Sciences provides  engineering  support
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. Advanced Sciences provides 1 to 3 engineering personnel on a
time and material  basis to Tetra Tech on a contract  basis which is expected to
continue through September 2005.

                                       13
<PAGE>

         WESKEM - Advanced  Sciences was awarded a one-year contract from WESKEM
LLC., of Oak Ridge to support their sampling efforts with the Waste  Disposition
Services  Project in March 2005.  The Sample  Management  Office (SMO)  services
required  to meet  the  needs  of this  project  are:  (i)  Assistance  with the
preparation  of  analytical  statement  of  works  (SOW),  (ii)  Maintenance  of
laboratory  performance  metrics,  (iii) Procurement of best value laboratories,
(iv)  Performance of contract  verification of data, and (v) Tracking of samples
and sample residue.

         ToxCo Metals, Oak Ridge:  Advanced Sciences,  teamed with ToxCo Metals,
is  performing  sodium  disposition  for the  Department  of Energy  at  ToxCo's
facility in Oak Ridge, Tennessee.  This contract commenced late in 2003, and was
expected to be  completed  late in 2004.  The DOE  canceled the contract in late
2004 because  they  determined  that the sodium was subject to the  Secretary of
Energy's moratorium on releasing scrap metals for recycling.

         Envirocare of Utah: Advanced Sciences performed a series of mixed waste
treatment  tests in 2004 on specific  waste  streams at the  Envirocare  of Utah
Clive  facility  northwest of Salt Lake City,  using its SL-2 solvated  electron
system. The Company was able to reduce or eliminate 48 out of 52 contaminates in
the waste samples provided by Envirocare of Utah by utilizing the SET treatment.
No  further  testing  or  commercial  work  has been  generated  to date at this
location.

Joint Ventures

         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)  could  pursue
mixed waste treatment contracts on a limited,  domestic basis. TRI is a provider
of contract services to the DOE and to the public utilities market.  The purpose
of the joint  venture,  known as Nuvoset,  LLC (the "Nuvoset  LLC"),  a Delaware
limited   liability   company,   encompassed   all   aspects   of  mixed   waste
characterization,  treatment,  storage,  transportation and disposal through the
use,  application and  commercialization  of the technologies of the Nuvotec LLC
partners.  The  Nuvoset,  LLC was  dissolved  in 2003 by  agreement  between the
parties.


                                       14
<PAGE>

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 Eastern  Europe and the
Middle  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, 2004, sales of
approximately  6% of the  Company's  environmental  management  services were to
private  sector  customers  and sales of  approximately  94% were  derived  from
contracts with federal,  state and municipal government  agencies.  Contracts to
private  sector  customers  generally may not be terminated at the option of the
customer.  Contracts with governmental  customers generally may be terminated at
any time at the option of the customer.  In 2004,  Advanced  Sciences' Oak Ridge
Contracts, Rocky Flats Contracts and ToxCo Contracts accounted for approximately
83%, 11% and 6%,  respectively of the Advanced  Sciences' sales. The Company has
benefited  from its  long-term  relationships  with many of its  customers  that
result in 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 exists 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 during
the years 2000 and 2001, and the WCS Fixed Facility  Processing  Contract during
the year 2001. 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

                                       15
<PAGE>

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
66% of such  expenditures and together expect to spend in excess of $200 billion
for  environmental  work over the next twenty  years.  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,  2004,  total  potential  backlog for the Company was
approximately  $5,400,000 as compared with approximately $524,000 as of December
31, 2003.  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  Company
estimates that all 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  $9,000,
$70,000,  and $297,000 for the years ended  December  31, 2004,  2003,  and 2002
respectively.

                                       16
<PAGE>

INTELLECTUAL PROPERTY

         The Company  currently  has ten (10) issued U.S.  and foreign  patents.
Additionally,  the Company has seven (7) 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 12.67 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

         Soil Decontamination

         The Company  anticipates that the market for commercial  private sector
applications  of SET will be hazardous and  non-hazardous  waste and  industrial
by-products  treatment and disposal, in particular the more recalcitrant "mixed"
wastes  (wastes  containing a radioactive  element).  Several large domestic and
international  companies  and  numerous  small  companies,  many  of  whom  have
substantially  greater  financial and other resources than the Company,  compete
with the Company in this market. The Company primarily competes in the hazardous
waste  treatment  market in the U.S.,  a market  valued at over $3.7 billion for
2005. 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
companies  with  permitted  waste   treatment  and  disposal  sites,   including
Envirocare of Utah, Waste Control Specialists, Pacific EcoSolution, and American
Ecology, as well as other treatment companies such as Duratek and PermaFix.  The
Company's revenues for 2004 account for less than 1 percent of the dollar volume
of the hazardous waste market.  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.

                                       17
<PAGE>

         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.

Environmental Management

         Advanced Sciences has been primarily engaged in providing environmental
consulting 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  $11 to $12  billion  for 2005.  The DOE and DOD are  expected  to
account for approximately 66% of such expenditures.  Commodore 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, all of whom have greater
financial  and other  resources  than the Company.  In  providing  environmental
impact assessment services,  Commodore Advanced Sciences' principal  competitors
in this market sector include Tetra Tech, The Earth Technology Corp.,  Battelle,
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.


                                       18
<PAGE>

         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
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.

                                       19
<PAGE>

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

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

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

         The Company  possesses a Nationwide  Permit issued by the EPA under the
Alternative Destruction Technology Program that allowed it to use SET on-site to
treat  PCB-contaminated  soils and  metallic  surfaces,  although  the permit is
currently  expired.  The  Nationwide  Permit  contains  numerous  conditions for
maintaining the Nationwide Permit and there can be no assurance that the Company
will be able to comply with such conditions to maintain and/or secure renewal of
the Nationwide Permit. In addition, if environmental  legislation or regulations
are amended,  or are  interpreted  or enforced  differently,  the Company may be
required to meet  stricter  standards  of  operation  and/or  obtain  additional
operating  permits or  approvals.  Failure to obtain such  permits or  otherwise
comply with such regulatory requirements could have a material adverse effect on
the Company and its operations.  Various  revisions to the equipment and process
parameters are being made to the existing permit.  The Company believes that 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 December 31, 2004,  the Company  (including all of its direct and
indirect subsidiaries) had a total of 28 full-time and 6 part-time employees, of
which   approximately   24  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.


                                       20
<PAGE>

OTHER INFORMATION

         See Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K for information regarding revenue from customers,  a measure
of profit or loss and total  assets for each of the  Company's  segments for the
last 3 fiscal years.


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

         The Company's  principal executive offices are located in New York, New
York. 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 Commodore Environmental  Services,  Inc.  ("Environmental") and a director of
the Company, Solution,  Commodore Separation Technologies,  Inc. ("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, 2002, 2003, 2004, and 2005 on a
rent-free basis. In November 2003 the Company issued 27,355,800  warrants to Mr.
Blum for  consideration  for the loans made to the Company,  the usage of office
space and  personnel of the Blum Asset Trust over the last five years,  and debt
forbearance  on the  Blum  Demand  Note.  Also,  the  Company  provides  general
insurance  coverages  and  director & officer  insurance  to  Environmental  and
Separation  under its policy at no charge to  Environmental  and  Separation  in
exchange  for rent and direct  labor,  office  supplies  and third party  vendor
services  that the  Company  generates  in its  activities  in the New York City
offices.

         In addition to the New York, New York facilities, since April 2000, the
Company has leased approximately 1,600 square feet of space from Dr. 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 $1,700 per month.

         The Company leases approximately 400 square feet of laboratory,  office
and storage  space at  Kirtland  Air Force Base in  Albuquerque,  New Mexico for
rental  payments in the amount of $735 per month,  pursuant to a  month-to-month
lease arrangement.

         Advanced Sciences' principal  executive and administrative  offices are
located in Richland,  Washington.  Advanced Science leases  approximately  3,750
square feet of space for rental payments in the amount of $3,500 per month under
a yearly lease.

         In addition to the Richland,  Washington facilities,  Advanced Sciences
has leased  approximately  1,600  square feet of space in Oak Ridge,  TN for its
administrative  functions,  on a four year  lease,  for a rental  payment in the
amount of $1,800 per month. Additionally, Advanced Sciences leases approximately
5,500  square  feet of space at K-1035,  at a DOE  facility in Oak Ridge for its
operational  staff for the EDAM  contract,  on a four year  lease,  for a rental
payment in the amount of $1,958 per month.

         Advanced Sciences also leases  approximately 1,000 square feet of space
for field operations in Wheat Ridge, Colorado for a rental payment in the amount
of $785 per month.

         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.

                                       21
<PAGE>

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 April 15, 2005, 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.  No amount has been recorded in the financial  statements as the Company
is unable to determine a loss amount, if any, on the issue of indemnification.

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

         As of April 15, 2005, 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.
------   ----------------------------------------------------

None.


                                       22
<PAGE>

                                     PART II
                                     -------

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------   ---------------------------------------------------------------------
         AND ISSUER PURCHASES OF EQUITY SECURITIES.
         ------------------------------------------

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 warrants,  previously extended from June 16, 2001, expired on June 16,
2002.  On March 6, 2003,  the Common  Stock  ceased to be listed on the American
Stock Exchange ("AMEX") and began trading in the over-the-counter  market in the
so-called  "pink  sheets" of the  National  Quotation  Bureau,  Inc. and the OTC
Bulletin Board of the National Association of Securities Dealers, Inc. (the "OTC
Bulletin Board or OTCBB"),  where it is currently  traded under the symbol CXII.
As of March 31,  2005,  there were 277 record  holders of the  Company's  common
stock.

         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
as reported on the AMEX (prior to March 6, 2003) and on the OTCBB  (after  March
6, 2003).

                                                     Common Stock
                                                     ------------
                                                   High         Low
                                                   ----         ---

Fiscal 2004
      First Quarter.............................   $0.03        $0.01
      Second Quarter............................    0.05         0.02
      Third Quarter.............................    0.03         0.02
      Fourth Quarter............................    0.02         0.01

Fiscal 2003
      First Quarter.............................   $0.18        $0.02
      Second Quarter............................    0.03         0.02
      Third Quarter.............................    0.04         0.02
      Fourth Quarter............................    0.20         0.01


ISSUANCE OF COMMON STOCK SUBSEQUENT TO DECEMBER 31, 2004

         The  Company  issued a total of  5,832,573  shares of its common  stock
during the period from January 1, 2005 to April 15,  2005,  in  connection  with
various   conversion  notices  from  the  holders  of  the  Company's  Series  E
Convertible  Preferred  Stock,  par  value  ($0.001)  per share  (the  "Series E
Preferred  Stock")  and  the  holders  of the  Company's  Series  F  Convertible
Preferred Stock, par value ($0.001) per share (the "Series F Preferred Stock").


                                       23
<PAGE>

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, 2004,  the Company had paid an aggregate
since the stock was issued of  $134,000  in cash  dividends  and the Company has
accrued an additional  $961,886 in unpaid 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.  During 2003 the Company paid $143,496
in common  stock in payment of the  accrued  dividends  on all of the  converted
Series E Preferred Stock shares to date.

         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, 2004, the Company had paid an aggregate since
the stock was issued of $92,000 in cash dividends and the Company has accrued an
additional  $679,525 in unpaid dividends.  The Company has the option to pay the
dividends  accrued in all periods  after  September  30,  2000 in the  Company's
common  stock  rather than cash.  During 2002 the Company paid $39,939 in common
stock in payment  of the  accrued  dividends  on all of the  converted  Series F
shares to date.

         Series H Preferred Stock
         ------------------------

         The holders of the Company's Series H Convertible  Preferred Stock, par
value  ($0.001)  per share (the "Series H Preferred  Stock"),  are entitled to a
dividend rate of 3% over the term of the securities.  Through December 31, 2004,
the Company had not paid cash  dividends and the Company has accrued  $56,745 in
unpaid dividends. The Company has the option to pay the dividends accrued in all
periods in additional  shares of Series H Preferred  Stock. See "Recent Sales of
Unregistered  Securities -- May 2002 Settlement  Agreement  Issuance of Series H
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,  if any, 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.


                                       24
<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

April 2005 Exchange Agreement of Series E Preferred Stock and Series F Preferred
Stock

         On April 12,  2005,  the  Company  authorized  the  issuance of 550,000
shares of Series I Convertible Preferred Stock ("Series I Preferred"), par value
$0.001 per share, each such share of Series I Preferred having a stated value of
$10.00 per share.

         The Series I Preferred shall have the following rights, privileges, and
limitations:

         a)   The conversion feature shall be exercisable immediately.

         b)   The conversion price of the Series I Preferred shall be determined
              by the average  closing  price of  Company's  common  stock in the
              previous 10 trading  days,  but in no event  shall the  conversion
              price be more than $0.0285 per share.

         c)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.

         d)   The Series I Preferred shall have a non-cumulative annual dividend
              of 10%, payable in cash or shares of the Company's common stock at
              the Company's election.

         e)   Dividend will be paid  quarterly  commencing  May 15, 2005, to the
              Holders  of  record of shares  of the  Series I  Preferred  Stock.
              Dividends  until  February  14, 2006 shall accrue but shall not be
              payable until February 15, 2006.

         f)   The Company will reserve 75 million shares of its common stock for
              the conversion of the Series I Preferred.

         On April 12, 2005, the Company entered into an exchange  agreement with
The Shaar Fund, LTD (the "Shaar Exchange  Agreement").  Under terms of the Shaar
Exchange  Agreement,  the  Company  agreed that Shaar will  exchange  all of its
right,  title and  interest in and to the  remaining  outstanding  shares of the
Series E  Preferred  and Series F  Preferred  (including  all other  accrued and
unpaid  dividends  thereon)  for  395,302  shares  of  the  Company's  Series  I
Preferred. See "MD&A - Liquidity and Capital Resources."

April 2005 New Shaar Convertible Note and Milford Capital Purchase Agreement

         Additionally, under the Shaar Exchange Agreement, the Company issued an
Amended and  Restated  Secured  Promissory  Note of the  Company,  amending  and
restating  a note  originally  issued  June 13,  2001,  which  such  Note has an
outstanding  principal balance as of April 12, 2005 of $3,251,585.35 ("Old Shaar
Note").

         On April 12, 2005 Shaar executed a purchase agreement ("Milford Capital
Purchase Agreement") to Milford Capital & Management ("Milford").  In accordance
with the terms of the Milford  Capital  Purchase  Agreement,  Shaar  purchased a
secured promissory note of the Company,  initially issued to Milford on June 13,
2001, in the original  principal  amount of $500,000,  which had an  outstanding
principal  balance on March 22, 2005 of $188,149 ("Old Milford Note"),  together
with (i) all interest,  additional  obligations,  forbearance  fees,  exit fees,
penalties  and other  amounts  due and  payable  from  time to time  under or in
connection  with  the Old  Milford  Note,  and (ii) the  Forbearance  Amount  in
connection  with the  Forbearance  Agreement,  dated  January 30, 2004,  between
Milford and the Company, and Shaar in which Shaar agreed to forgive payment from
the Company to Shaar of $300,000  of accrued and unpaid  dividends  on shares of
the  Company's  Series E  Preferred  held by Shaar  ("Forgiven  Dividends")  and
consented  to the  transfer of the dollar  value of the  Forgiven  Dividends  to
Milford as part of the  forbearance fee payable to Milford under the Forbearance
Agreement of 2004.

                                       25
<PAGE>


         Shaar  and the  Company  have  agreed  that  Shaar  will  exchange  the
outstanding  principal  amount of the Old Shaar  Note and the Old  Milford  Note
(including all accrued and unpaid interest,  unpaid fees and Forgiven Dividends)
for the Company's newly issued 10% convertible secured promissory note (the "New
Shaar Convertible Note")

         The New  Shaar  Convertible  Note  shall  have  the  following  rights,
privileges, and limitations:

         a)   The New Shaar  Convertible  Note bears an interest rate of 10% per
              annum,  which is payable in cash or shares of the Company's common
              stock at the Company's election.

         b)   Interest  shall  accrue  on the  principal  amount  for a one year
              period  ("Deferral  Period").  On March 22, 2006, the Company will
              make a single lump sum payment to the holder in an amount equal to
              all interest that accrued during the Deferral Period

         c)   Beginning  April 15, 2006, and monthly  thereafter on the 15th day
              of each month until March 22, 2009 ("Maturity  Date"), the Company
              shall pay to Shaar all  accrued  and  unpaid  interest  ("Interest
              Payments")on the principal balance of the note accruing during the
              prior month.

         d)   On the  Maturity  Date,  the Company  shall make a single lump sum
              payment to Shaar equal to the outstanding principal balance of the
              New Shaar  Convertible Note ("Principal  Balance"),  together with
              all accrued and unpaid interest.

         e)   At the option of Shaar, the outstanding  Principal  Balance may be
              converted,  either  in  whole  or in  part,  into  shares  of  the
              Company's common stock.

         f)   The conversion price of the payment of the Principal Balance,  the
              Deferral Period,  and the Interest Payments shall be determined by
              the average  closing  price of  Company's  common  stock in the 10
              trading days preceding the conversion date,, but in no event shall
              the conversion  price be more than $0.0285 per share  ("Conversion
              Price").

         g)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.

         h)   The New Shaar  Convertible  Note may not be prepaid by the Company
              prior to the Maturity Date.

         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 333,334 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 is
required to 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
December 31, 2005. In connection with the  Milford/Shaar  Bridge Loan Notes, the

                                       26
<PAGE>

Company  issued to  Milford/Shaar  in February  2004,  a  five-year  warrant for
250,000  shares of the Company's  common stock at an exercise price of $0.03 per
share. The Shaar Fund, Ltd., through the Shaar Bridge Loan, continues to provide
cash installments on a periodic basis in the form of additional  principal.  The
Milford/Shaar Bridge Loan Notes were restructured into the New Shaar Convertible
Note as of April 12, 2005. Prior to the New Shaar  Convertible Note, the current
principal  balance of the  Milford/Shaar  Bridge Loan Notes was $3,033,741 as of
December 31, 2004. Additionally,  as of December 31, 2004, there was $119,073 in
accumulated  forbearance fees and $100,000 due in exit fees on the Milford/Shaar
Bridge Loan Notes. 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,
including the son of Paul E. Hannesson, our former President and Chief Executive
Officer,  and Stephen A. Weiss,  a  shareholder  of  Greenberg  Traurig LLP, our
former  corporate  counsel.  Since the date of that loan,  certain warrants have
been issued to the holders of the Weiss Group Note in  consideration  of certain
payment extensions.

         Effective  February  14,  2004,  the  members  of the Weiss  Group Note
voluntarily  cancelled all issued  warrants to purchase  1,500,000  shares at an
exercise  price of $0.05 per share of the  Company's  common stock in connection
with the Weiss Group Note.

         Effective  February 15, 2004, the Company  issued  warrants to purchase
2,500,000  shares of its common stock at an exercise  price of $0.0285 per share
to all holders of the Weiss Group Note in  consideration of the extension of the
due date of such loans by such persons from May 31, 2002 to January 15, 2005.

         The  recipients  of  securities  in the  transactions  described  above
represented  their  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 certificates or warrants
representing  the  securities  issued  in this  transaction.  The  Company  made
available to the recipients, 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  recipients  were
offered the opportunity,  prior to exchanging  and/or 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  these
transactions 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, 2004,  2003,  2002,  2001 and 2000 and for the years then ended.
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.

Consolidated Statement of Operations Data: (in thousands, except per share data)
<TABLE>
<CAPTION>

                                       2000            2001           2002           2003           2004
                                       ----            ----           ----           ----           ----
<S>                                   <C>               <C>            <C>              <C>            <C>
Revenue:
    Contract revenues...........      $17,057           $4,590         $3,710           $660           $738
Cost of sales:
    Cost of revenues............       14,452            3,369          2,108            811            919
    Research and development....          993              423            297             70              9
    General and administrative..        5,228            2,420          1,792          1,700          1,674
    Depreciation             and          865              658            314            267            136
amortization....................
       Impairment of Machinery             --              776             --             --             --
       Impairment of Patents               --              627             --             --             --
       Impairment of Goodwill...        6,586               --             --             --             --
                                      ----------------------------------------------------------------------
Loss from operations............      (11,067)          (3,683)          (801)        (2,188)        (2,000)

    Interest income.............           57               38             --             --             --
    Interest expense............         (586)            (226)          (104)          (769)          (404)
    Equity  in  net   losses  of
       subsidiary.................          --            (295)            --             --             --
                                      ----------------------------------------------------------------------
                                      (11,596)          (4,166)          (905)        (2,957)        (2,404)
                                      ----------------------------------------------------------------------
Loss before income taxes .......
    Income taxes................           --               --             --             --             --

Loss on disposal of
discontinued operations                    --               --         (4,134)            --             --
(Loss)  gain  from  discontinued
operations                                155            (2,388)         (933)            --             --
                                      ----------------------------------------------------------------------

Net loss .......................      $(11,441)        $(6,554)       $(5,972)       $(2,957)       $(2,404)
                                      ======================================================================

Net loss per share -- basic and
diluted.........................      $  (.34)         $  (.13)       $  (.11)       $  (.04)       $  (.02)
                                      ======================================================================


Weighted average number of
shares..........................       35,866           53,241         57,775         92,035        126,682
                                      ======================================================================

</TABLE>


Consolidated Balance Sheet Data: (in thousands)
<TABLE>
<CAPTION>

                                       2000           2001           2002           2003            2004
                                      ----------------------------------------------------------------------
<S>                                <C>            <C>            <C>            <C>             <C>
Cash and cash equivalents......... $     579      $     170      $      59      $      --       $      15
Assets held for sale - DRM........    29,687         29,407             --             --              --
Total assets......................    37,473         31,200            736            246             369
Long term debt....................       221             --            431          1,575           3,034
Liabilities held for sale - DRM...    22,966         22,165             --             --              --
Total liabilities.................    29,618         29,629          5,025          6,898           9,697
Minority interests................        --             --             --             --              --
Stockholders' (deficit) equity....     7,855          1,571         (4,289)        (6,652)         (9,328)

</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  and
technical  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; and (ii) 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).
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.

         The  Company  has  identified  two  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 two
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; and Commodore  Solutions,  Inc., which
is commercializing technologies to treat mixed and hazardous waste.

         The Company  currently  requires  additional  cash to sustain  existing
operations and to meet current obligations and ongoing capital requirements. The
Company's   current   monthly   operating   expenses  exceed  cash  revenues  by
approximately $80,000.  Currently, the Company is addressing this cash shortfall
through loans from The Shaar Fund,  Ltd.,  but The Shaar Fund,  Ltd. is under no
obligation  to continue to make such  advances  to the  Company.  If this lender
decided  to  discontinue  advances,  the  Company  would not be able to meet its
current obligations.  In addition, the Company owes $1,050,503 in loans that are
currently due or are payable on demand. Although the lenders on these loans have
not yet called the loans, the Company does not currently have the ability to pay
these loans absent additional financing.

         The  Company's  auditor's  opinion  on our fiscal  2002,  2003 and 2004
financial  statements  contains a "going  concern"  qualification  in which they
express  doubt  about the  Company's  ability to continue  in  business,  absent
additional financing.  The Company currently requires additional cash to sustain
existing  operations  and  to  meet  current  obligations  and  ongoing  capital
requirements.


                                       29
<PAGE>

CRITICAL ACCOUNTING POLICIES

         We prepare our financial  statements in conformity with U.S.  generally
accepted  accounting  principles.  As  such,  we are  required  to make  certain
estimates,  judgments and assumptions  that we believe are reasonable based upon
the information  available.  These estimates and assumptions affect the reported
amounts of assets and  liabilities  at the date of the financial  statements and
the reported amounts of revenues and expenses during the periods presented.

         Our accounting policies that are the most important to the portrayal of
our  financial  condition and results,  and which require the highest  degree of
management  judgment relate to the reserves for doubtful accounts receivable and
the valuation of stock and options issued for services.

Reserves for Doubtful Accounts

         Management  estimates the amount of required reserves for the potential
non-collectibility  of accounts  receivable based upon the customer's  financial
condition, age of the customer's receivables,  changes in payment histories, and
consideration  of other  relevant  factors.  Because the  reserve  for  doubtful
accounts is an estimate  of events  that have not yet  occurred,  we could incur
additional  charges or  benefits  in the future to reflect  differences  between
estimated and actual collections.

Valuation of stock and options

         We  value  and  account  for the  issuance  of  equity  instruments  to
non-employees to acquire goods and services based on the fair value of the goods
and services or the fair value of the equity instrument at the time of issuance,
whichever is more reliably measurable.  The fair value of stock issued for goods
or  services  is  determined  based on the quoted  market  price on the date the
commitment to issue the stock has  occurred.  The fair value of stock options or
warrants  granted to  non-employees  for goods or services is  calculated on the
date of grant using the Black-Scholes options pricing model.

Revenue Recognition

         Substantially all the Company's current revenues consist of engineering
and scientific  services performed for the U.S. Government and prime contractors
that  serve the U.S.  Government  under a variety  of  contracts,  most of which
provide for unit prices.  Revenue  under unit price  contracts are recorded when
the services are provided.

         Most of the Company's  historical  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 the Company'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.


                                       30
<PAGE>

RESULTS OF OPERATIONS

Year ended December 31, 2004 compared to Year ended December 31, 2003

         Revenues were $738,000 for the year ended  December 31, 2004,  compared
to $660,000 for the year ended  December  31, 2003.  The increase in revenues is
due to the  increases in revenue  contribution  by Advanced  Sciences as certain
contracts were renewed and other contracts were initiated.

         In the case of Advanced  Sciences,  revenues were $698,000 for the year
ended December 31, 2004,  compared to $568,000 for the year ended 2003. Revenues
in 2004 were primarily from  engineering and scientific  services  performed for
the United States  government  under two contracts  similar to those in place in
2003.  Advanced  Sciences  had two  major  customers  in  2004,  each  of  which
represents more than 10% of annual revenue.  The combined  revenue for these two
customers was $698,000 or 100% of the Company's total 2004 revenue. The increase
in  revenues  at Advanced  Sciences  is  primarily  the result of the renewal of
existing  contracts and overall,  more subcontract work being performed in 2004.
Cost of sales decreased from $721,000 for 2003 to $548,000 for 2004. A reduction
in  cost  of  sales  at  Advanced   Sciences  resulted  from  greater  operating
efficiencies  on  existing  contracts  and a  reduction  in  overhead  expenses.
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  $40,000  for the year  ended
December 31, 2004 as compared with $92,000 for the year ended December 31, 2003.
The  decrease  is  primarily  due to the  decrease  in  feasibility  studies and
commercial processing. Revenues in 2004 were primarily from remediation services
performed for a scrap metal  recycling  company in the U.S. under a subcontract.
Solution  had one  major  customer  which  represented  more  than 10% of annual
revenue.  The revenue for this  customer  was $40,000 or 100% of the  Solution's
total 2004 revenue. The decrease in revenues at Solution is primarily the result
of less subcontract work being performed in 2004. Cost of sales was $371,000 for
the year ended  December  31,  2004 as  compared  to $90,000  for the year ended
December 31,  2003.  The  increase in cost of sales is  attributable  to greater
manufacturing  costs of specialty  equipment 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, 2004, the Company incurred research and
development  costs of $9,000, as compared to $70,000 for the year ended December
31, 2003.  100% of the research and  development  costs are  attributable to the
operations  of Solution.  In 2004,  the Company  invested  more money in capital
expenditures and less in laboratory work then it had in 2003.  Advanced Sciences
did not incur research and development costs in the years 2003 and 2004.

         General and  administrative  expenses  for the year ended  December 31,
2004 were  $1,674,000 as compared to $1,700,000  for the year ended December 31,
2003. This decrease  reflects the impact of some of the  restructuring  steps in
the Company throughout 2004.

         In the case of  Advanced  Sciences,  general and  administrative  costs
decreased from $570,000 for the year ended December 31, 2003 to $308,000 for the
year  ended  December  31,  2004.  This  decrease  reflects  the  impact of some
restructuring steps in Advanced Sciences (including principally a outsourcing of
certain  administrative  functions) the Company made throughout 2004 to increase
operating  efficiencies.  Solution incurred general and administrative  costs of

                                       31
<PAGE>

$120,000 for the year ended  December 31, 2004 as compared  with $73,000 for the
year ended  December 31, 2003.  This increase was primarily due to an increased,
focused sales and marketing effort for Solution's services,  which may result in
contracts that will produce revenue in 2005 and beyond.

         The  decrease  in  interest  expense of  $365,000  from 2003 to 2004 is
primarily  related to lower,  amortized  non-cash interest costs associated with
the  Milford/Shaar  Note and the  Weiss  Group  Note and lower  balances  on the
Company's line of credit.

         The Net Loss was  $2,404,000  for the year  ended  December  31,  2004,
compared to $2,957,000 for the year ended December 31, 2003. The decrease in the
net loss was a result of increased  revenues and the decreased interest expenses
for the year ended  December  31, 2004  compared to the year ended  December 31,
2003.

Year ended December 31, 2003 compared to Year ended December 31, 2002

         Revenues were $660,000 for the year ended  December 31, 2003,  compared
to $3,710,000  for the year ended December 31, 2002. The decrease in revenues is
due to the  decreases in revenue  contribution  by Advanced  Sciences as certain
contracts were not renewed and other contracts were completed.

         In the case of Advanced  Sciences,  revenues were $568,000 for the year
ended  December  31,  2003,  compared  to  $3,448,000  for the year ended  2002.
Revenues  in 2003  were  primarily  from  engineering  and  scientific  services
performed for the United States  government under a variety of contracts similar
to those in place in 2002.  Advanced  Sciences had two major  customers in 2003,
each of which  represents more than 10% of annual revenue.  The combined revenue
for these  two  customers  was  $568,000  or 100% of the  Company's  total  2003
revenue. The decline in revenues at Advanced Sciences is primarily the result of
fewer contracts and overall,  less subcontract work being performed in 2003. 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  $1,854,000 for 2002 to $721,000 for 2003. 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  Solution,  revenues  were  $92,000  for the year  ended
December  31, 2003 as compared  with  $262,000  for the year ended  December 31,
2002. The decrease is primarily due to the decrease in  feasibility  studies and
commercial processing. Revenues in 2003 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  $92,000 or 100% of the  Solution's  total 2003  revenue.  The  decrease  in
revenues at  Solution is  primarily  the result of less  subcontract  work being
performed  in 2003.  Cost of sales was $90,000 for the year ended  December  31,
2003 as compared to $254,000 for the year ended  December 31, 2002. The decrease
in cost of sales is  attributable to lower sales expenses for the SET technology
due to less  subcontract  work being  performed in 2003.  Anticipated  losses on
engagements,  if any,  will be  provided  for by a charge to income  during  the
period such losses are first identified.

                                       32
<PAGE>

         For the year ended December 31, 2003, the Company incurred research and
development  costs of  $70,000,  as  compared  to  $297,000  for the year  ended
December 31, 2002. 100% of the research and development  costs are  attributable
to the  operations  of Solution.  In 2003,  the Company  invested  more money in
capital  expenditures and less in laboratory work and consultants than it had in
2002.  Advanced  Sciences did not incur  research and  development  costs in the
years 2002 and 2003.

         General and  administrative  expenses  for the year ended  December 31,
2003 were  $1,700,000 as compared to $1,792,000  for the year ended December 31,
2002. This decrease  reflects the impact of some of the  restructuring  steps in
the Company throughout 2003.

         In the case of  Advanced  Sciences,  general and  administrative  costs
decreased from $754,000 for the year ended December 31, 2002 to $570,000 for the
year  ended  December  31,  2003.  This  decrease  reflects  the  impact of some
restructuring steps in Advanced Sciences  (including  principally a reduction in
personnel)  the Company  made  throughout  2003 due to the  inability to replace
certain completed contracts.  Solution incurred general and administrative costs
of $73,000 for the year ended  December 31, 2003 as compared  with  $203,000 for
the year ended  December 31, 2002.  This  decrease was  primarily  due to a more
narrowly focused sales and marketing effort for Solution's  services,  which has
resulted in contracts that will produce revenue in 2004.

         The  increase  in  interest  expense of  $665,000  from 2002 to 2003 is
primarily related to higher,  amortized  non-cash interest costs associated with
the Blum Note,  Milford/Shaar  Note and the Weiss Group Note and higher balances
on the Company's line of credit.

         The loss from discontinued  operations is approximately $0 and $933,000
for the years ended December 31, 2003 and 2002. The Company  discontinued DRM in
2002 and there  were no  operations  during  2003.  The loss  from  discontinued
operations is  approximately  $0 and $4,134,000 for the years ended December 31,
2003 and 2002.

         The net loss was  $2,957,000  for the year  ended  December  31,  2003,
compared to $5,972,000 for the year ended December 31, 2002. The decrease in the
net  loss  was  partially  the  result  of  the  one-time   recognition  of  the
discontinued  operations  of DRM (933,000) and the loss on disposal of assets of
DRM  (4,134,000)  for the year ended  December 31,  2002.  The net loss prior to
these items was  $2,957,000  for the year ended  December 31, 2003,  compared to
$905,000 for the year ended  December 31, 2002. The increase in the net loss was
primarily the result of decreased  revenues and increased  interest expenses for
the year ended December 31, 2003 compared to the year ended December 31, 2002.

OFF-BALANCE SHEET ARRANGEMENTS

         There are no  off-balance  sheet  arrangements,  such as  financing  or
variable interest entities,  that either have, or are reasonably likely to have,
a current or future material effect on financial condition, changes in financial
condition,  revenues or  expenses,  results of  operations,  liquidity,  capital
expenditures or capital resources.

                                       33
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2004 and December 31, 2003  Advanced  Sciences had a $0
and  $64,000  outstanding  balance,  respectively,  on its two  million  dollar,
receivables  revolving  line of  credit.  The line of  credit is based on credit
worthy receivables of Advanced Sciences.

         The Company  currently  requires  additional  cash to sustain  existing
operations and to meet current obligations and ongoing capital requirements. The
Company's   current   monthly   operating   expenses  exceed  cash  revenues  by
approximately  $100,000  at  December  31,  2004.  Currently,   the  Company  is
addressing this cash shortfall  though loans from The Shaar Fund,  Ltd., but The
Shaar Fund, Ltd. is under no obligation to continue to make such advances to the
Company. If this lender decided to discontinue  advances,  the Company would not
be  able to  meet  its  current  obligations.  In  addition,  the  Company  owes
$1,050,503  in loans that are currently due or are payable on demand as of April
14, 2005. Although the lenders on these loans have not yet called the loans, the
Company does not currently have the ability to pay these loans absent additional
financing.

         The  Company's  auditor's  opinion  on our fiscal  2002,  2003 and 2004
financial  statements  contains a "going  concern"  qualification  in which they
express  doubt  about the  Company's  ability to continue  in  business,  absent
additional financing.  The Company currently requires additional cash to sustain
existing  operations  and  to  meet  current  obligations  and  ongoing  capital
requirements.

         For the year ended December 31, 2004,  the Company  incurred a net loss
of  $2,404,000  as  compared  to a net loss of  $2,957,000  for the  year  ended
December 31, 2003.

         As shown in the financial  statements  for the years ended December 31,
2004, 2003, and 2002, the Company incurred losses of $2,404,000, $2,957,000, and
$5,972,000  respectively.  The Company  has also  experienced  net cash  inflows
(outflows) from operating activities of ($1,532,000), ($955,000), and ($123,000)
for the years ended December 31, 2004, 2003 and 2002  respectively.  At December
31, 2004 and 2003 the Company had working capital  (deficit) of ($5,654,000) and
($5,239,000)  respectively.  The  increase in the working  capital  deficit from
December 31, 2003 to December 31, 2004 is mainly due to the Company's  loss from
operations.

         As shown in the financial  statements  for the years ended December 31,
2004 and 2003 the Company had stockholders' (deficit) equity of ($9,328,000) and
($6,652,000)  respectively.  The Company's net increase in stockholders' deficit
from December 31, 2003 to December 31, 2004 is primarily due to the loss for the
year ended December 31, 2004.

         For the year ended  December  31 2004,  the Company  issued  16,144,919
shares of the Company's  common stock upon conversion of 32,500 shares of Series
E Preferred by the holders  thereof.  For the year ended December 31 2004, there
were no  conversions  of shares of Series F  Preferred.  The  Company  issued no
shares  of  the  Company's  common  stock  with  respect  to  accrued  dividends
pertaining to the Series E and Series F Preferred conversions for the year ended
December 31, 2004.

         For the year ended December 31 2004, the Company converted no shares of
Series H  Preferred  and  issued no stock  with  respect  to  accrued  dividends
pertaining to the Series H Preferred.


                                       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.  The
Weiss  Group Note  bears  interest  at 12% per annum and was due and  payable on
February  12,  2001.  All holders of the Weiss Group Note have  granted  payment
extensions  to the Company  until  January 15, 2005 in exchange for warrants for
2,500,000  shares of the Company's common stock at an exercise price of $0.0285.
The current principal balance of the Weiss Group Note is $252,397 as of December
31, 2004 and remains unpaid as of April 15, 2005.

         Effective  February  14,  2004,  the  members  of the Weiss  Group Note
voluntarily  cancelled all issued  warrants to purchase  1,500,000  shares at an
exercise  price of $0.05 per share of the  Company's  common stock in connection
with the Weiss Group Note.

         Effective  February 15, 2004, the Company  issued  warrants to purchase
2,500,000  shares of its common stock at an exercise  price of $0.0285 per share
to all holders of the Weiss Group Note in  consideration of the extension of the
due date of such loans by such  persons  from May 31, 2002 to January 15,  2005.
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.

         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
1,973,077  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  re-priced this warrant in November 2003 to $0.0285 and extended the
expiration date of this warrant to November 19, 2005. 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 - 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 333,334 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  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
December 31, 2005. In connection with the  Milford/Shaar  Bridge Loan Notes, the
Company  issued to  Milford/Shaar  in February  2004,  a  five-year  warrant for
250,000  shares of the Company's  common stock at an exercise price of $0.03 per
share. The Shaar Fund, Ltd., through the Shaar Bridge Loan, continues to provide
cash installments on a periodic basis in the form of additional  principal.  The
Milford/Shaar Bridge Loan Notes were restructured into the New Shaar Convertible
Note as of April 12, 2005. Prior to the New Shaar  Convertible Note, the current
principal  balance of the  Milford/Shaar  Bridge Loan Notes was $3,033,741 as of
December 31, 2004. Additionally,  as of December 31, 2004, there was $119,073 in
accumulated  forbearance fees and $100,000 due in exit fees on the Milford/Shaar
Bridge Loan Notes. See "MD&A - Recent Sales of Unregistered Securities."

                                       35
<PAGE>

         On October 2, 2002,  Mr.  Bentley Blum, a Director of the Company,  had
previously loaned the Company with $125,000 of cash installments over the period
of one year (the "Blum Loan").  The Company  elected to convert the Blum Loan to
the  Company's  common stock using the  conversion  feature of the 5-day average
closing price of the Company's common stock prior to October 2, 2002. On October
2, 2002,  Blum  issued a  conversion  notice  for  $125,000  of the  outstanding
principal of the Blum Loan into 2,500,000 shares.  Mr. Blum continued to provide
cash  installments  in the form of a loan to the Company  through  February 2004
(the "Blum Demand  Note").  The Blum Demand Note bears  interest at 9% per annum
and is payable on demand.  The current principal balance of the Blum Demand Note
is $312,032 as of December 31, 2004 and remains unpaid as of April 15, 2005. See
"MD&A - Recent Sales of Unregistered Securities."

         On  November  19,  2003,  the  Company  issued a  warrant  to  purchase
27,355,800  shares of its common stock at an exercise price of $0.0285 per share
(the  closing  price of our common  stock on the OTCBB on such date) to the Blum
Asset Trust, a company controlled by Bentley Blum, a Director of the Company, in
consideration  for the loans made to the Company  and the usage of office  space
and  personnel  of the Blum Asset  Trust over the last five  years.  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 -  Recent  Sales  of  Unregistered
Securities."

         On April 12,  2005,  the  Company  authorized  the  issuance of 550,000
shares of Series I Convertible Preferred Stock ("Series I Preferred"), par value
$0.001 per share, each such share of Series I Preferred having a stated value of
$10.00 per share.

         The Series I Preferred shall have the following rights, privileges, and
limitations:

         a)   The conversion feature shall be exercisable immediately.

         b)   The conversion price of the Series I Preferred shall be determined
              by the average  closing  price of  Company's  common  stock in the
              previous 10 trading  days,  but in no event  shall the  conversion
              price be more than $0.0285 per share.

         c)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.

         d)   The Series I Preferred shall have a non-cumulative annual dividend
              of 10%, payable in cash or shares of the Company's common stock at
              the Company's election.

         e)   Dividend will be paid  quarterly  commencing  May 15, 2005, to the
              Holders  of  record of shares  of the  Series I  Preferred  Stock.
              Dividends  until  February  14, 2006 shall accrue but shall not be
              payable until February 15, 2006.

         f)   The Company will reserve 75 million shares of its common stock for
              the conversion of the Series I Preferred.

         On April 12, 2005, the Company entered into an exchange  agreement with
The Shaar Fund, LTD (the "Shaar Exchange  Agreement").  Under terms of the Shaar
Exchange  Agreement,  the  Company  agreed that Shaar will  exchange  all of its
right,  title and  interest in and to the  remaining  outstanding  shares of the
Series E  Preferred  and Series F  Preferred  (including  all other  accrued and
unpaid  dividends  thereon)  for  395,302  shares  of  the  Company's  Series  I
Preferred. See "MD&A - Recent Sales of Unregistered Securities."



                                       36
<PAGE>

         Additionally, under the Shaar Exchange Agreement, the Company issued an
Amended and  Restated  Secured  Promissory  Note of the  Company,  amending  and
restating  a note  originally  issued  June 13,  2001,  which  such  Note has an
outstanding  principal balance as of April 12, 2005 of $3,251,585.35 ("Old Shaar
Note").

         On April 12, 2005 Shaar executed a purchase agreement ("Milford Capital
Purchase Agreement") to Milford Capital & Management ("Milford").  In accordance
with the terms of the Milford  Capital  Purchase  Agreement,  Shaar  purchased a
secured promissory note of the Company,  initially issued to Milford on June 13,
2001, in the original  principal  amount of $500,000,  which had an  outstanding
principal  balance on March 22, 2005 of $188,149 ("Old Milford Note"),  together
with (i) all interest,  additional  obligations,  forbearance  fees,  exit fees,
penalties  and other  amounts  due and  payable  from  time to time  under or in
connection  with  the Old  Milford  Note,  and (ii) the  Forbearance  Amount  in
connection  with the  Forbearance  Agreement,  dated  January 30, 2004,  between
Milford and the Company, and Shaar in which Shaar agreed to forgive payment from
the Company to Shaar of $300,000  of accrued and unpaid  dividends  on shares of
the  Company's  Series E  Preferred  held by Shaar  ("Forgiven  Dividends")  and
consented  to the  transfer of the dollar  value of the  Forgiven  Dividends  to
Milford as part of the  forbearance fee payable to Milford under the Forbearance
Agreement of 2004.

         Shaar  and the  Company  have  agreed  that  Shaar  will  exchange  the
outstanding  principal  amount of the Old Shaar  Note and the Old  Milford  Note
(including all accrued and unpaid interest,  unpaid fees and Forgiven Dividends)
for the Company's newly issued 10% convertible secured promissory note (the "New
Shaar Convertible Note").

         The New  Shaar  Convertible  Note  shall  have  the  following  rights,
privileges, and limitations:

         a)   The New Shaar  Convertible  Note bears an interest rate of 10% per
              annum,  which is payable in cash or shares of the Company's common
              stock at the Company's election.

         b)   Interest  shall  accrue  on the  principal  amount  for a one year
              period  ("Deferral  Period").  On March 22, 2006, the Company will
              make a single lump sum payment to the holder in an amount equal to
              all interest that accrued during the Deferral Period

         c)   Beginning  April 15, 2006, and monthly  thereafter on the 15th day
              of each month until March 22, 2009 ("Maturity  Date"), the Company
              shall pay to Shaar all  accrued  and  unpaid  interest  ("Interest
              Payments")on the principal balance of the note accruing during the
              prior month.

         d)   On the  Maturity  Date,  the Company  shall make a single lump sum
              payment to Shaar equal to the outstanding principal balance of the
              New Shaar  Convertible Note ("Principal  Balance"),  together with
              all accrued and unpaid interest.

         e)   At the option of Shaar, the outstanding  Principal  Balance may be
              converted,  either  in  whole  or in  part,  into  shares  of  the
              Company's common stock.

         f)   The conversion price of the payment of the Principal Balance,  the
              Deferral Period,  and the Interest Payments shall be determined by
              the average  closing  price of  Company's  common  stock in the 10
              trading days preceding the conversion date,, but in no event shall
              the conversion  price be more than $0.0285 per share  ("Conversion
              Price").

         g)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.

         h)   The New Shaar  Convertible  Note may not be prepaid by the Company
              prior to the Maturity Date.

                                       37
<PAGE>

         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  exchanging  and/or  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.  See  "MD&A -  Recent  Sales  of  Unregistered
Securities."

         The financial information included in the accompanying form 10K for the
period  ending  December  31,  2004  reflects  the  terms of the DRM  Settlement
Agreement.  For the year ended December 31, 2002 the Company  recorded a loss on
the disposal of DRM in the amount of $4,134,000.  The Company currently requires
additional cash to sustain existing  operations and to meet current  obligations
and ongoing  capital  requirements.  The  Company's  current  monthly  operating
expenses  exceed  cash  revenues  by  approximately  $100,000.  Because  of  the
dissolution  of  DRM,  its'  operations  have  been  reflected  as  discontinued
operations for the years ended December 31, 2002, and 2001.

         The following table summarizes the Company's  contractual  obligations,
maturities  and  commitments.  See Notes 8 and 14 of the  Notes to  Consolidated
Financial  Statements for additional  information  regarding  long-term debt and
operating leases.

<TABLE>
<CAPTION>

                                   Less than 1                                   More than
                                      Year        1-3 Years       3-5 Years       5 Years         Total
                                  ----------------------------------------------------------------------------

<S>                                <C>             <C>           <C>             <C>             <C>
Long-term debt                     $  258,000      $      -      $ 3,034,000     $    -          $  3,292,000
Operating leases                   $  126,000      $ 42,000      $         -     $    -          $    168,000
Purchase obligations               $        -      $      -      $         -     $    -          $          -
Other long-term liabilities        $        -      $      -      $         -     $    -          $          -
                                  ----------------------------------------------------------------------------
                                   $  384,000      $ 42,000      $ 3,034,000     $    -          $  3,460,000
</TABLE>


         The  Company  hopes  to  meet  its  short-term   capital   requirements
(including its $100,000 monthly cash shortfall) through continued loans from The
Shaar Fund,  Ltd.,  although  this lender is under no  obligation to continue to
make  advances to the Company.  The Company  intends to negotiate a  forbearance
arrangement with other lenders on loans that are currently due. Ultimately,  the
Company  intends to reduce its cash  shortfall and 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.


                                       38
<PAGE>

NET OPERATING LOSS CARRYFORWARDS

         The  Company  has net  operating  loss  carryforwards  (the  "NOLs") of
approximately  $36,487,000,  which  expire in the years 2010 through  2024.  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 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.

NEW ACCOUNTING PRONOUNCEMENTS

         In December 2003,  the Financial  Accounting  Standards  Board ("FASB")
issued Interpretation No. 46 ("FIN 46R") (revised December 2003),  Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51 ("ARB 51"),  which  addresses how a business  enterprise  should evaluate
whether it has a  controlling  interest  in an entity  through  means other than
voting rights and accordingly  should  consolidate the entity.  FIN 46R replaces
FASB  Interpretation No. 46 ("FIN 46"), which was issued in January 2003. Before
concluding that it is appropriate to apply ARB 51 voting interest  consolidation
model to an entity,  an enterprise must first determine that the entity is not a
variable  interest  entity  ("VIE").  As of the  effective  date of FIN 46R,  an
enterprise must evaluate its involvement  with all entities or legal  structures
created before February 1, 2003, to determine whether consolidation requirements
of FIN 46R  apply to those  entities.  There is no  grandfathering  of  existing
entities.  Public  companies must apply either FIN 46 or FIN 46R  immediately to
entities  created  after January 31, 2003 and no later than the end of the first
reporting  period that ends after March 15, 2004.  The adoption of FIN 46 had no
effect on our results of operations and financial position.

         On December 18, 2003, the SEC issued Staff Accounting Bulletin No. 104,
Revenue  Recognition ("SAB 104"), which supercedes SAB 101, Revenue  Recognition
in Financial  Statements.  SAB 104's  primary  purpose is to rescind  accounting
guidance contained in SAB 101 related to multiple element revenue  arrangements,
which was  superceded as a result of the issuance of EITF 00-21,  Accounting for
Revenue  Arrangements  with  Multiple  Deliverables.  SAB 104  does  not  have a
material impact on our financial position or results of operations.

         In  December  2004,  the  FASB  issued  SFAS  No.  153,   Exchanges  of
Nonmonetary Assets,  which amends Accounting  Principles Board (APB) Opinion No.
29, Accounting for Nonmonetary  Transactions.  The guidance in APB Opinion 29 is
based on the principle that  exchanges of nonmonetary  assets should be measured
based on the fair value of the assets exchanged. The guidance in APB Opinion 29,
however,  included  certain  exceptions to that  principle.  SFAS 153 amends APB
Opinion 29 to  eliminate  the  exception  for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial  substance if the future cash flows of the entity are expected to
change  significantly  as a result of the  exchange.  SFAS 153 is effective  for
fiscal periods beginning after June 15, 2005. We do not expect that the adoption
of SFAS 153 will have a material impact on our financial  position or results of
operations.

                                       39
<PAGE>

         In December 2004, the FASB issued SFAS No. 123R,  Share-Based  Payment,
which requires companies to measure and recognize  compensation  expense for all
stock-based  payments at fair value.  SFAS 123R is  effective  for fiscal  years
beginning after June 15, 2005 and, thus, will be effective for us beginning with
the fiscal year 2006.  Early adoption is encouraged and retroactive  application
of the provisions of SFAS 123R to the beginning of the fiscal year that includes
the effective date is permitted,  but not required.  We are currently evaluating
the impact of SFAS 123R and the adoption of SFAS 123R may have a material impact
on our financial position or results of operations. See Stock-Based Compensation
in Note 1 of our Notes to Consolidated Financial Statements for more information
related to the pro forma  effects on our  reported net income and net income per
share of applying the fair value  recognition  provisions  of the previous  SFAS
123,   Accounting  for  Stock-Based   Compensation,   to  stock-based   employee
compensation.

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
uncertainties that would affect any such forward-looking statements. These risks
and uncertainties include, but are not limited to:

         o    the  Company's  critical  need  for  additional  cash  to  sustain
              existing  operations  and meet  existing  obligations  and capital
              requirements (the Company's  auditor's opinion on our fiscal 2002,
              2003 and 2004  financial  statements  contains  a "going  concern"
              qualification  in which they  express  doubt  about the  Company's
              ability to continue in business, absent additional financing);

         o    the ability to generate  profitable  operations from a large scale
              remediation project;

         o    the ability of the Company to renew its nationwide permit to treat
              PCBs;

                                       40
<PAGE>

         o    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;

         o    the timing and award of contracts by the U.S. Department of Energy
              for the cleanup of waste sites administered by it;

         o    the acceptance and implementation of the Company's waste treatment
              technologies in the government and commercial sectors;

         o    the  Company's  ability to obtain and  perform  under  other large
              technical support services projects; developments in environmental
              legislation and regulation;

         o    the ability of the Company to obtain future financing on favorable
              terms; and

         o    other circumstances affecting anticipated revenues and costs.

         These risks and uncertainties could cause actual results of the Company
to differ  materially  from those  projected or implied by such  forward-looking
statements.



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

         Not applicable.



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

         The  consolidated  financial  statements of the Company are included on
pages F-1 through  F-36 of this  Annual  Report and are  incorporated  herein by
reference.

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

         None.


                                       41
<PAGE>

ITEM 9A. CONTROLS AND PROCEDURES
-------- -----------------------

         (a) Evaluation of disclosure controls and procedures

         Based on their evaluations as of December 31, 2004, the chief executive
officer and chief  financial  officer of the  Company  have  concluded  that the
Company's  disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e)  under the  Securities  Exchange  Act) are  effective  to ensure  that
information  required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC.

         (b) Changes in internal controls

         There were no significant  changes in the Company's  internal  controls
over  financial  reporting or in other factors that could  significantly  affect
these internal controls  subsequent to the date of their most recent evaluation,
including any  corrective  actions with regard to significant  deficiencies  and
material weaknesses.

ITEM 9B. OTHER INFORMATION
-------- -----------------

         On April 12,  2005,  the  Company  authorized  the  issuance of 550,000
shares of Series I Convertible Preferred Stock ("Series I Preferred"), par value
$0.001 per share, each such share of Series I Preferred having a stated value of
$10.00 per share.

         The Series I Preferred shall have the following rights, privileges, and
limitations:

         a)   The conversion feature shall be exercisable immediately.

         b)   The conversion price of the Series I Preferred shall be determined
              by the average  closing  price of  Company's  common  stock in the
              previous 10 trading  days,  but in no event  shall the  conversion
              price be more than $0.0285 per share.

         c)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.

         d)   The Series I Preferred shall have a non-cumulative annual dividend
              of 10%, payable in cash or shares of the Company's common stock at
              the Company's election.

         e)   Dividend will be paid  quarterly  commencing  May 15, 2005, to the
              Holders  of  record of shares  of the  Series I  Preferred  Stock.
              Dividends  until  February  14, 2006 shall accrue but shall not be
              payable until February 15, 2006.

         f)   The Company will reserve 75 million shares of its common stock for
              the conversion of the Series I Preferred.

         On April 12, 2005, the Company entered into an exchange  agreement with
The Shaar Fund, LTD (the "Shaar Exchange  Agreement").  Under terms of the Shaar
Exchange  Agreement,  the  Company  agreed that Shaar will  exchange  all of its
right,  title and  interest in and to the  remaining  outstanding  shares of the
Series E  Preferred  and Series F  Preferred  (including  all other  accrued and
unpaid  dividends  thereon)  for  395,302  shares  of  the  Company's  Series  I
Preferred.  See  "MD&A - Recent  Sales  of  Unregistered  Securities  and MD&A -
Liquidity and Capital Resources."

                                       42
<PAGE>

         Additionally, under the Shaar Exchange Agreement, the Company issued an
Amended and  Restated  Secured  Promissory  Note of the  Company,  amending  and
restating  a note  originally  issued  June 13,  2001,  which  such  Note has an
outstanding  principal balance as of April 12, 2005 of $3,251,585.35 ("Old Shaar
Note").

         On April 12, 2005 Shaar executed a purchase agreement ("Milford Capital
Purchase Agreement") to Milford Capital & Management ("Milford").  In accordance
with the terms of the Milford  Capital  Purchase  Agreement,  Shaar  purchased a
secured promissory note of the Company,  initially issued to Milford on June 13,
2001, in the original  principal  amount of $500,000,  which had an  outstanding
principal  balance on March 22, 2005 of $188,149 ("Old Milford Note"),  together
with (i) all interest,  additional  obligations,  forbearance  fees,  exit fees,
penalties  and other  amounts  due and  payable  from  time to time  under or in
connection with the Old Milford Note, (iii) the Forbearance Amount in connection
with the Forbearance Agreement,  dated January 30, 2004, between Milford and the
Company,  and Shaar in which Shaar agreed to forgive payment from the Company to
Shaar of  $300,000 of accrued and unpaid  dividends  on shares of the  Company's
Series E Preferred  held by Shaar  ("Forgiven  Dividends")  and consented to the
transfer of the dollar value of the Forgiven Dividends to Milford as part of the
forbearance fee payable to Milford under the Forbearance Agreement of 2004.

         Shaar  and the  Company  have  agreed  that  Shaar  will  exchange  the
outstanding  principal  amount of the Old Shaar  Note and the Old  Milford  Note
(including all accrued and unpaid interest,  unpaid fees and Forgiven Dividends)
for the Company's newly issued 10% convertible secured promissory note (the "New
Shaar Convertible Note")

         The New  Shaar  Convertible  Note  shall  have  the  following  rights,
privileges, and limitations:

         a)   The New Shaar  Convertible  Note bears an interest rate of 10% per
              annum,  which is payable in cash or shares of the Company's common
              stock at the Company's election.

         b)   Interest  shall  accrue  on the  principal  amount  for a one year
              period  ("Deferral  Period").  On March 22, 2006, the Company will
              make a single lump sum payment to the holder in an amount equal to
              all interest that accrued during the Deferral Period

         c)   Beginning  April 15, 2006, and monthly  thereafter on the 15th day
              of each month until March 22, 2009 ("Maturity  Date"), the Company
              shall pay to Shaar all  accrued  and  unpaid  interest  ("Interest
              Payments")on the principal balance of the note accruing during the
              prior month.

         d)   On the  Maturity  Date,  the Company  shall make a single lump sum
              payment to Shaar equal to the outstanding principal balance of the
              New Shaar  Convertible Note ("Principal  Balance"),  together with
              all accrued and unpaid interest.

         e)   At the option of Shaar, the outstanding  Principal  Balance may be
              converted,  either  in  whole  or in  part,  into  shares  of  the
              Company's common stock.

         f)   The conversion price of the payment of the Principal Balance,  the
              Deferral Period,  and the Interest Payments shall be determined by
              the average  closing  price of  Company's  common  stock in the 10
              trading days preceding the conversion date,, but in no event shall
              the conversion  price be more than $0.0285 per share  ("Conversion
              Price").


                                       43
<PAGE>

        g)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.

         h)   The New Shaar  Convertible  Note may not be prepaid by the Company
              prior to the Maturity Date.

         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 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 exchanging
and/or 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.



                                       44
<PAGE>

PART III
--------

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

EXECUTIVE OFFICERS AND DIRECTORS

         The names  and ages of the  executive  officers  and  directors  of the
Company,  and their  positions  with the  Company  as of March  31,  2005 are as
follows:

Name                               Age   Position
-------------------------------------------------------------------------------
Dr. Shelby T. Brewer               68    Chairman of the Board and Chief
                                         Executive Officer
-------------------------------------------------------------------------------
O. Mack Jones                      64    President & Chief Operating Officer
-------------------------------------------------------------------------------
James M. DeAngelis                 44    Chief Financial and Administrative
                                         Officer, Treasurer
-------------------------------------------------------------------------------
Bentley J. Blum                    63    Director
-------------------------------------------------------------------------------
Dr. Frank E. Coffman               63    Director
-------------------------------------------------------------------------------
Paul E. Hannesson                  64    Director
-------------------------------------------------------------------------------
VADM Michael P. Kalleres           65    Director
-------------------------------------------------------------------------------
Ambassador William A. Wilson       90    Director
-------------------------------------------------------------------------------

DR. SHELBY T. BREWER, 68, Director since January 2001

         o    Chairman and CEO of the Company since April 2003.

         o    President of the Company from January 2001 to April 2003.

         o    Since  April  2000,  Mr.  Brewer  served  as  Chairman  and CEO of
              Solutions, a wholly owned subsidiary of the Company.

         o    From 1996 to March 2000,  Dr.  Brewer was  President  of S. Brewer
              Enterprises,  a privately held  consulting firm he founded that is
              engaged in supporting mergers and acquisitions,  arranging private
              and public financing, and forming joint ventures abroad.

         o    Served as President and CEO of the nuclear power businesses of ABB
              Combustion Engineering, a public company, from 1985 to 1995.

         o    From 1981 to 1984,  he served as Assistant  Secretary of Energy in
              the Reagan administration,  holding the top nuclear post in the US
              government.

         o    Dr.  Brewer holds Ph.D.  and M.S.  degrees in nuclear  engineering
              from Massachusetts Institute of Technology; he holds a B.S. degree
              in mechanical  engineering  and a B.A. in humanities from Columbia
              University.


                                       45
<PAGE>

BENTLEY J. BLUM, 63, Director since March 1996

         o    Served as director of  Environmental  since 1984,  Chairman of the
              Board of  Environmental,  a public company,  from 1984 to November
              1996 and is its principal stockholder.

         o    Currently  serves as a  director  of  Separation,  a wholly  owned
              subsidiary  of  Environmental.  Currently  serves as a director of
              Solution, a wholly owned subsidiary of the Company.

         o    Sole  stockholder  and director of a number of  corporations  that
              hold real  estate  interests,  oil  drilling  and other  corporate
              interests that are privately held companies.

         o    Mr. Blum is the brother-in-law of Paul E. Hannesson, a director of
              the Company.

DR. FRANK E. COFFMAN 63, Director since June 2002

         o    Mr.  Coffman  also  currently  serves  as Senior  Vice  President,
              Corporate  Development  Officer  of  Holmes  &  Narver,  a  public
              company,  involved in construction and engineering  (August 1997 -
              Present).

         o    Mr.  Coffman  served  as  Senior  Vice  President,   Government  &
              Commercial  Programs,  IT  Corporation,  a  public  company,  from
              January  1995 to May  1997  and as Vice  President,  Government  &
              Commercial Programs, IT Corporation from 1984 to 1995.

         o    Mr.  Coffman  served  as  Deputy  Assistant  Secretary  for  Waste
              Management for the Department of Energy ("DOE") from 1981 to 1984,
              Director of the Office of Advanced Nuclear Systems,  DOE from 1980
              to 1981 and as a Director of the  Division  of Fusion  Development
              and Technology, DOE from 1978 to 1980.

         o    Mr.  Coffman  served as Chief of the Energy  Research  Development
              Agency,  Fusion Systems and Applications  Studies Branch from 1970
              to 1975.

         o    Mr. Coffman serves on the Board of Directors of Holmes and Narver,
              a public company.

         o    Mr.  Coffman holds a Ph.D.  in nuclear  physics and a MA degree in
              plasma physics from Vanderbilt University.  Mr. Coffman holds a BS
              degree in physics from Western Kentucky University.

JAMES M. DEANGELIS, 44, Director since June 2002

         o    Mr. DeAngelis was appointed Vice  President-Finance  and Treasurer
              of the  Company  in 1998  and  promoted  to  Chief  Financial  and
              Administrative Officer and Secretary in December 1998.

         o    Mr.  DeAngelis  also  served  as  Senior  Vice  President-Sales  &
              Marketing of Separation, a public company, since July 1996.

         o    He also served as the  President of CFC  Technologies,  formerly a
              wholly owned subsidiary of the Company, since September 1994.

         o    He holds a MBA from the American  Graduate School of International
              Management.  He holds B.S.  degrees in Biology and Physiology from
              the University of Connecticut.



                                       46
<PAGE>

PAUL E. HANNESSON, 62, Director since March 1996

         o    Mr. Hannesson served as Chairman, CEO and President of the Company
              from 1996 to January 2001.

         o    He served as  Director  and  Officer  of  Environmental,  a public
              company, from 1996 to July 1998.

         o    He serves as Chairman of the Board and CEO of Separation, a wholly
              owned subsidiary of the Company.

         o    Mr. Hannesson is the brother-in-law of Bentley Blum, a director of
              the Company.


O. MACK JONES, 64, Director since October 2003

         o    President and C.O.O. of the Company since April 2003.

         o    Since  February  2001,  Mr.  Jones  served as Acting  President of
              Advanced Sciences, a wholly owned subsidiary of the Company.

         o    From April 1998 to  February  2001,  Mr.  Jones also has served as
              Vice  President  of Field  Operations  of the Company  since April
              1998,  managing  its field  treatability  studies  and  commercial
              projects.

         o    From June 1996 to April 1998,  Mr. Jones served as a consultant to
              the Company  assisting  in the  commercialization  of the solvated
              electron technology.

         o    From  1991 to May  1996,  Mr.  Jones  served  as the  founder  and
              principal  executive  officer of a  privately  held  environmental
              consulting company,  Florida Vector Services,  which provided both
              consulting  and  hands-on   remediation   services   primarily  in
              TSCA-related areas.

         o    From 1986 to 1991,  Mr. Jones was Vice  President-Operations  with
              Quadrex  Environmental  Company,  a public  company,  managing the
              company's field remediation businesses.

         o    Mr. Jones held  several  managerial  operating  positions in power
              generation and distribution  arenas during his twenty-six years of
              service to General Electric Company, a public company.

         o    Mr.  Jones  holds  a  degree  in   mechanical   engineering   from
              Mississippi  State  University and is registered as a professional
              mechanical engineer.

VADM MICHAEL P. KALLERES, 63, Director since June 2002

         o    VADM Kalleres currently serves as President of Dare to Excel Inc.,
              a privately held financial management and consulting firm (1998 to
              present).  He also served as President and Chief Executive Officer
              of Global Associates, Ltd., Technology Services Group, a privately
              held financial and corporate consulting firm, from 1994 to 1998.

         o    VADM Kalleres  retired from active duty in September 1994 after 32
              years as a naval officer.

         o    VADM  Kalleres  was  awarded  18   personal/unit   military/combat
              decorations  including the Defense  Distinguished Service Medal (2
              awards) and the U.S. Navy Distinguished  Service Medal. He is also
              a recipient of the  Congressional,  Ellis Island Medal of Honor.

                                       47
<PAGE>

         o    VADM  Kalleres  is a  former  member  (1994-1998)  of the  Defense
              Science Board,  the Naval Studies Board of the National Academy of
              Science.  He is also a board member of the Dean's Advisory Council
              at the Krannert School of  Management-Purdue  University,  and the
              National Board of the Salvation Army.

         o    VADM  Admiral  Kalleres  was  awarded a BS  degree  in  Industrial
              Management   and   Engineering   from  the   Krannert   School  of
              Management-Purdue  University,  and a MS degree in  Political  and
              International Affairs from George Washington University.

AMBASSADOR WILLIAM A. WILSON, 89, Director since June 2002

         o    Mr.  Wilson has been active in ranching and farming in  California
              and Mexico from 1980 to the present.

         o    Mr.  Wilson was active in real estate  development  in  California
              from 1961 through 1980.

         o    Mr.  Wilson  served as Chief  Engineer  of  Wilson  Oil  Tools,  a
              privately  held  company,  from 1938  through 1955 and as Chairman
              from 1955 to 1961.

         o    Mr. Wilson served as the  Presidential  Envoy to the Holy See from
              1980 to 1984 and as Ambassador to the Holy See from 1984 to 1986.

         o    Mr.  Wilson  served on the Board of Directors  of Jorgensen  Steel
              Co.,  a public  company,  from 1973 to 1984 and again from 1986 to
              1991. Mr. Wilson also served on the Board of Directors of Pennzoil
              Company, a public company, from 1983 to 1987.

         o    Mr.  Wilson holds a BA in  Mechanical  Engineering  from  Stanford
              University  and a Doctor of Laws,  Honoris  Causa from  Assumption
              College, Barry University, and Pepperdine University.

         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,  2005,  are as
follows:

Name                  Age       Position
----                  ---       --------
Walter L. Foutz       51        Vice President of Operations, Advanced Sciences

         Mr.  Foutz was  appointed  Vice  President  of  Operations  of Advanced
Sciences in April  2005.  Previously,  Mr.  Foutz  served as Advanced  Sciences'
Western Regional Manager from January of 2002. Previously,  Mr. Foutz has been a
Sr. Project Manager with corporate and management  responsibilities for Advanced
Sciences from December  2000 to January  2002..  From 1991 to 2000 Mr. Foutz was
the  Environmental  Program  Manager  for  MDM  Services  Corporation,  managing
environmental  task-order  contracts  with  numerous  government  clients.  From
1986-1991 Mr. Foutz was the lead Senior  Environmental  Geologist on RFI/CMS and
RI/FS  projects  at Dyess Air  Force  Base,  Texas;  Fallon  Naval Air  Station,
Nevada;' Kansas City DOE Plant, Arizona Air National Guard Base, Tucson; US Army
Kwajelein Atoll, Marshall Islands.

                                       48
<PAGE>

         Mr.  Foutz  received  his B.S.  in Geology in 1981.  He has 24 years of
progressive  professional  experience  in  geological,   hydro-geological,   and
environmental  consulting  and contract  management  as a  Department  of Energy
contractor.

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 the entire Board of Directors  would perform its
function.

         As of December 31, 2004,  the  Compensation,  Stock Option and Benefits
Committee,  was  composed  of Dr.  Frank E.  Coffman,  as  Chairman,  Michael P.
Kalleres,   Ambassador   William  A.  Wilson  and  Dr.  Shelby  T.  Brewer.  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,  as amended  (the "1998  Plan"),  and  determining  the
recipients,  amounts and other terms  (subject to the  requirements  of the 1998
Plan) of options  which may be granted  under the 1998 Plan and outside the 1998
Plan, from time to time and providing  guidance to management in connection with
establishing additional benefit plans.

         As of December 31, 2004, the Audit Committee was composed of Michael P.
Kalleres as Chairman,  Dr. Frank E.  Coffman,  Ambassador  William A. Wilson and
James  M.  DeAngelis.  The  responsibilities  of  the  Audit  Committee  include
selecting,  engaging and determining the compensation of 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.

AUDIT COMMITTEE AND FINANCIAL EXPERT

         Michael  P.  Kalleres  currently  serves as the  Chairman  of the Audit
Committee and the Board of Directors has determined him to be an audit committee
financial expert for the Company.  Mr. DeAngelis qualifies as an audit committee
financial expert but is not independent of management.

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.

                                       49
<PAGE>

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.  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 on representations  from the officers and directors,  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, 2004.

         CODE OF ETHICS

         The Company's  board of directors has established and adopted a code of
ethics in 2004  applicable  to its senior  executives,  financial  officers  and
directors.   See  Exhibit   14.01  -  "Code  of  Ethics  of  Commodore   Applied
Technologies, Inc."


                                       50
<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 2004, 2003 and 2002 to all persons serving as
the Company's Chief Executive Officer during 2004, 2003, and 2002 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
                                                                Annual       Restricted      Securities        LTIP     All Other
                                                                Compen-        Stock           Under-          Pay-     Compen-
   Name and Principal                     Salary      Bonus      sation        Award(s)         Lying          outs      sation
     Position                 Year         ($)         ($)        ($)           ($)           Options (#)       ($)       ($)
  ----------------------  ------------  ---------    -------  -------------  ------------   ----------------   ------  -----------
      (a)                     (b)          (c)         (d)        (e)           (g)              (g)            (h)       (i)
<S>                          <C>      <C>              <C>        <C>           <C>         <C>                 <C>     <C>
Dr. Shelby T. Brewer (1)     2004         -0-(2)       -0-        -0-           -0-                -0-(3)       -0-     30,000(4)
Chief Executive Officer      2003         -0-(2)       -0-        -0-           -0-         39,450,846(3)       -0-     30,000(4)
                             2002      69,677(2)       -0-        -0-           -0-          2,865,200(3)       -0-     30,000(4)

O. Mack Jones(5)                                       -0-
President &                  2004     132,000(6)       -0-        -0-           -0-                -0-(7)       -0-        -0-
Chief Operating Officer      2003     103,938(6)       -0-        -0-           -0-         10,240,625(7)       -0-        -0-
                             2002     110,019(6)       -0-        -0-           -0-          1,759,375(7)       -0-        -0-

James M. DeAngelis(8)        2004     103,938(9)       -0-        -0-           -0-                -0-(10)      -0-        -0-
Senior Vice President &      2003      12,480(9)       -0-        -0-           -0-         20,641,812(10)      -0-        -0-
Chief Financial Officer      2002     114,175(9)       -0-        -0-           -0-          1,841,688(10)      -0-        -0-
</TABLE>

         (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  from  January 2001 through  October
              2003 and  continues  to serves as Chief  Executive  Officer  and a
              director since October 2003 to present.

         (2)  Represents  the amount of Mr.  Brewer's  base  salary  paid by the
              Company. Mr. Brewer's base salary for 2004 was $285,000,  of which
              $285,000 was  originally  deferred  until  December 31, 2004,  and
              remains unpaid as of March 31, 2005. Mr.  Brewer's base salary for
              2003 from January through April was $250,000, and from May through
              December was $285,000 of which  $271,000 was  originally  deferred
              until  December 31, 2003, and remains unpaid as of March 31, 2005.
              Mr.  Brewer's base salary for 2002 was $250,000 of which  $184,231
              was  originally  deferred  until  December 31,  2002,  and remains
              unpaid as of March 31, 2005. Mr.  Brewer's base salary for 2001was
              $250,000 of which  $160,000  annually  originally  deferred  until
              December 31, 2001,  and remains  unpaid as of March 31, 2005.  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.  Mr.  Brewer  canceled  prior options for
              840,000 shares of common stock voluntarily on October 2, 2002.

         (4)  Represents a $1,000,000  Life Insurance  Policy in the name of Dr.
              Shelby T. Brewer paid on behalf of Mr. Brewer by the Company.

                                       51
<PAGE>

         (5)  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, and President and
              Chief Operating Officer from April 2003 to present.  Mr. Jones has
              served as a director of the Company since October 2003.

         (6)  Represents  the  amount  of Mr.  Jones'  base  salary  paid by the
              Company.  Mr.  Jones'  total base salary for 2004 was  $250,000 of
              which  $118,000  originally  deferred until December 31, 2004, and
              remains  unpaid as of March 31, 2005. Mr. Jones' total base salary
              for 2003 from January  through  April was  $165,000,  and from May
              through  December  was  $250,000  of  which  $115,485   originally
              deferred  until  December 31, 2003, and remains unpaid as of March
              31,  2005.  Mr.  Jones' total base salary for 2002 was $165,000 of
              which $60,581  originally  deferred  until  December 31, 2002, and
              remains  unpaid as of March 31, 2005. 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 31, 2005.  Mr.
              Jones' base salary for 2000 and 1999 was $150,000.

         (7)  Represents shares of common stock underlying stock options granted
              to Mr.  Jones the  Company  in his  capacity  as an officer of the
              Company.  Mr. Jones  canceled  prior options for 437,500 shares of
              common stock voluntarily on October 2, 2002.

         (8)  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.  Mr. DeAngelis has served
              as a director of the Company since June 2002.

         (9)  Represents  the amount of Mr.  DeAngelis'  base salary paid by the
              Company. Mr. DeAngelis' total base salary for 2004 was $225,000 of
              which  $121,062 was  originally  deferred until December 31, 2004,
              and remains unpaid as of March 31, 2005. Mr. DeAngelis' total base
              salary for 2003 from January through April was $165,000,  and from
              May through December was $225,000 of which $194,520 was originally
              deferred  until  December 31, 2003, and remains unpaid as of March
              31, 2005. Mr.  DeAngelis'  total base salary for 2002 was $165,000
              of which $55,985 was originally  deferred until December 31, 2002,
              and remains unpaid as of March 31, 2005. Mr. DeAngelis' total base
              salary  for 2001 was  $165,000  of which  $33,000  was  originally
              deferred  until  December 31, 2001, and remains unpaid as of March
              31,  2005.  Mr.  DeAngelis'  base  salary  for  2000  and 1999 was
              $165,000 and $145,000 respectively.

         (10) Represents shares of common stock underlying stock options granted
              to Mr.  DeAngelis  by the Company in his capacity as an officer of
              the Company.  Mr.  DeAngelis  canceled  prior  options for 681,250
              shares of common stock voluntarily on October 2, 2002.


                                       52
<PAGE>

 STOCK OPTIONS

         No options were granted  during the year ended December 31, 2004 to any
individuals  listed in the Summary  Compensation Table pursuant to the Company's
1998 Stock  Option  Plan,  as  amended,  (the "1998  Plan") and no options  were
granted  to any  individuals  outside  of the  1998  Plan.  The  Company  has no
outstanding stock appreciation  rights and granted no stock appreciation  rights
during the year ended December 31, 2004.

         The  following  table sets forth  certain  information  concerning  the
exercise of options  and the value of  unexercised  options  held under the 1998
Plan and outside of the 1998 Plan at December 31, 2004 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>
Dr. Shelby T. Brewer............            -0-                -0-         40,316,046 / 40,316,046                   -0- /-0-

James M. DeAngelis..............            -0-                -0-         21,483,500 / 21,483,500                   -0- / -0-

O. Mack Jones...................            -0-                -0-         12,000,000 / 12,000,000                   -0- / -0-
</TABLE>


         (1)  Represents the difference  between the last reported sale price of
              the Common Stock on December 31, 2004  ($0.013),  and the exercise
              prices of the options  (ranging from $0.0285 to $0.07)  multiplied
              by the applicable number of options exercised.

         (2)  Represents  the  difference  between  the  exercise  price and the
              closing price on December 31, 2004,  multiplied by the  applicable
              number of securities.


                                       53
<PAGE>

EMPLOYMENT AGREEMENTS

         The Company has no employment contracts.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The individuals who served as members of the Compensation, Stock Option
and Benefits  Committee  (the  "Compensation  Committee")  during the year ended
December  31,  2004  were Dr.  Frank E.  Coffman  (Chairman),  VADM  Michael  P.
Kalleres, Ambassador William A. Wilson and Dr. Shelby T. Brewer.

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  Dr.  Frank  E.  Coffman  (Chairman),  VADM  Michael  P.  Kalleres,
Ambassador  William A. Wilson and Dr. Shelby T. Brewer at December 31, 2004, all
of whom, with the exception of Dr. Shelby T. Brewer, 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. Coffman, Mr. Kalleres and Mr. Wilson
in their  capacities  as members of the  Compensation  Committee at December 31,
2004,  addressing the Company's  compensation policies for 2004 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.

                                       54
<PAGE>

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

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

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

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

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

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
2004  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 2004, 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, 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 $285,000 in 2004, of which  $285,000  annually was deferred
until December 31, 2004, and remains unpaid as of April 14, 2005.

                                       55
<PAGE>

         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 2004,
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 2003
goals and his individual  contributions  to the Company and its affiliates.  The
Compensation  Committee  concluded  that he had  achieved his 2003 goals and had
provided a  leadership  role in  achieving  the  Company's  and its  affiliates'
strategic  priorities for 2003. 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
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 was not increased in 2004 and remains $285,000
per year.

         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 2004, 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 and  outside  of 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 zero and 77,081,358 and 9,847,218 stock options were granted
pursuant  to the 1998  Plan and  outside  the 1998  Plan in 2004,  2003 and 2002
respectively.  Zero and 39,450,846 and 2,865,200 of such options were granted to
Mr. Brewer in 2004, 2003 and 2002  respectively,  and Zero and  30,882,437,  and
3,601,063 of such options were granted (in the  aggregate) to other  individuals
named in the Summary Compensation Table in 2004, 2003 and 2002 respectively. The
number  of stock  options  granted  in 2004,  2003 and 2002 were  determined  by
reference  to the  long-term  compensation  for  comparable  positions  at other
similar public companies and based upon an assessment of individual performance.



                                       56
<PAGE>

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

         The Compensation Committee's policy is to structure compensation awards
for executive  officers that will be consistent with the requirements of Section
162(m) of the 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
Company expects that all compensation payments in 2004 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 2004,  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
                                         Ambassador William A. Wilson (Chairman)
                                                            Dr. Frank E. Coffman
                                                               Paul E. Hannesson
                                                             Michael P. Kalleres


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

                                       57
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT EQUITY
          ---------------------------------------------------------------------
          COMPENSATION PLAN INFORMATION
          -----------------------------

         The following  table  reflects the number of shares of our common stock
that, as of December 31, 2004, were outstanding and available for issuance under
compensation  plans that have  previously  been approved by our  stockholders as
well as  compensation  plans  that  have not  previously  been  approved  by our
stockholders.

<TABLE>
<CAPTION>

                                                                                                        Number of Securities
                                                                                                       Remaining Available for
                                                                          Weighted-Average               Future Issuance Under
                                         Number of Securities to be      Exercise Price of               Equity Compensation
                                           Issued Upon Exercise of      Outstanding Options,               Plans (Excluding
                                             Outstanding Options,         Warrants and                  Securities Reflected in
                                             Warrants and Rights            Rights ($)                         Column (a))
                                                    (a)                          (b)                              (c)
<S>                                                 <C>                         <C>                           <C>
Plan Category
Equity Compensation Plans
Approved by Security
Holders                                             12,692,312                  0.06                          5,307,688
(1)(2)..................

Equity Compensation Plans not
Approved by Security                               102,507,158                  0.03                               -0-
Holders (3)(4) ............

Total..........................                    115,199,470                  0.04                          5,307,688
                                       -----------------------------------------------------------------------------------------
</TABLE>


         1.   Consists of options  issuable under the 1998 Stock Option Plan, as
              amended, as approved by the stockholders on September 12, 2003.

         2.   Consists  of options  issuable  outside  of the 1998 Stock  Option
              Plan, as amended as approved by the  stockholders on September 12,
              2003.

         3.   Includes  options to purchase a total of 75,151,358  shares issued
              to Mr. Brewer,  Mr.  DeAngelis,  Mr. Jones,  and Mr.  Hannesson in
              November 2003 outside of the 1998 Stock Option Plan, as amended.

         4.   Includes  warrant to purchase a total of 27,355,800  shares issued
              to Mr. Blum in November 2003.


                                       58
<PAGE>

         The following is a brief  description  of the material  features of the
equity compensation plans not approved by our stockholders that are reflected in
the chart above.

         On November 19, 2003,  our Board of Directors  approved the issuance of
stock options  outside of the Company's 1998 Stock Option Plan, as amended,  and
warrants for the Company's  common stock to executive  officers and directors of
the Company.  A total of 75,151,358  fully vested,  non-qualified  stock options
were issued with an exercise price of $0.0285 and an expiration date of December
14, 2008 (as described in footnote 3 above). A warrant for a total of 27,355,800
shares of the  Company's  common stock was issued to a director with an exercise
price of $0.0285 and an  expiration  date of November 18, 2008 (as  described in
footnote 4 above).  The  purpose of these  options and warrant is to advance the
interests of our  stockholders  by enhancing our ability to attract,  retain and
motivate  persons who make important  contributions  to the Company by providing
them with equity ownership  opportunities that better align their interests with
those of our stockholders.

Ten Year Option Repricings

         The following table sets forth  information  regarding  options held by
the  Commodore  Named  Executive  Officers and Directors  that were  voluntarily
surrendered by such persons,  after which the Company issued new options to such
persons at current fair market value. The Compensation  Committee approved these
transactions in order to restore the incentive value of such options.

<TABLE>
<CAPTION>

                                 Number of                           Exercise
                                Securities                           Price of                       Length of
                                Underlying     Market Price of       Option at        New            Original
                                  Options      Stock at Time of      Time of        Exercise        Option Term
                                Repriced or      Repricing or       Repricing or     Price          At Date of
                       Date     Amended (#)     Amendment ($)(1)    Amendment ($)   ($)(2)        Repricing or Amendment
                       ----    ------------   ------------------    -------------   --------      ----------------------

<S>                   <C>        <C>                  <C>              <C>            <C>            <C>
Dr. Shelby T.         10/02/02     200,000            $0.07             $0.288        $0.07          12/14/08
Brewer
                      10/02/02     500,000            $0.07              $1.00        $0.07          12/14/08
                      10/02/02     140,000            $0.07              $1.06        $0.07          12/14/08

James M. DeAngelis    10/02/02     181,250            $0.07            $0.4375        $0.07          12/14/08
                      10/02/02     300,000            $0.07             $0.288        $0.07          12/14/08
                      10/02/02     200,000            $0.07             $0.688        $0.07          12/14/08

O. Mack Jones         10/02/02     187,500            $0.07            $0.4375        $0.07          12/14/08
                      10/02/02     100,000            $0.07             $0.288        $0.07          12/14/08
                      10/02/02     150,000            $0.07             $0.688        $0.07          12/14/08

Paul E. Hannesson     10/02/02     147,500            $0.07            $0.4375        $0.07          12/14/08
                      10/02/02   1,000,000            $0.07              $0.50        $0.07          12/14/08

Bentley J. Blum       10/02/02     70,000             $0.07            $0.4375        $0.07          12/14/08
                      10/02/02     70,000             $0.07              $1.00        $0.07          12/14/08
          -------------------------
</TABLE>

         (1)  Represents  the  closing  price of our common  stock on October 2,
              2002 as reported by the AMEX Stock Market ($0.07).

         (2)  In October 2002, Mr. Brewer,  the Company's  Chairman of the Board
              and Chief Executive Officer,  voluntarily  surrendered  options to
              purchase  840,000  shares of our  common  stock,  after  which the
              Company  issued to him options to purchase  865,200  shares of our
              common  stock so long as Mr.  Brewer  continues  to be an eligible
              participant  under the 1998 Stock  Option  Plan,  as amended.  The
              exercise  price  of the new  options  is equal to 100% of the fair
              market  value of our common  stock on the date of grant of the new
              options,  as determined  by the last  reported  sales price of our
              common  stock as reported by the AMEX Stock  Market on the date we
              granted the new options.

                                       59
<PAGE>

         (3)  In October 2002, Mr. DeAngelis,  the Company's Chief Financial and
              Administrative  Officer,  Treasurer  and  Secretary,   voluntarily
              surrendered  options  to  purchase  681,250  shares of our  common
              stock,  after which the Company  issued to him options to purchase
              681,250  shares  of our  common  stock  so long  as Mr.  DeAngelis
              continues  to be an  eligible  participant  under  the 1998  Stock
              Option Plan, as amended.  The exercise price of the new options is
              equal to 100% of the fair market  value of our common stock on the
              date of  grant  of the new  options,  as  determined  by the  last
              reported  sales price of our common  stock as reported by the AMEX
              Stock Market on the date we granted the new options.

         (4)  In October  2002,  Mr. Jones,  the  Company's  President and Chief
              Operating  Officer,  voluntarily  surrendered  options to purchase
              437,500 shares of our common stock, after which the Company issued
              to him options to purchase  437,500  shares of our common stock so
              long as Mr. Jones  continues to be an eligible  participant  under
              the 1998 Stock Option Plan, as amended.  The exercise price of the
              new  options  is  equal to 100% of the  fair  market  value of our
              common  stock  on the  date  of  grant  of  the  new  options,  as
              determined by the last reported sales price of our common stock as
              reported  by the AMEX Stock  Market on the date we granted the new
              options.

         (5)  In October 2002, Mr.  Hannesson,  the Company's former Chairman of
              the Board and Chief  Executive  Officer,  voluntarily  surrendered
              options to purchase  1,147,500  shares of our common stock,  after
              which the  Company  issued to him  options to  purchase  1,147,500
              shares of our common stock so long as Mr.  Hannesson  continues to
              be an eligible  participant  under the 1998 Stock Option Plan,  as
              amended. The exercise price of the new options is equal to 100% of
              the fair market  value of our common stock on the date of grant of
              the new options, as determined by the last reported sales price of
              our common  stock as reported by the AMEX Stock Market on the date
              we granted the new options.

         (6)  In October  2002,  Mr.  Blum  voluntarily  surrendered  options to
              purchase  140,000  shares of our  common  stock,  after  which the
              Company  issued to him options to purchase  144,200  shares of our
              common  stock  so long as Mr.  Blum  continues  to be an  eligible
              participant  under the 1998 Stock  Option  Plan,  as amended.  The
              exercise  price  of the new  options  is equal to 100% of the fair
              market  value of our common  stock on the date of grant of the new
              options,  as determined  by the last  reported  sales price of our
              common  stock as reported by the AMEX Stock  Market on the date we
              granted the new options.


                                       60
<PAGE>

SHAREHOLDER RETURN PERFORMANCE

         This graph  compares our total  stockholder  returns,  the Standard and
Poor's 500  Composite  Stock Index,  the Standard and Poor's Small Cap Composite
Environmental  Services  Stock  Index,  the  Standard  and Poor's 500  Composite
Environmental  Services  Stock  Index,  and the  Standard  and  Poor's 500 Super
Composite Environmental Services Stock Index. The graph assumes $100 invested at
the  per  share  closing  price  of  the  common  stock  of  Commodore   Applied
Technologies,  Inc. on the American Stock Exchange, from January 1, 1999 through
March 6, 2003,  and then on the Over the Counter  Bulletin Board from that point
forward.

<TABLE>
<CAPTION>

 Comparison of initial $100 investment in various indices versus the common stock of the Company.

---------------------- ------------- ------------- ------------- -------------- -------------
                       12/29/2000    12/28/2001    12/27/2002    12/31/2003     12/31/2004
---------------------- ------------- ------------- ------------- -------------- -------------
<S>                    <C>           <C>           <C>           <C>            <C>
CXII                   30.77         16.00         8.62          1.60           1.23
---------------------- ------------- ------------- ------------- -------------- -------------
S&P 500                89.86         79.02         59.58         75.68          82.36
---------------------- ------------- ------------- ------------- -------------- -------------
S&P Small Cap
Environmental
Services               164.98        141.80        114.28        126.59         171.13
---------------------- ------------- ------------- ------------- -------------- -------------
S&P 500 Environmental
Services               161.92        185.26        129.85        170.66         158.82
---------------------- ------------- ------------- ------------- -------------- -------------
S&P Super
Composite
Environmental
Services               162.53        180.58        134.78        172.61         174.14
---------------------- ------------- ------------- ------------- -------------- -------------
</TABLE>

                                       61
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         The  following  table sets forth certain  information,  as of March 31,
2005,  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.

                                Number of Shares       Percentage of Outstanding
  Name and Address of            of Common Stock        Shares of Common Stock
   Beneficial Owner           Beneficially Owned(4)       Beneficially Owned

Dr. Shelby T. Brewer (1)......       62,009,593(5)                 24.12%

Bentley J. Blum(2)............       35,019,680(6)                 13.13%

James M. DeAngelis (2)........       22,582,000(7)                  8.81%

O. Mack Jones (3).............       12,000,000(8)                  4.68%

Commodore Environmental
Services, Inc. (2)............        6,939,802(9)                  2.71%

Paul E. Hannesson (2).........        6,714,721(10)                 2.56%


         (1)  The  address  of Dr.  Shelby T.  Brewer is 2151  Jamieson  Street,
              Carlyle Towers, Suite 308, Alexandria, Virginia 22314.

         (2)  The address of Commodore Environmental Services,  Inc., Bentley J.
              Blum, Paul E.  Hannesson,  and James M. DeAngelis is 150 East 58th
              Street, Suite 3238, New York, New York 10155.

         (3)  The  address  of O.  Mack  Jones is 507  Knight  Street,  Suite B,
              Richland, Washington 99352.

         (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)  Consists of: (i) 3,428 shares of common stock (ii) 490,695  shares
              of our common  stock  representing  the balance held of the 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;  (iii)  865,200  shares of the  Company
              common stock underlying  currently  exercisable options granted to
              Mr.  Brewer by the  Company  under the 1998 Plan;  (iv)  2,000,000
              shares  of  the  Company   common   stock   underlying   currently
              exercisable  options  granted to Mr. Brewer by the Company outside
              of the Company's  1998 Plan;  (v)  1,000,000  shares of our common
              stock  underlying a currently  exercisable  two year warrant at an
              exercise  price of $0.05 per share granted to S.B.  Enterprises in
              connection  with the extension of the Brewer Note until January 1,
              2004; and (vi) 39,450,846  shares of our common stock underlying a
              currently  exercisable  five year warrant at an exercise  price of
              $0.0285 per share granted to Mr.  Brewer  outside of the Company's
              1998 Plan.

         (6)  Consists  of: (i)  2,500,000  shares of our common stock issued to
              Bentley J. Blum in exchange  for $125,000 of debt owed to Mr. Blum
              from the Company;  (ii) 144,200 shares of the Company common stock
              underlying  currently  exercisable  options granted to Mr. Blum by
              the Company under the Company's 1998 Plan; (iii) 27,355,800 shares

                                       62
<PAGE>

         of   our common  stock  underlying  a currently  exercisable  five year
              warrant at an exercise  price of $0.0285 per share  granted to the
              Blum Asset Trust by the Company in  connection  with the Blum Loan
              and  services  provided by the Blum Asset Trust over the last five
              years; and (iv) 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 April 14, 2005, 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.

         (7)  Consists of (i) 16,500 shares of common stock; (ii) 841,688 shares
              of common stock  underlying  currently  exercisable  stock options
              granted  to Mr.  James  M.  DeAngelis  by the  Company  under  the
              Company's  1998  Plan;  (iii)  1,000,000  shares of  common  stock
              underlying  currently  exercisable  stock  options  granted to Mr.
              DeAngelis by the Company  outside of the Company's 1998 Plan; (iv)
              Mr. DeAngelis' indirect beneficial ownership of common stock based
              upon his ownership of 580,000  shares of  Environmental;  and (vi)
              20,641,812  shares of our  common  stock  underlying  a  currently
              exercisable  five year warrant at an exercise price of $0.0285 per
              share granted to Mr. DeAngelis outside of the 1998 Plan.

         (8)  Consists  of (i)  1,759,375  shares  of  common  stock  underlying
              currently  exercisable  stock options granted to Mr. O. Mack Jones
              by the Company under the Company's 1998 Plan; and (ii)  10,240,625
              shares of our common stock underlying a currently exercisable five
              year warrant at an exercise  price of $0.0285 per share granted to
              Mr. Jones outside of the 1998 Plan.

         (9)  Consists of 6,939,802 shares of our common stock currently held by
              Environmental.

         (10) Consists  of:  (i)  1,181,925  shares of common  stock  underlying
              currently  exercisable  stock  options  granted  to  Mr.  Paul  E.
              Hannesson  by the  Company  under the 1998  Plan;  (ii)  4,818,075
              shares of our common stock underlying a currently exercisable five
              year warrant at an exercise  price of $0.0285 per share granted to
              Mr.  Hannesson  outside of the Company's  1998 Plan; and (iii) Mr.
              Hannesson's  indirect  beneficial  ownership of common stock based
              upon his  ownership  of an aggregate  of (a)  2,650,000  shares of
              Environmental common stock owned by Suzanne Hannesson,  the spouse
              of Mr.  Hannesson,  (b) 2,650,000 shares of  Environmental  common
              stock owned by the Hannesson  Family Trust (Suzanne  Hannesson and
              John D.  Hannesson,  trustees) for the benefit of Mr.  Hannesson's
              spouse and (c) 500,000  shares of  Environmental  common  stock in
              exchange for options to purchase  950,000 shares of  Environmental
              common  stock,  issued to  Hannesson  Family  Trust,  representing
              together 7.18% of the outstanding  shares of Environmental  common
              stock as of April 14, 2005, 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 (i) 40,000 shares of
              the  Company's  common  stock owned by each of Jon Paul and Krista
              Hannesson, the adult children of Mr. Hannesson; and (ii) 1,000,000
              shares of Environmental common stock owned by each of Jon Paul and
              Krista 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.


                                       63
<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT

         The following table sets forth certain  information with respect to the
beneficial  ownership  of common  stock as of March 31,  2005 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>

                                                      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>
Dr. Shelby T. Brewer (1).............                   62,009,593(5)                          24.12%

Bentley J. Blum(2)...................                   35,019,680(6)                          13.13%

James M. DeAngelis (2)...............                   22,582,000(7)                           8.81%

O. Mack Jones (3)....................                   12,000,000(8)                           4.68%

Commodore Environmental
Services, Inc. (2)...................                    6,939,802(9)                           2.71%


Paul E. Hannesson (2)................                   6,714,721(10)                           2.56%

Dr. Frank E. Coffman, PhD (2)........                    450,000(11)                              *

VADM Michael P. Kalleres (2).........                    450,000(12)                              *

Ambassador William A. Wilson (2).....                    450,000(13)                              *

All executive officers and Directors                 137,849,898                               53.85%
as a group (8 persons)
</TABLE>

         *    Percentage ownership is less than 1%.


         (1)  The  address  of Dr.  Shelby T.  Brewer is 2151  Jamieson  Street,
              Carlyle Towers, Suite 308, Alexandria, Virginia 22314.

         (2)  The address of Commodore Environmental Services,  Inc., Bentley J.
              Blum, Paul E.  Hannesson,  and James M. DeAngelis is 150 East 58th
              Street, Suite 3238, New York, New York 10155.

         (3)  The  address  of O.  Mack  Jones is 507  Knight  Street,  Suite B,
              Richland, Washington 99352.

         (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)  Consists of: (i) 3,428 shares of common stock (ii) 490,695  shares
              of our common  stock  representing  the balance held of the 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; (iii)  13,189,842  shares of our common
              stock  representing  the balance  held of the 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

                                       64
<PAGE>

              notice for the remaining 50% of the outstanding principal dated as
              of March 17, 2003 (iv) 865,200  shares of the Company common stock
              underlying currently  exercisable options granted to Mr. Brewer by
              the  Company  under the 1998  Plan;  (v)  2,000,000  shares of the
              Company  common stock  underlying  currently  exercisable  options
              granted to Mr. Brewer by the Company outside of the Company's 1998
              Plan;  (vi)  1,000,000  shares of our common  stock  underlying  a
              currently  exercisable  two year  warrant at an exercise  price of
              $0.05 per share granted to S.B. Enterprises in connection with the
              extension  of the  Brewer  Note until  January 1, 2004;  and (vii)
              39,450,846  shares of our  common  stock  underlying  a  currently
              exercisable  five year warrant at an exercise price of $0.0285 per
              share granted to Mr. Brewer outside of the Company's 1998 Plan.

         (6)  Consists  of: (i)  2,500,000  shares of our common stock issued to
              Bentley J. Blum in exchange  for $125,000 of debt owed to Mr. Blum
              from the Company;  (ii) 144,200 shares of the Company common stock
              underlying  currently  exercisable  options granted to Mr. Blum by
              the Company under the Company's 1998 Plan; (iii) 27,355,800 shares
              of our common stock  underlying a currently  exercisable five year
              warrant at an exercise  price of $0.0285 per share  granted to the
              Blum Asset Trust by the Company in  connection  with the Blum Loan
              and  services  provided by the Blum Asset Trust over the last five
              years; and (iv) 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 April 14, 2005, 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.

         (7)  Consists of (i) 16,500 shares of common stock; (ii) 841,688 shares
              of common stock  underlying  currently  exercisable  stock options
              granted  to Mr.  James  M.  DeAngelis  by the  Company  under  the
              Company's  1998  Plan;  (iii)  1,000,000  shares of  common  stock
              underlying  currently  exercisable  stock  options  granted to Mr.
              DeAngelis by the Company  outside of the Company's 1998 Plan; (iv)
              Mr. DeAngelis' indirect beneficial ownership of common stock based
              upon his ownership of 580,000  shares of  Environmental;  and (vi)
              20,641,812  shares of our  common  stock  underlying  a  currently
              exercisable  five year warrant at an exercise price of $0.0285 per
              share granted to Mr. DeAngelis outside of the 1998 Plan.

         (8)  Consists  of (i)  1,759,375  shares  of  common  stock  underlying
              currently  exercisable  stock options granted to Mr. O. Mack Jones
              by the Company under the Company's 1998 Plan; and (ii)  10,240,625
              shares of our common stock underlying a currently exercisable five
              year warrant at an exercise  price of $0.0285 per share granted to
              Mr. Jones outside of the 1998 Plan.

         (9)  Consists of 6,939,802 shares of our common stock currently held by
              Environmental.

         (10) Consists  of:  (i)  1,181,925  shares of common  stock  underlying
              currently  exercisable  stock  options  granted  to  Mr.  Paul  E.
              Hannesson  by the  Company  under the 1998  Plan;  (ii)  4,818,075
              shares of our common stock underlying currently  exercisable stock
              options  granted to Mr.  Paul E.  Hannesson  by the  Company at an
              exercise  price of  $0.0285  per share  granted  to Mr.  Hannesson
              outside  of the  Company's  1998 Plan;  and (iii) Mr.  Hannesson's
              indirect  beneficial  ownership  of common  stock  based  upon his
              ownership of an aggregate of (a) 2,650,000 shares of Environmental
              common  stock  owned  by  Suzanne  Hannesson,  the  spouse  of Mr.
              Hannesson,  (b)  2,650,000  shares of  Environmental  common stock
              owned by the Hannesson Family Trust (Suzanne Hannesson and John D.
              Hannesson, trustees) for the benefit of Mr. Hannesson's spouse and
              (c) 500,000 shares of  Environmental  common stock in exchange for
              options to purchase 950,000 shares of Environmental  common stock,
              issued to Hannesson Family Trust,  representing  together 7.18% of
              the outstanding  shares of Environmental  common stock as of April
              14,  2005,  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 (i) 40,000 shares of the Company's common
              stock  owned by each of Jon Paul and Krista  Hannesson,  the adult
              children  of  Mr.   Hannesson;   and  (ii)  1,000,000   shares  of
              Environmental  common  stock  owned by each of Jon Paul and Krista
              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.

                                       65
<PAGE>

         (11) Consists of 450,000  shares of common stock  underlying  currently
              exercisable  stock options  granted to Mr. Dr. Frank E. Coffman by
              the Company under the Company's 1998 Plan.

         (12) Consists of 450,000  shares of common stock  underlying  currently
              exercisable  stock options granted to Mr. Michael P. Kalleres VADM
              by the Company under the Company's 1998 Plan.

         (13) Consists of 450,000  shares of common stock  underlying  currently
              exercisable  stock options  granted to Mr.  Ambassador  William A.
              Wilson by the Company under the Company's 1998 Plan.

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

Executive Officers and Key Employees
------------------------------------

         The  executive  officers of the Company are Dr.  Shelby T. Brewer,  who
serves as Chairman of the Board and Chief Executive Officer,  O. Mack Jones, who
serves as President and Chief Operating  Officer,  and James M.  DeAngelis,  who
serves  as  Chief  Financial  and  Administrative   Officer  and  Secretary  and
Treasurer.


                                       66
<PAGE>

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

         On October 2, 2002,  Mr.  Bentley Blum, a Director of the Company,  had
previously loaned the Company with $125,000 of cash installments over the period
of one year (the "Blum Loan").  The Company  elected to convert the Blum Loan to
the  Company's  common stock using the  conversion  feature of the 5-day average
closing price of the Company's common stock prior to October 2, 2002. On October
2, 2002,  Blum  issued a  conversion  notice  for  $125,000  of the  outstanding
principal of the Blum Loan into 2,500,000 shares.  Mr. Blum continued to provide
cash  installments  in the form of a loan to the Company  through  February 2004
(the "Blum Demand  Note").  The Blum Demand Note bears  interest at 9% per annum
and is due on demand.  The current  principal balance of the Blum Demand Note is
$312,032 as of December 31, 2004 and remains  unpaid as of April 14,  2005.  See
"MD&A - Liquidity and Capital Resources."

         On  November  19,  2003,  the  Company  issued a  warrant  to  purchase
27,355,800  shares of its common stock at an exercise price of $0.0285 per share
(the  closing  price of our common  stock on the OTCBB on such date) to the Blum
Asset Trust, a company controlled by Bentley Blum, a Director of the Company, in
consideration  for the loans made to the Company  and the usage of office  space
and personnel of the Blum Asset Trust over the last five years.

         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.  The
Weiss  Group Note  bears  interest  at 12% per annum and was due and  payable on
February  12,  2001.  All holders of the Weiss Group Note have  granted  payment
extensions  to the Company  until  January 15, 2005 in exchange for warrants for
2,500,000  shares of the Company's common stock at an exercise price of $0.0285.
The current principal balance of the Weiss Group Note is $252,397 as of December
31,  2004 and remains  unpaid as of April 15,  2005.  See "MD&A - Liquidity  and
Capital Resources."

         Effective  February  14,  2004,  the  members  of the Weiss  Group Note
voluntarily  cancelled all issued  warrants to purchase  1,500,000  shares at an
exercise  price of $0.05 per share of the  Company's  common stock in connection
with the Weiss Group Note.

         Effective  February 15, 2004, the Company  issued  warrants to purchase
2,500,000  shares of its common stock at an exercise  price of $0.0285 per share
to all holders of the Weiss Group Note in  consideration of the extension of the
due date of such loans by such persons from May 31, 2002 to January 15, 2005.

         On April 12,  2005,  the  Company  authorized  the  issuance of 550,000
shares of Series I Convertible Preferred Stock ("Series I Preferred"), par value
$0.001 per share, each such share of Series I Preferred having a stated value of
$10.00 per share.

         The Series I Preferred shall have the following rights, privileges, and
limitations:

         a)   The conversion feature shall be exercisable immediately.

         b)   The conversion price of the Series I Preferred shall be determined
              by the average  closing  price of  Company's  common  stock in the
              previous 10 trading  days,  but in no event  shall the  conversion
              price be more than $0.0285 per share.

         c)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.

                                       67
<PAGE>

         d)   The Series I Preferred shall have a non-cumulative annual dividend
              of 10%, payable in cash or shares of the Company's common stock at
              the Company's election.

         e)   Dividend will be paid  quarterly  commencing  May 15, 2005, to the
              Holders  of  record of shares  of the  Series I  Preferred  Stock.
              Dividends  until  February  14, 2006 shall accrue but shall not be
              payable  until  February 15, 2006.

         f)   The Company will reserve 75 million shares of its common stock for
              the conversion of the Series I Preferred.

         On April 12, 2005, the Company entered into an exchange  agreement with
The Shaar Fund, LTD (the "Shaar Exchange  Agreement").  Under terms of the Shaar
Exchange  Agreement,  the  Company  agreed that Shaar will  exchange  all of its
right,  title and  interest in and to the  remaining  outstanding  shares of the
Series E  Preferred  and Series F  Preferred  (including  all other  accrued and
unpaid  dividends  thereon)  for  395,302  shares  of  the  Company's  Series  I
Preferred.

         Additionally, under the Shaar Exchange Agreement, the Company issued an
Amended and  Restated  Secured  Promissory  Note of the  Company,  amending  and
restating  a note  originally  issued  June 13,  2001,  which  such  Note has an
outstanding  principal balance as of April 12, 2005 of $3,251,585.35 ("Old Shaar
Note").

         On April 12, 2005 Shaar executed a purchase agreement ("Milford Capital
Purchase Agreement") to Milford Capital & Management ("Milford").  In accordance
with the terms of the Milford  Capital  Purchase  Agreement,  Shaar  purchased a
secured promissory note of the Company,  initially issued to Milford on June 13,
2001, in the original  principal  amount of $500,000,  which had an  outstanding
principal  balance on March 22, 2005 of $188,149 ("Old Milford Note"),  together
with (i) all interest,  additional  obligations,  forbearance  fees,  exit fees,
penalties  and other  amounts  due and  payable  from  time to time  under or in
connection with the Old Milford Note, (iii) the Forbearance Amount in connection
with the Forbearance Agreement,  dated January 30, 2004, between Milford and the
Company,  and Shaar in which Shaar agreed to forgive payment from the Company to
Shaar of  $300,000 of accrued and unpaid  dividends  on shares of the  Company's
Series E Preferred  held by Shaar  ("Forgiven  Dividends")  and consented to the
transfer of the dollar value of the Forgiven Dividends to Milford as part of the
forbearance fee payable to Milford under the Forbearance Agreement of 2004.

         Shaar  and the  Company  have  agreed  that  Shaar  will  exchange  the
outstanding  principal  amount of the Old Shaar  Note and the Old  Milford  Note
(including all accrued and unpaid interest,  unpaid fees and Forgiven Dividends)
for the Company's newly issued 10% convertible secured promissory note (the "New
Shaar Convertible Note")

         The New  Shaar  Convertible  Note  shall  have  the  following  rights,
privileges, and limitations:

         a)   The New Shaar  Convertible  Note bears an interest rate of 10% per
              annum,  which is payable in cash or shares of the Company's common
              stock at the Company's election.

         b)   Interest  shall  accrue  on the  principal  amount  for a one year
              period  ("Deferral  Period").  On March 22, 2006, the Company will
              make a single lump sum payment to the holder in an amount equal to
              all interest that accrued during the Deferral Period

         c)   Beginning  April 15, 2006, and monthly  thereafter on the 15th day
              of each month until March 22, 2009 ("Maturity  Date"), the Company
              shall pay to Shaar all  accrued  and  unpaid  interest  ("Interest
              Payments")on the principal balance of the note accruing during the
              prior month.

                                       68
<PAGE>

         d)   On the  Maturity  Date,  the Company  shall make a single lump sum
              payment to Shaar equal to the outstanding principal balance of the
              New Shaar  Convertible Note ("Principal  Balance"),  together with
              all accrued and unpaid interest.

         e)   At the option of Shaar, the outstanding  Principal  Balance may be
              converted,  either  in  whole  or in  part,  into  shares  of  the
              Company's common stock.

         f)   The conversion price of the payment of the Principal Balance,  the
              Deferral Period,  and the Interest Payments shall be determined by
              the average  closing  price of  Company's  common  stock in the 10
              trading days preceding the conversion date,, but in no event shall
              the conversion  price be more than $0.0285 per share  ("Conversion
              Price").

         g)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.

         h)   The New Shaar  Convertible  Note may not be prepaid by the Company
              prior to the Maturity Date.

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 2001,  2002,  2003  and  2004,
although,  insurance costs were allocated between Affiliated Parties when it was
beneficial to insure the family of companies under one policy.



                                       69
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-------- --------------------------------------

         The following  table  presents  fees for  professional  audit  services
rendered by Tanner LC for the audit of the Company's  financial  statements  for
the years ended  December 31, 2004 and  December  31,  2003,  and fees billed by
Tanner LC for other services during those periods.


----------------------- ------------------- ---------------
                               2004                2003
                               ----                ----

Audit Fees                    $34,840              $27,500
----------------------- -------------- --------------------
Audit Related Fees                -0-                  -0-
----------------------- -------------- --------------------
Tax Fees                        8,000               11,200
----------------------- -------------- --------------------
All Other Fees                  3,200                3,050
----------------------- -------------- --------------------
Total                         $46,040              $41,750
----------------------- -------------- --------------------

         Fees for audit services  include fees associated with the annual audit,
the reviews of our quarterly reports on Form 10-Q, assistance with and review of
documents  filed  with  the SEC and  comfort  letters.  Tax  fees  included  tax
compliance  and tax  consultations.  All other  fees  include  fees  related  to
edgarization  and filing of SEC  forms,  and the audit of the  Company's  Profit
Sharing Plan.

         The board of  directors  has  adopted a policy  that  requires  advance
approval of all audit, audit-related, tax services, and other services performed
by our independent auditor. The policy provides for pre-approval by the board of
directors of  specifically  defined  audit and  non-audit  services.  Unless the
specific service has been previously pre-approved with respect to that year, the
board of directors  must approve the permitted  service  before the  independent
auditor is engaged to perform it.

Financial Information Systems Design and Implementation Fees

         There  were no fees  billed  by  Tanner  LC for  services  rendered  in
connection with financial information systems design and implementation services
described in Paragraph  (c)(4)(ii)  of Rule 2-01 of Regulation  S-X.  during the
fiscal year ended December 31, 2004.

Principal Accountant Independence

         The Audit  Committee has determined that the provision of all non-audit
services performed by the principal  accountant were compatible with maintaining
their independence.


                                       70
<PAGE>

PART IV
-------

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
-------  ----------------------------------------------------------------

The following documents are filed as part of this Annual Report:
                                                                       Page No.
                                                                       --------
Financial Statements.

    Commodore Applied Technologies, Inc.

    Report of Independent Registered Public Accounting Firm...........   F-1

    Consolidated Balance Sheets as of December 31, 2004 and 2003......   F-2

    Consolidated  Statements of Operations for the years ended
    December 31, 2004, 2003 and 2002..................................   F-3

    Consolidated Statements of Stockholders' (Deficit) Equity
    for the years ended December 31, 2004, 2003 and 2002..............   F-4

    Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003 and 2002..................................   F-6

    Notes to Consolidated Financial Statements........................   F-9

         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.


                                       71
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2004 and 2003



<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                                                           Index






                                                                           Page
                                                                           ----


Commodore Applied Technologies, Inc.

     Report of Independent Registered Public Accounting Firm               F-1


     Consolidated Balance Sheet as of December 31, 2004 and 2003           F-2


     Consolidated Statements of Operations for the years ended
       December 31, 2004, 2003 and 2002                                    F-4


     Consolidated Statements of Stockholders' (Deficit) Equity for
       the years ended December 31, 2004, 2003 and 2002                    F-5


     Consolidated Statements of Cash Flows for the years
       ended December 31, 2004, 2003 and 2002                              F-7


     Notes to Consolidated Financial Statements                            F-10



<PAGE>
                                                REPORT OF INDEPENDENT REGISTERED
                                                          PUBLIC ACCOUNTING FIRM




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, 2004 and 2003, and the
related consolidated  statements of operations,  stockholders'  (deficit) equity
and cash flows for the years ended  December 31,  2004,  2003,  and 2002.  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 the standards of the Public  Company
Accounting Oversight Board (United States). 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, 2004 and 2003, and the
results of their  operations  and their cash flows for the years ended  December
31, 2004, 2003, and 2002, in conformity with U.S. generally accepted  accounting
principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has 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.



/s/ Tanner LC
Salt Lake City, Utah
January 21, 2005, except for Notes 8 and 18, which are dated April 12, 2005

                                                                             F-1
<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                                      Consolidated Balance Sheet

                                                      December 31, 2004 and 2003
                                            (Amounts in thousands except shares)
--------------------------------------------------------------------------------

                                                               2004      2003
                                                           --------------------
        Assets
        ------

Current assets:
  Cash and cash equivalents                                $      15   $      -
  Accounts receivable, net                                       259         71
  Prepaid assets and other current assets                          -         13
                                                           --------------------

        Total current assets                                     274         84

Property and equipment, net                                       95        142

Intangible assets:
  Patents and completed technology, net of accumulated
    amortization of $100 and $80, respectively                     -         20
                                                           --------------------

        Total intangible assets                                    -         20


Total assets                                               $    369    $    246
                                                           --------------------



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

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

                                                                             F-2


<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                                      Consolidated Balance Sheet

                                                      December 31, 2004 and 2003
                                            (Amounts in thousands except shares)
--------------------------------------------------------------------------------

                                                               2004      2003
                                                           --------------------
        Liabilities and Stockholders' Deficit
        -------------------------------------

Current liabilities:
  Checks written in excess of cash                         $       -   $     13
  Accounts payable                                             1,045      1,031
  Related party payable                                          253        278
  Line of credit                                                   -         64
  Notes payable, net                                             258          -
  Other accrued liabilities                                    5,107      3,937
                                                           --------------------

        Total current liabilities                              6,663      5,323

Long-term debt, net                                            3,034      1,575
                                                           --------------------

        Total liabilities                                      9,697      6,898
                                                           --------------------

Commitments and contingencies

Stockholders' deficit:
  Convertible Preferred Stock, Series E, F and H,
   par value $.001 per share, aggregate liquidation
   value of $3,677 and $4,142 at December 31, 2004
   and 2003, respectively, 5% to 12% cumulative
   dividends for Series E and F, 3% dividends for
   Series H, 1,561,700 shares authorized, 1,001,200
   shares and 1,033,700 shares issued and outstanding
   at December 31, 2004 and 2003, respectively                     1          1
  Common Stock, par value $.001 per share, 300,000,000
   shares authorized, 134,346,052 shares and 117,702,133
   shares issued and outstanding, at December 31, 2004
   and 2003, respectively                                        134        118
  Additional paid in capital                                  67,376     67,664
  Accumulated deficit                                        (76,576)   (74,172)
                                                           --------------------

                                                              (9,065)    (6,389)

  Treasury stock, 3,437,500 shares                              (263)      (263)
                                                          --------------------

        Total stockholders' deficit                           (9,328)    (6,652)
                                                           --------------------

        Total liabilities and stockholders'
        deficit                                            $     369   $    246
                                                           --------------------


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

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


<PAGE>
<TABLE>
<CAPTION>


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

                                                              Years Ended December 31, 2004 and 2003 and 2002
                                                                 (Amounts in thousands except per share data)
-------------------------------------------------------------------------------------------------------------

                                                                     2004           2003           2002
                                                                 --------------------------------------------
<S>                                                              <C>            <C>             <C>
Revenues                                                         $       738    $       660     $      3,710

Costs and expenses:
  Cost of revenues                                                       919            811            2,108
  Research and development                                                 9             70              297
  General and administrative                                           1,674          1,700            1,792
  Depreciation and amortization                                          136            267              314
                                                                 --------------------------------------------

        Total costs and expenses                                       2,738          2,848            4,511
                                                                 --------------------------------------------

        Loss from operations                                          (2,000)        (2,188)            (801)

Other income (expense):
  Interest expense                                                      (404)          (769)            (104)
                                                                 --------------------------------------------

        Loss from continuing operations
        before for income taxes                                       (2,404)        (2,957)            (905)

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

        Loss from continuing operations                               (2,404)        (2,957)            (905)

Loss on disposal of discontinued operations                                -              -           (4,134)

Loss from discontinued operations                                          -              -             (933)
                                                                 --------------------------------------------

        Net loss                                                 $    (2,404)   $    (2,957)    $     (5,972)
                                                                 --------------------------------------------

Net loss per common share from continuing operations -
  basic and diluted                                              $     (0.02)   $     (0.04)    $      (0.02)
Net loss per common share from discontinued operations -
  basic and diluted                                              $         -    $         -     $      (0.09)
                                                                 --------------------------------------------
Total net loss per share - basic and diluted                     $     (0.02)   $     (0.04)    $      (0.11)
                                                                 --------------------------------------------

Number of weighted average shares outstanding -
  basic and diluted                                                  126,682         92,035            57,775
                                                                 --------------------------------------------


-------------------------------------------------------------------------------------------------------------
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' (Deficit) Equity

                                                                         Years Ended December 31, 2004, 2003, and 2002
                                                                                  (Amounts in thousands except shares)
----------------------------------------------------------------------------------------------------------------------


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

<S>                           <C>           <C>   <C>            <C>      <C>         <C>          <C>       <C>
Balance, January 1, 2002         441,700    $   -    55,417,354  $   55   $  66,759   $ (65,243)   $    -    $  1,571

Conversion of series E and
F preferred stock into
common stock                     (28,000)       -     2,496,423       3          (3)          -         -           -

Issuance of common stock
as payment of preferred
stock dividends                        -        -     1,113,285       1         136           -         -         137

Issuance of preferred H
Stock pursuant to
disposition of DRM               800,000        1             -       -         799           -         -         800

Treasury stock, 5,937,500
shares, received from
shareholders of DRM
pursuant to the
disposition of DRM                     -        -             -       -           -           -      (463)       (463)

Issuance of 2,500,000
shares of treasury stock
as payment of related
party payable                          -        -             -       -         (75)          -       200         125

Preferred stock dividends              -        -             -       -        (528)          -         -        (528)

Issuance of warrants to
officer of the Company to
extend note payable                    -        -             -       -          41           -         -          41

Net loss                               -        -             -       -           -      (5,972)        -      (5,972)
                             -----------------------------------------------------------------------------------------

Balance, December 31, 2002     1,213,700        1    59,027,062      59      67,129     (71,215)     (263)     (4,289)

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

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

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


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

<S>                           <C>           <C>   <C>            <C>      <C>         <C>          <C>       <C>
Conversion of series E and
F preferred stock into
common stock                    (180,000)       -    43,366,669      44         (44)          -         -           -

Issuance of common stock as
payment of preferred stock
dividends                              -        -     2,118,560       2         180           -         -         182

Conversion of debt to
common stock                           -        -    13,189,842      13         271           -         -         284

Issuance of warrants for:
Payment of accounts payable            -        -             -       -           3           -         -           3
Services                               -        -             -       -         198           -         -         198
Extension of debt                      -        -             -       -         301           -         -         301

Preferred stock dividends              -        -             -       -        (374)          -         -        (374)

Net loss                               -        -             -       -           -      (2,957)        -      (2,957)
                             -----------------------------------------------------------------------------------------

Balance, December 31, 2003     1,033,700        1   117,702,133     118      67,664     (74,172)     (263)     (6,652)

Conversion of series E
preferred stock into
common stock                     (32,500)       -    16,143,919      16         (16)          -         -           -

Exercise of warrants                   -        -       500,000       -          19           -         -          19

Preferred stock dividends              -        -             -       -        (291)          -         -        (291)

Net loss                               -        -             -       -           -      (2,404)        -      (2,404)
                             -----------------------------------------------------------------------------------------

Balance, December 31, 2004     1,001,200    $   1   134,346,052  $  134   $  67,376   $ (76,576)   $ (263)   $ (9,328)
                             -----------------------------------------------------------------------------------------



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

                                                                                                                   F-6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


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

                                                                  Years Ended December 31, 2004 and 2003 and 2002
                                                          (Amounts in thousands except shares and per share data)
-----------------------------------------------------------------------------------------------------------------

                                                                        2004           2003           2002
                                                                    ---------------------------------------------
<S>                                                                 <C>             <C>              <C>
Cash flows from operating activities:
  Net loss                                                          $     (2,404)   $     (2,957)    $    (5,972)
  Add: net loss from discontinued operations                                   -               -             933
  Add: net loss from disposal of discontinued operations                       -               -           4,134
  Adjustments to reconcile net loss to net cash
   used in operating activities:
     Depreciation and amortization                                           136             267             314
     (Gain) loss on disposition of property and equipment                      -               -             (35)
     Amortization of debt discount                                            31              35               6
     Issuance of warrants for services                                         -             198               -
     Issuance of warrants for extension of debt                                -             301               -
     Changes in assets and liabilities:
        Accounts receivable, net                                            (188)             25             503
        Prepaid assets                                                        13             150              24
        Net assets of component DRM                                            -               -             (83)
        Checks written in excess of cash                                     (13)             13               -
        Accounts payable and accrued liabilities                             893           1,013              53
                                                                    ---------------------------------------------

             Net cash used in operating activities                        (1,532)           (955)           (123)

Cash flows from investing activities:
  Equipment purchased or constructed                                         (61)              -               -
  Patents acquired                                                             -             (11)              -
  Advances from (repayments to) related parties, net                         (25)            198              45
                                                                    ---------------------------------------------

             Net cash (used in) provided by investing activities             (86)            187              45

Cash flows from financing activities:
  (Repayments)/borrowings under line of credit                               (64)             64            (108)
  Borrowings on debt and warrants                                          1,678             776             431
  Payments on long-term debt and notes payable                                 -            (131)           (356)
  Proceeds from exercise of warrants                                          19               -               -
                                                                    ---------------------------------------------

             Net cash provided by (used in) financing activities           1,633             709             (33)
                                                                    ---------------------------------------------

             Net change in cash and cash equivalents                          15             (59)           (111)

Cash and cash equivalents at beginning of year                                 -              59             170
                                                                    ---------------------------------------------

Cash and cash equivalents at end of year                            $         15    $          -     $        59
                                                                    ---------------------------------------------




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

</TABLE>


<PAGE>

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

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


Supplemental disclosure of cash flow information:

     Cash paid during the year for:

              Interest              $        55 $       10 $       281
                                    -----------------------------------

              Income taxes          $         - $        - $         -
                                    -----------------------------------


Non-Cash Investing and Financing Activities:

2004
----

         o    The  Company  recorded  $291 of unpaid  dividends  to  holders  of
              preferred stock.

         o    The Company  purchased  equipment  in the amount of $8 with a note
              payable.


2003
----

         o    The  Company  recorded  $374 of unpaid  dividends  to  holders  of
              preferred stock, and paid $182 of the unpaid dividends by issuance
              of 2,118,560 shares of common stock.

         o    The Company  converted debt of $250 and accrued interest of $34 by
              issuance of 13,189,842 shares of common stock.

         o    The  Company  issued  50,000  warrants  valued at $3 as payment of
              accounts payable.

         o    The  Company  issued  to  a  member  of  the  board  of  directors
              27,355,800  warrants valued at $470 for forbearance of debt ($272)
              and services ($198).

         o    The Company  issued  1,000,000  new  warrants  and  re-priced  and
              extended  1,500,000  warrants  to forbear  payments  on and extend
              notes payable, resulting in a debt discount of $30.


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

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


<PAGE>


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

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

2002
----

         o    The  Company  recorded  $528 of unpaid  dividends  to  holders  of
              preferred stock, and paid $137 of the unpaid dividends by issuance
              of 1,113,285 shares of common stock.

         o    The Company financed prepaid assets with notes payable of $140.

         o    The Company issued warrants valued at $41 with debt extensions.

         o    Effective May 16, 2002, the Company  dissolved the  acquisition of
              its 81% interest in Dispute Resolution Management,  Inc (DRM) (see
              Note 6).  Consideration given consisted of the issuance of 800,000
              shares  of Series H  Convertible  Preferred  valued  at $800.  The
              Company received 5,937,500 shares of treasury stock valued at $463
              from DRM shareholders. The Company also relieved $29,490 of assets
              held for sale -  component  DRM,  $2,595 of  accounts  payable and
              $22,165 of liabilities held for sale - component DRM, and recorded
              a loss on disposal of discontinued operations of $4,134 and a loss
              on discontinued operations of $933.

         o    The Company  issued  2,500,000  shares of treasury stock valued at
              $125 to  satisfy a related  party  payable  to an  officer  of the
              Company.


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

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

<PAGE>


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

                                                      December 31, 2004 and 2003
                                  (In thousands except share and per share data)
--------------------------------------------------------------------------------

1.   Summary of         Background
     Significant        Commodore  Applied  Technologies,  Inc. and subsidiaries
     Accounting         ("Applied"  or  "the   Company"),   is  engaged  in  the
     Policies           destruction and  neutralization  of hazardous waste from
                        other materials.  Applied owns  technologies  related to
                        the  separation  and   destruction  of   polychlorinated
                        biphenyls (PCBs) and chlorofluorocarbons (CFCs). Applied
                        is currently working on the  commercialization  of these
                        technologies  through  development  efforts,   licensing
                        arrangements and joint ventures.

                        Through  Commodore  Advanced  Sciences,  Inc.  ("CASI"),
                        formerly Advanced Sciences,  Inc., a subsidiary acquired
                        on October 1, 1996,  Applied has contracts  with various
                        government  agencies and private companies in the United
                        States and abroad.

                        Through  Dispute  Resolution  Management,  Inc. (DRM), a
                        subsidiary  acquired August 30, 2000 and disposed of May
                        16, 2002, Applied provided a package of services to help
                        companies recover  financial  settlements from insurance
                        policies to defray costs  associated with  environmental
                        liabilities.  As of May 16, 2002, Applied no longer owns
                        an 81% interest in DRM (see Note 5).  Applied's  loss of
                        the DRM subsidiary may have a material adverse effect on
                        the  financial  condition  of Applied  and its cash flow
                        requirements. Applied currently requires additional cash
                        to  sustain  existing  operations  and to  meet  current
                        obligations and ongoing capital requirements.

                        Principles of Consolidation
                        The  consolidated   financial   statements  include  the
                        accounts of Applied and its majority-owned subsidiaries.
                        Dispute  Resolution  Management,  Inc.  is  included  as
                        discontinued  operations  from  August 30, 2000 (date of
                        acquisition)  through May 16, 2002 (date of dissolution)
                        (see Note 5).  During the year ended  December 31, 2002,
                        Applied  disposed of DRM,  and recorded the related loss
                        on the  disposal  of  DRM.  Applied  has  presented  its
                        financial statements to reflect the operations of DRM as
                        discontinued operations.

                        All significant  intercompany  balances and transactions
                        have been eliminated.

--------------------------------------------------------------------------------
                                                                            F-10
<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,
                                  -------------- -------------- ---------------
                                      2004           2003            2002
                                  -------------- -------------- ---------------

                      Customer A     $       260  $       -    $        2,622
                      Customer B     $       188  $       350  $          784
                      Customer C     $       128  $        21  $            -
                      Customer D     $        67  $         7  $            -



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


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

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


1.   Summary of         Risk and Uncertainty
     Significant        Applied's   operations   involving  the  separation  and
     Accounting         destruction  of PCBs  requires  a  permit  from the EPA.
     Policies           Applied  had a valid  nationwide  permit  related to the
     Continued          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  and  allowed,  Applied,  or its
                        client,  must post a closure bond specific to the amount
                        of any  contracts  that  utilize  Applied's  destruction
                        technology related to the treatment of PCB's.

                        Accounts receivable
                        Trade receivables are carried at original invoice amount
                        less an estimate made for doubtful  receivables based on
                        a review of all outstanding  amounts on a monthly basis.
                        Management   determines   the   allowance  for  doubtful
                        accounts by identifying  troubled  accounts and by using
                        historical  experience  applied to an aging of accounts.
                        Trade   receivables   are   written   off  when   deemed
                        uncollectible.    Recoveries   of   trade    receivables
                        previously written off are recorded when received.

                        A trade  receivable  is considered to be past due if any
                        portion of the  receivable  balance is  outstanding  for
                        more  than 90 days.  Interest  is not  charged  on trade
                        receivables.

                        Property and Equipment
                        Property  and  equipment  are  recorded  at  cost,  less
                        accumulated     depreciation.     Improvements     which
                        substantially  increase  the useful  lives of assets are
                        capitalized.  Maintenance  and repairs  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
                        Patents  and  completed  technology  represents  certain
                        technology  and related  patents  acquired in connection
                        with the purchase of third-party  interests in Commodore
                        Laboratories,   Inc.  ("Labs").  Patents  and  completed
                        technology were fully amortized as of December 31, 2004.


--------------------------------------------------------------------------------
                                                                            F-12
<PAGE>


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

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


1.   Summary of         Impairment of Long-Lived Assets
     Significant        Applied  reviews its  long-lived  assets for  impairment
     Accounting         whenever  events or  changes in  circumstances  indicate
     Policies           that  the  carrying  amount  of the  assets  may  not be
     Continued          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.

                        Revenue Recognition
                        Substantially all of Applied's  revenues from continuing
                        operations are generated by its subsidiary, CASI. CASI's
                        revenues consist of engineering and scientific  services
                        performed for the U.S.  Government and prime contractors
                        that  serve  the  U.S.  Government  under a  variety  of
                        contracts,  most  of  which  provide  for  unit  prices.
                        Revenue under unit price contracts are recorded when the
                        services are provided.

                        Most  of  CASI's  historical   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.

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


--------------------------------------------------------------------------------
                                                                            F-13
<PAGE>


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

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


1.   Summary of         Income Taxes
     Significant        Income taxes are determined in accordance with Statement
     Accounting         of Financial  Accounting  Standards  ("SFAS") 109, which
     Policies           requires  recognition of deferred income tax liabilities
     Continued          and assets for the expected  future tax  consequences of
                        events  that  have  been   included  in  the   financial
                        state-ments 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  re-verse.  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.

                        Stock-Based Compensation
                        At  December  31,  2004,  Applied  has  one  stock-based
                        employee  compensation  plan,  which is  described  more
                        fully in Note 11.  Applied  accounts for its plans under
                        the  recognition  and  measurement  prin-ciples  of  APB
                        Opinion  No.  25,   Accounting   for  Stock   Issued  to
                        Employees, and related  interpretations.  No stock-based
                        employee  compensation cost is reflected in net loss, as
                        all  options  granted  under those plans had an exercise
                        price that  equaled or exceeded  the market value of the
                        underlying  common stock on the date of grant.  Inasmuch
                        as Applied  cancelled  certain  options  during 2002 and
                        reissued new options to the option holders,  the options
                        are considered  variable  op-tions and are revalued each
                        quarter to determine the effect on  operations,  if any.
                        The following  table  illustrates the effect on net loss
                        per  share  if  Applied   had  applied  the  fair  value
                        recognition   provision  of  FASB   Statement  No.  123,
                        Accounting for Stock-Based Compensation,  to stock-based
                        employee compensation.

                                                    Years Ended December 31,
                                                --------------------------------
                                                   2004       2003       2002
                                                --------------------------------

Net loss, as reported                           $  (2,404) $  (2,957) $  (5,972)

Addback:  Stock-based employee compensation
expense determined under instrinsic value
based method for all awards, net of related
tax effects                                              -          -          -

Deduct:  Total stock- based employee
compen-sation expense determined under fair
value based method for all awards, net of
related
tax effects                                              -    (1,544)      (500)
                                                --------------------------------

Pro forma net loss                              $  (2,404) $  (4,501) $  (6,472)
                                                --------------------------------

Loss per share:
   Basic and diluted - as reported              $    (.02) $    (.04) $    (.11)
                                                --------------------------------
   Basic and diluted - pro forma                $    (.02) $    (.04) $    (.12)
                                                --------------------------------


--------------------------------------------------------------------------------
                                                                            F-14
<PAGE>


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

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



1.   Summary of         Stock-Based Compensation - continued
     Significant        The Black-Scholes model calculates the fair value of the
     Accounting         grant  based upon the  following  assumptions  about the
     Policies           underlying  stock:  The expected  dividend  yield of the
     Continued          stock is  zero,  the  assumed  volatility  is 218%,  the
                        expected  risk-free  rate  of  return  is  3.2  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 issued during the years ended December 31,
                        2004, 2003 and 2002 had an average value of $0, $.02 and
                        $.07, respectively.

                        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,  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.
                        Applied 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, 2004 and 2003.

                        Use of Estimates
                        The preparation of consolidated  financial statements in
                        conformity  with  U.S.  generally  accepted   accounting
                        principles  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-15
<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 and negative cash
                        flows  from  operating  activities  for the years  ended
                        December  31,  2004,  2003 and 2002.  Applied also has a
                        working  capital  deficit of $6,389  and an  accumulated
                        deficit of $76,576 at December 31, 2004.  These  factors
                        raise  substantial  doubt about the Company's ability to
                        continue as a going concern. 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 Applied will be able to obtain any
                        of these potential  sources of cash.  Applied  currently
                        requires  additional cash to sustain existing operations
                        and to meet  current  obligations  and  ongoing  capital
                        requirements.


3.   Accounts           The  components of Applied's  trade  receivables  are as
     Receivable         follows as of December 31:


                                                      2004            2003
                                                --------------------------------

Contract receivables                            $            268 $           143

Less:  Allowance for doubtful accounts
  and potential disallowances                                (9)            (72)
                                                --------------------------------

         Accounts receivable, net               $            259 $            71
                                                --------------------------------


                        Substantially  all of CASI trade receivables are pledged
                        to collateralize its line of credit (see Note 7).


--------------------------------------------------------------------------------
                                                                            F-16
<PAGE>


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

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


4.   Property           Property and  equipment  consist of the  following as of
     and                December 31:
     Equipment
                                           Average
                                         Useful Life     2004        2003
                                        --------------------------------------

Machinery and equipment                       3           $   633     $   573
Furniture and fixtures                        5                58          58
Computer equipment                            4               222         213
                                                      ------------------------

                                                              913         844
Less:  accumulated depreciation
  and amortization                                          (818)       (702)
                                                      ------------------------

  Property and equipment, net                             $   95     $   142
                                                      ------------------------


5.   Acquisition        On August 30, 2000,  Applied  completed a stock purchase
     and                agreement with Dispute Resolution Management, Inc. (DRM)
     Dissolution        and its two  shareholders in which Applied  acquired 81%
     of Dispute         of  DRM  for  a  purchase  price  of  approximately  $28
     Resolution         million.  In  2002,  Applied  defaulted  on its  payment
     Management         obligation under the purchase agreement. In August 2002,
                        Applied  entered  into a settlement  agreement  with DRM
                        (the "DRM Settlement Agreement"). Under terms of the DRM
                        Settlement  Agreement,  Applied acknowledged that it had
                        previously  received back 4,750,000 shares of its common
                        stock from DRM and its shareholders,  which was recorded
                        as treasury stock at the fair market value of the common
                        stock. As part of the DRM Settlement Agreement,  Applied
                        received an  additional  1,187,500  shares of its common
                        stock  from  DRM and its  shareholders,  which  was also
                        recorded as treasury  stock at the fair market  value of
                        the common stock.

                        Additionally,  Applied issued 800,000 shares of Series H
                        Preferred  stock (the "Series H  Preferred"),  par value
                        $0.001 per share,  each such share of Series H Preferred
                        having a stated value of $1 per share,  to DRM,  Russell
                        and Speciale as part of the DRM Settlement  Agreement as
                        of September 30, 2002 for  satisfaction of the remaining
                        liabilities relating to the purchase and working capital
                        of DRM.

                        For the year ended December 31, 2002 Applied  recorded a
                        loss on the disposal of DRM in the amount of $4,134.


--------------------------------------------------------------------------------
                                                                            F-17
<PAGE>


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

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



6.   Other              Other accrued  liabilities  consist  of the following at
     Accrued            December 31:
     Liabilities
                                                    2004           2003
                                                ------------------------------

Dividend payable                                $       1,696 $         1,405
Compensation and employee benefits                      1,876           1,373
Accrued interest                                          664             351
Loss reserve                                              376             313
Forbearance and exit fees                                 219             219
Related party advances                                    185             185
Other                                                      91              91
                                                ------------------------------

                                                $       5,107 $         3,937
                                                ------------------------------

7.   Line               At  December  31,  2004  and  2003,  CASI had $0 and $64
     of                 outstanding,   respectively,  on  a  revolving  line  of
     Credit             credit.  The  line of  credit  is not to  exceed  85% of
                        eligible  receivables or $2,500 and is due November 2005
                        with interest  payable monthly at prime plus 2.0 percent
                        (7%  at  December   31,   2004).   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.

8.   Notes              Notes  payable  and   long-term   debt  consist  of  the
     Payable and        following at December 31:
     Long-Term
     Debt
                                                               2004       2003
                                                            --------------------
                   Notes payable to individuals
                   with interest at 15%,due in
                   aggregate monthly installments,
                   beginning in July 2001, of $83 plus
                   interest, maturing through August
                   2002, secured by property and
                   equipment and patents.  250,000
                   warrants valued at $4 were issued
                   in 2003 to extend these notes
                   through December 31, 2005. Subsequent
                   to December 31, 2004, but prior to
                   issuance of the consolidated financial
                   statements, these notes payable were
                   extended through March 2009 - see
                   Note 18.                                 $   3,034  $   1351


--------------------------------------------------------------------------------
                                                                            F-18
<PAGE>


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

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


8.   Notes         Notes payable to individuals with
     Payable and   interest at 12%, in default as of
     Long-Term     January 15, 2005. A discount of $0
     Debt          and $30 was recorded as of December
     Continued     31, 2004 and 2003 for the value of
                   re-priced and additional warrants
                   granted to extend the due date.
                   These notes are secured  by accounts
                   receivable. On February 14, 2004,
                   the individuals cancelled their
                   warrants to purchase 1,500,000
                   shares at an exercise price of
                   $0.05 per share of the Company's
                   common stock.                                  254       254

                   Note payable to a bank with
                   interest due at 17.5%,  with
                   monthly payments less than $1 and
                   maturing December 2007, secured by
                   property and equipment.                          8         -

                   Unamortized discount for warrants               (4)      (30)
                                                            --------------------

                                                                3,292     1,575

                   Less current maturities                       (258)        -
                                                            --------------------

                                                            $   3,034  $  1,575
                                                            --------------------

                        Future maturities of long-term debt are as follows:





                        Year Ending December 31:                Amount
                        ------------------------           ------------------

                                 2005                      $             258
                                 2006                                      -
                                 2007                                      -
                                 2008                                      -
                                 2009                                  3,034
                                 Thereafter                                -
                                                           ------------------

                                                           $           3,292
                                                           ------------------



--------------------------------------------------------------------------------
                                                                            F-19
<PAGE>


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

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


9.   Income             Applied  provides for deferred income taxes on temporary
     Taxes              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:

                                          2004         2003          2002
                                      -----------------------------------------

Expected tax benefit at federal
  statutory rate                      $      (777) $     (1,005) $     (2,030)
State income tax benefit, net of
  federal income tax benefit                 (120)         (177)         (358)
Interest accretion                              -             -            24
Other                                          64           180           604
Disposition of discontinued
  operations                                    -             -         1,654
Change in valuation allowance                 833         1,002           106
                                      -----------------------------------------

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

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

                                                        2004          2003
                                                    ---------------------------

     Reserve for uncollectable
       receivables and potential
       disallowances                                $        168  $        160
     Net operating loss carryforward                      13,501        12,437
     Impairment charges                                    1,694         1,933
                                                    ---------------------------

                                                          15,363        14,530

Valuation allowance                                      (15,363)      (14,530)
                                                    ---------------------------

         Net deferred taxes                         $          -  $          -
                                                    ---------------------------


--------------------------------------------------------------------------------
                                                                            F-20
<PAGE>


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

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


9.   Income             Applied conducts a periodic examination of its valuation
     Taxes              allowance.  Factors considered in the evaluation include
     Continued          recent  and  expected   future  earnings  and  Applied's
                        liquidity and equity positions.  As of December 31, 2004
                        and 2003, Applied has established a valuation  allowance
                        for the entire amount of net deferred tax assets.

                        Applied has net operating loss ("NOL")  carryforwards at
                        December 31, 2004 of approximately  $36,487 which expire
                        in years 2010 through 2024.  The NOL  carryforwards  are
                        limited  to use  against  future  taxable  income due to
                        changes in ownership and control.

10.  Stockholders'      Series E Convertible Preferred Stock
     Equity             Effective  November  4,  1999,  Applied  issued  335,000
                        shares of Series E  Convertible  Preferred  Stock with a
                        stated value of $10 per share.

                        This stock has a dividend  rate of 12% per annum through
                        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 and continues to accrue until paid,  payable
                        on May 1, 2001. The Company  accrued $124, $207 and $341
                        of dividends in 2004, 2003 and 2002,  respectively,  and
                        issued  1,566,989  shares  common  stock  to pay $142 of
                        accrued dividends in 2003.

                        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,  Applied  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
                        respective  stock  exchange  for  the ten  trading  days
                        immediately preceding the date of conversion.



--------------------------------------------------------------------------------
                                                                            F-21
<PAGE>


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

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


10.  Stockholders'      Series E Convertible Preferred Stock - Continued
     Equity             During the years ended December 31, 2004, 2003 and 2002,
     Continued          32,500,  162,500  and 0 shares of  Series E  Convertible
                        Preferred   Stock  were   converted   into   16,143,919,
                        40,916,155  and 0 shares of common stock,  respectively.
                        As of  December  31,  2004  there are  95,500  shares of
                        Series E Convertible 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 Applied of $1,771.

                        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 and  continues  to accrue  until  paid,
                        payable on October 1, 2001.  The Company  accrued  $148,
                        $143  and $178 of  dividends  in  2004,  2003 and  2002,
                        respectively,  and issued  551,571  shares and 1,113,285
                        shares  of common  stock to pay $40 and $137 of  accrued
                        dividends in 2003 and 2002, respectively.

                        The  Series  F   Convertible   Preferred   Stock  has  a
                        liquidation  preference of $10 per share.  In connection
                        with the  issuance  of  Series F  Convertible  Preferred
                        Stock,  Applied  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.


--------------------------------------------------------------------------------
                                                                            F-22
<PAGE>


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

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


10.  Stockholders'      Series F Convertible Preferred Stock - Continued
     Equity             During the years ended December 31, 2004, 2003 and 2002,
     Continued          0 shares,  17,500  shares and 28,000  shares of Series F
                        Convertible  Preferred Stock were converted to 0 shares,
                        2,450,514  shares and 2,496,426  shares of common stock,
                        respectively.  Applied  has  118,200  shares of Series F
                        convertible stock outstanding at December 31, 2004.

                        Series H Convertible Preferred Stock
                        Applied  issued  800,000  shares of  Series H  Preferred
                        stock (the "Series H  Preferred"),  par value $0.001 per
                        share,  each such share of Series H  Preferred  having a
                        stated  value  of $1 per  share,  to  DRM,  Russell  and
                        Speciale as part of the DRM  Settlement  Agreement as of
                        September  30, 2002 for  satisfaction  of the  remaining
                        liabilities relating to the purchase and working capital
                        of DRM. The Series H Preferred  shall have the following
                        rights, privileges, and limitations:

                        a)  The  conversion  feature shall be exercisable  on or
                            after June 30, 2003.

                        b)  No Series H Preferred may be converted prior to June
                            30, 2003. Until July 31, 2005, only 80,000 shares of
                            the Series H Preferred  shall be  convertible in any
                            calendar  quarter.  The  balance of any  unconverted
                            Series H  Preferred  Stock may be  converted  at any
                            time on or after August 1, 2005.

                        c)  The conversion price of the Series H Preferred shall
                            be  determined  by  the  average  closing  price  of
                            Company's  common  stock in the  previous 30 trading
                            days, but in no event shall the conversion  price be
                            less than $0.20 per share.

                        d)  The conversion price of the Series H Preferred shall
                            be  determined  by  the  average  closing  price  of
                            Company's  common  stock in the  previous 30 trading
                            days, but in no event shall the conversion  price be
                            less than $0.20 per share.

                        e)  The Series H Preferred  shall have a  non-cumulative
                            annual  dividend of 3%,  payable in cash or Series H
                            Preferred  within  30 days  of the end of  Applied's
                            fiscal  year,  at Applied's  election.  Dividends of
                            $24, $24 and $9 were accrued during 2004,  2003, and
                            2002 respectively.



--------------------------------------------------------------------------------
                                                                            F-23
<PAGE>


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

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


10.  Stockholders'      Series H Convertible Preferred Stock - Continued
     Equity
     Continued          f)  The Series H Preferred shall not be transferable.

                        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.  There have been no shares of Series H  Preferred
                        stock  converted  into common  shares as of December 31,
                        2004.

                        Cumulative  unpaid  dividends  on  Preferred  Stock  are
                        $1,696  and  $1,405  at  December  31,  2004  and  2003,
                        respectively.




--------------------------------------------------------------------------------
                                                                            F-24
<PAGE>


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

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


11.  Stock Options      Stock Options
     and Stock          In December 1998,  Applied adopted its 1998 Stock Option
     Warrants           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.

                        In as much as Applied  rescinded  certain options during
                        2002 and reissued new options to the option holders, the
                        options  are  considered  variable  options  and will be
                        revalued   each  quarter  to  determine  the  effect  on
                        operations,  if any. There is no variable option expense
                        recognized during 2004 and 2003 as the variable options'
                        exercise  price  exceeded  the fair market  value of the
                        Company's stock.

                        A summary  of the status of  options  granted  under and
                        outside of the Plan as of December  31,  2004,  2003 and
                        2002,  and  changes  during  the  years  then  ended  is
                        presented below:

                          2004                 2003                 2002
              ------------------------------------------------------------------
                   Shares   Weighted    Shares    Weighted     Shares   Weighted
                            Average                Average              Average
                           Exercise               Exercise              Exercise
                            Price                   Price                Price
              ------------------------------------------------------------------

Options
outstanding -
beginning of
year           87,285,951 $    0.05   10,204,593  $   0.24   7,266,908   $  0.84
  Granted              -              77,081,358      0.03   9,847,218      0.07
  Exercised            -         -             -         -           -         -
  Rescinded            -         -             -      0.74  (3,744,373)      .74
  Forfeited       769,146      0.07            -      0.55  (3,165,160)      .55
              ------------------------------------------------------------------

Options
outstanding -
end of year    86,516,805 $    0.05   87,285,951  $   0.05  10,204,593   $  0.24
              ------------------------------------------------------------------


--------------------------------------------------------------------------------
                                                                            F-25
<PAGE>


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

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


11.  Stock              The  following  table   summarizes   information   about
     Options            employee  stock  options  and all  other  stock  options
     and Stock          outstanding at December 31, 2004:
     Warrants
     Continued
                                 Options Options
                             Outstanding Exercisable
                ----------------------------------------------------------------
                                Weighted
                                Average    Weighted                 Weighted
     Range of                  Remaining    Average                  Average
   Exercisable      Number    Contractual   Exercise     Number      Exercise
      Prices     Outstanding      Life       Price    Exercisable     Price
  ------------------------------------------------------------------------------

 $  0.03 - 0.03   77,081,358  3.96 years  $   0.03   77,081,358    $    0.03
    0.07 - 0.07    9,078,072  3.96 years      0.07    9,078,072         0.07
    2.00 - 6.00      357,375  1.98 years      4.86      357,375         4.86
               ----------------------------------------------------------------

                  86,516,805  3.95 years  $   0.05   86,516,805    $    0.05
               ----------------------------------------------------------------

                        Stock Warrants
                        A summary of the  warrants  granted as of  December  31,
                        2004,  2003 and 2002 and changes during the periods then
                        ended is presented below:

                          2004                 2003                 2002
              ------------------------------------------------------------------
                   Shares   Weighted    Shares    Weighted     Shares   Weighted
                            Average                Average              Average
                           Exercise               Exercise              Exercise
                            Price                   Price                Price
              ------------------------------------------------------------------

Warrants
outstanding
- beginning
of year       35,794,357   $    .18   24,070,312  $  3.50  21,365,705  $   4.16
  Granted              -          -   30,655,800     0.03   5,537,716      2.19
  Exercised     (500,000)       .03            -        -           -         -
  Repriced             -          -   (1,500,000)    0.05           -         -
  Rescinded            -          -     (113,025)    1.94  (1,000,000)     4.16
  Expired     (3,416,748)       .05  (17,318,730)    3.50  (1,833,109)     4.16
             ------------------------------------------------------------------

Warrants
outstanding
- end of year 31,877,609   $   0.18   35,794,357  $  0.18  24,070,312  $   3.50
             ------------------------------------------------------------------


--------------------------------------------------------------------------------
                                                                            F-26
<PAGE>


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

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


11.  Stock             Outstanding warrants at December 31, 2004 are as follows:
     Options
     and Stock
     Warrants
     Continued
<TABLE>
<CAPTION>

  Granted                                           Number of Current
 2000 and  Granted   Granted    Granted  Granted   Warrants  Exercise Expiration
   Prior    2001      2002       2003      2004   Outstanding Price      Date
------------------------------------------------------------------------------------

<S>        <C>           <C><C>            <C>    <C>          <C>    <C>
   25,000        -       -          -      -         25,000    1.94   March 2005
  250,000        -       -          -      -        250,000    1.94   March 2005
  113,475        -       -          -      -        113,475    1.94   March 2005
1,000,000        -       -          -      -      1,000,000    2.00   August 2005
        -  333,334       -          -      -        333,334    0.22   June 2006
        -        -       -    500,000      -        500,000    0.03   October 2006
        -        -       -  1,000,000      -      1,000,000    0.03   February 2007
        -        -       -  1,000,000      -      1,000,000    0.03   April 2006
        -        -       - 27,355,800      -     27,355,800    0.03   November 2008
                               50,000      -         50,000    0.03   November 2008
        -        -       -    250,000      -        250,000    0.03   February 2009
-----------------------------------------------------------

1,388,475  333,334       - 30,155,800      -     31,877,609
-----------------------------------------------------------
</TABLE>

                        In 2003,  1,500,000 warrants originally issued with debt
                        were repriced and extended,  and 1,000,000 warrants were
                        newly  issued,  both to extend  the  related  debt.  The
                        Company  recorded a debt discount of $30 at December 31,
                        2003.  Also in 2003,  250,000  warrants  were  issued to
                        extend  the  related  debt.  A debt  discount  of $5 was
                        recorded,  with $3 of the debt discount amortized during
                        2004.   As  of  December   31,  2004  all  warrants  are
                        exercisable.

12.  Earnings           All   earnings   per   share    amounts    reflect   the
     Per                implementation  of SFAS 128 "Earnings per Share".  Basic
     Share              earnings  per share are  computed by dividing net income
                        (loss) 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.  Options  and  warrants to
                        purchase 118,394,414,  123,080,308 and 34,274,905 shares
                        of common stock as of December 31, 2004,  2003 and 2002,
                        respectively  were  excluded  from  the  calculation  of
                        diluted earnings per share as the effect would have been
                        anti-dilutive as the Company experienced net losses.



--------------------------------------------------------------------------------
                                                                            F-27
<PAGE>


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

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


12.  Earnings Per
     Share
     Continued
                                                Years Ended December 31,
                                      ------------------------------------------
                                          2004           2003          2002
                                      ------------------------------------------

    Net loss                          $     (2,404) $      (2,957) $     (5,972)
    Preferred stock dividends                 (291)          (304)         (528)
                                      ------------------------------------------

    Net loss available to
      common shareholders             $     (2,695) $      (3,261) $     (6,500)
                                      ------------------------------------------
   Weighted average common
      shares outstanding (basic)       126,682,000     92,035,000    57,775,000
   Series E Convertible
      Preferred Stock                          (*)            (*)           (*)
   Series F Convertible
      Preferred Stock                          (*)            (*)             -
   Series H Convertible
      Preferred Stock                          (*)            (*)           (*)
   Employee Stock Options                      (*)            (*)           (*)
   Warrants issued in connection
      with various transactions                (*)            (*)           (*)
                                      ------------- -------------- -------------

   Weighted average common
      shares outstanding (diluted)     126,682,000     92,035,000    57,775,000
                                      ------------- -------------- -------------

   Net loss per share - basic
      and diluted                     $       (.02) $        (.04) $       (.11)
                                      ------------- -------------- -------------

                        (*) Due to Applied's loss from continuing  operations in
                        2004, 2003 and 2002, the incremental  shares issuable in
                        connection with these  instruments are anti-dilutive and
                        accordingly not considered in the calculation.

13.  Related Party      Applied had the following related party transactions not
      Transactions      disclosed elsewhere:

                        Applied has payables to related parties of $185 and $185
                        at  December  31,  2004 and 2003,  recorded  in  accrued
                        liabilities.

                        During  2003,  27,355,800  warrants  valued at $470 were
                        issued  to a  member  of  the  board  of  directors  for
                        services  of rent and  facilities,  and  forbearance  on
                        payment of note that is due on demand.


--------------------------------------------------------------------------------
                                                                            F-28
<PAGE>


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

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


13.  Related Party      Applied  has a note  payable to a member of the board of
     Transactions       directors  that is dueon demand and carries  interest at
     Continued          9%. The  balance  due at  December  31, 2004 and 2003 is
                        $312 and  $272,  respectively,  and is  included  in the
                        related party payable.

                        Applied has long-term debt to  shareholders  of Applied.
                        See Note 8.

14.  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:

                              2005                            $           126
                              2006                                         37
                              2007                                          5
                                                              ---------------

                                                              $           168
                                                              ---------------

                        Rent expense  approximated $126, $325, and $204 in 2004,
                        2003  and  2002,  respectively.  Rent  expense  in  2003
                        includes  $198 from the issuance of warrants to a member
                        of the board of directors for office rent expense.

                        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, 2004 and 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.


--------------------------------------------------------------------------------
                                                                            F-29
<PAGE>


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

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



14.  Commitments        Guarantee
     and                Applied,  along with several other entities,  in a prior
     Contingencies      year,  guaranteed  a   performance   bond  of  Commodore
     Continued          Separation  Technologies,  Inc.  relating  to a contract
                        with the Port of Baltimore. Applied was notified on June
                        28, 2000 that the performance  bond is being called.  It
                        is  not  known,  at  this  time,  the  amount,  if  any,
                        Applied's share will be. No amount has been reflected in
                        these consolidated financial statements  as  the  amount
                        is not determinable.

15.  401(K)             Applied  has  adopted  a  401(K)  savings  plan  for all
     Savings Plan       employees   who   qualify   as  to  age   and   service.
                        Contributions by Applied are discretionary. Applied made
                        annual contributions to the plan of approximately $0, $0
                        and $0 during the years ended  December 31,  2004,  2003
                        and 2002, respectively.

16.  Discontinued       Condensed  financial  information  for  DRM,  which  was
     Operations         discontinued,  is as follows for the year ended December
                        31, 2002,  which includes DRM operations from August 30,
                        2000 (date of acquisition) through May 16, 2002 (date of
                        dissolution):



                                                               2002
                                                          ---------------

                  Revenues                                $         718

                  Costs and expenses                             (1,515)
                  Interest expense                                 (186)
                  Minority interest                                  50
                                                          ---------------

                  Net (loss) gain before income
                     tax expense                                   (933)
                  Income tax expense                                  -
                                                          ---------------

                  Net (loss) gain from discontinued
                     operations                           $        (933)
                                                          ---------------



--------------------------------------------------------------------------------
                                                                            F-30
<PAGE>


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

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



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

                        DRM, from August 30, 2000 (date of  acquisition)  to May
                        16,  2002 (date of  dissolution),  provided a package of
                        services to help companies recover financial settlements
                        from insurance  policies to defray costs associated with
                        environmental  liabilities.  Income  (loss)  from DRM is
                        recorded in the discontinued  operations  section of the
                        segment information.



--------------------------------------------------------------------------------
                                                                            F-31
<PAGE>


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

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



17.  Segment            Common  overhead  costs are allocated  between  segments
     Information        based on a record of time spent by executives.
     Continued
                        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.

<TABLE>
<CAPTION>

         2004
         ----                                                                                   Corporate
                                                                                                Overhead
                                                           Total         CASI       Solution     & Other
                                                       ----------------------------------------------------

<S>                                                     <C>            <C>           <C>         <C>
Revenues                                                $        738   $       698   $      40   $       -

Costs and expenses:
     Cost of revenues                                            919           548         371           -
     Research and development                                      9             -           9           -
     General and administrative                                1,674           308         120       1,246
     Depreciation and amortization                               136             -           -         136
                                                       ----------------------------------------------------

         Total costs and expenses                              2,738           856         500       1,382
                                                       ----------------------------------------------------

Income (loss) from operations                                 (2,000)         (158)       (460)     (1,382)

Interest expense                                                (404)           (1)          -        (403)
                                                       ----------------------------------------------------

Loss from continuing operations before
     income taxes                                             (2,404)         (159)       (460)     (1,785)

Income taxes                                                        -            -           -           -
                                                       ----------------------------------------------------

Income (loss) from continuing operations                      (2,404)         (159)       (460)     (1,785)

Income (loss) from discontinued operations                          -             -          -           -
                                                       ----------------------------------------------------

Net income (loss)                                       $     (2,404)  $      (159)  $    (460)  $  (1,785)
                                                       ----------------------------------------------------

Total assets                                            $        369   $       354   $       -   $      15
                                                       ----------------------------------------------------

Expenditures for long-lived assets                      $         61   $        61   $       -   $       -
                                                       ----------------------------------------------------

</TABLE>

--------------------------------------------------------------------------------
                                                                            F-32
<PAGE>


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

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


17.  Segment
     Information
     Continued
<TABLE>
<CAPTION>

         2003
         ----                                                                                    Corporate
                                                                                                 Overhead
                                                           Total         CASI       Solution     & Other
                                                       -----------------------------------------------------
<S>                                                     <C>            <C>           <C>         <C>
Revenues                                                $        660   $       568   $      92   $      -

Costs and expenses:
     Cost of revenues                                            811           721          90          -
     Research and development                                     70             -          70          -
     General and administrative                                1,700           570          73      1,057
     Depreciation and amortization                               267             -           -        267
                                                       -----------------------------------------------------

         Total costs and expenses                              2,848         1,291         233      1,324
                                                       -----------------------------------------------------

Income (loss) from operations                                 (2,188)         (723)       (141)    (1,324)

Interest expense                                                (769)           (1)          -      (768)
                                                       -----------------------------------------------------

Loss from continuing operations before
     income taxes                                              (2,957)         (724)       (141)    (2,092)

Income taxes                                                        -            -           -          -
                                                       -----------------------------------------------------

Income (loss) from continuing operations                      (2,957)         (724)       (141)    (2,092)

Income (loss) from discontinued operations                          -            -           -          -
                                                       -----------------------------------------------------

Net income (loss)                                       $     (2,957)  $      (724)  $    (141)  $ (2,092)
                                                       -----------------------------------------------------

Total assets                                            $        246   $        84   $       -   $    162
                                                       -----------------------------------------------------

Expenditures for long-lived assets                      $         11   $         -   $       -   $     11
                                                       -----------------------------------------------------

</TABLE>

--------------------------------------------------------------------------------
                                                                            F-33
<PAGE>


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

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



17.  Segment
     Information
     Continued
<TABLE>
<CAPTION>


         2002
         ----                                                                                  Corporate
                                                                                               Overhead
                                                        Total         CASI       Solution      & Other
                                                    ------------------------------------------------------

<S>                                                 <C>              <C>          <C>        <C>
Revenues                                            $       3,710    $   3,448    $      262 $          -

Costs and expenses:
     Cost of revenues                                       2,108        1,854           254            -
     Research and development                                 297            -           297            -
     General and administrative                             1,792          754           203          835
     Depreciation and amortization                            314           30           247           37
                                                    ------------------------------------------------------

         Total costs and expenses                           4,511        2,638         1,001          872
                                                    ------------------------------------------------------

Income (loss) from operations                                (801)         810          (739)        (872)

Interest expense                                             (104)           -             -         (104)
                                                    ------------------------------------------------------

Loss from continuing operations before
     income taxes                                            (905)         810          (739)        (976)

Income taxes                                                    -           -             -             -
                                                    ------------------------------------------------------

Income (loss) from continuing operations                     (905)         810          (739)        (976)

Loss from discontinued operations                          (5,067)           -             -       (5,067)
                                                    ------------------------------------------------------

Net (loss) income                                   $      (5,972)   $     810    $     (739) $    (6,043)
                                                    ------------------------------------------------------

Total assets                                        $         736    $     292    $      353  $        91
                                                    ------------------------------------------------------

Expenditures for long-lived assets                  $           2    $       2    $        -  $         -
                                                    ------------------------------------------------------

</TABLE>


--------------------------------------------------------------------------------
                                                                            F-34
<PAGE>


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

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


18.  Subsequent         On April 12, 2005,  the Company  authorized the issuance
     Events             of  550,000  shares  of Series I  Convertible  Preferred
                        Stock  ("Series  I  Preferred"),  par value  $0.001  per
                        share,  each such share of Series I  Preferred  having a
                        stated value of $10.00 per share. These preferred shares
                        are  convertible  into  common  stock at the rate of the
                        average closing price of the Company's  common stock for
                        the previous ten trading days, and the  conversion  rate
                        is not  to  exceed  $0.0285  per  share.  Non-cumulative
                        dividends  accrue at ten  percent,  and will be  payable
                        quarterly  beginning  February  2006.  The Company  will
                        reserve  75,000,000  shares  of  common  stock  for  the
                        potential   conversion   of  the  Series  I  Convertible
                        Preferred Stock into common stock.

                        Also on April  12,  2005,  a  Series  E and F  preferred
                        stockholder  agreed  to  exchange all  of their Series E
                        and  F  preferred  stock  and  all  accrued  and  unpaid
                        dividends  thereon,  for  423,753  shares  of  Series  I
                        Convertible  Preferred  Stock.  The value of the accrued
                        and unpaid  dividends due this preferred  stockholder is
                        $1,641  at  December  31,  2004,   and  this   preferred
                        stockholder  has 83,000 and  118,200  shares of Series E
                        and F preferred  stock,  respectively,  at December  31,
                        2004.

                        The same preferred stockholder of the Company also has a
                        note payable due from the Company. This preferred stock-
                        holder,  also on April  12,  2005,  agreed  to  purchase
                        another debt holder's note payable due from the Company,
                        and this preferred stockholder and debt holder exchanged
                        the existing  notes  payable for a  convertible  secured
                        promissory  note, which note has interest of ten percent
                        and is convertible  into common stock at the rate of the
                        average closing price of the Company's  common stock for
                        the previous ten trading days, and the  conversion  rate
                        is not to exceed  $0.0285 per share.  Interest  payments
                        are  deferred  until  April  2006 and are  made  monthly
                        thereafter,  and the  principal  is due in one  lump-sum
                        payment in March  2009.  The  Company may not prepay the
                        note payable.

                        The  outstanding  principal  balance  of these two notes
                        that were  effectively  extended  to March 2009 on April
                        12, 2005 is $3,034.  As these  extensions  were obtained
                        subsequent  to year-end,  but prior to issuance of these
                        consolidated  financial  statements,   the  Company  has
                        included  these  notes  payable  principal  balances  in
                        long-term debt at December 31, 2004 in the  accompanying
                        consolidated financial statements.


--------------------------------------------------------------------------------
                                                                            F-35
<PAGE>


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

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


19.  Recent             In December 2003, the FASB issued  Interpretation No. 46
     Accounting         ("FIN 46R") (revised  December 2003),  Consolidation  of
     Pronounce-         Variable   Interest   Entities,   an  Interpretation  of
     ments              Accounting  Research  Bulletin No. 51 ("ARB 51"),  which
                        addresses  how a  business  enterprise  should  evaluate
                        whether  it  has a  controlling  interest  in an  entity
                        though  means other than voting  rights and  accordingly
                        should  consolidate  the entity.  FIN 46R replaces  FASB
                        Interpretation  No. 46 ("FIN  46"),  which was issued in
                        January 2003.  Before  concluding that it is appropriate
                        to apply ARB 51 voting interest  consolidation  model to
                        an entity,  an enterprise  must first determine that the
                        entity  is not a  variable  interest  entity.  As of the
                        effective  date of FIN 46R, an enterprise  must evaluate
                        its  involvement  with all entities or legal  structures
                        created  before  February 1, 2003, to determine  whether
                        consolidation  requirements  of FIN 46R  apply  to those
                        entities.   There  is  no   grandfathering  of  existing
                        entities.  Public  companies must apply either FIN 46 or
                        FIN 46R  immediately  to entities  created after January
                        31,  2003  and no  later  than  the  end  of  the  first
                        reporting  period  that ends after March 15,  2004.  The
                        adoption  of  FIN  46 had  no  effect  on the  Company's
                        consolidated  financial position,  results of operations
                        or cash flows.

                        In December 2003, the Securities and Exchange Commission
                        ("SEC")  issued Staff  Accounting  Bulletin  ("SAB") No.
                        104,  Revenue  Recognition.  SAB 104 revises or rescinds
                        portions of the interpretive  guidance included in Topic
                        13 of the codification of staff accounting  bulletins in
                        order to make this interpretive guidance consistent with
                        current  authoritative  accounting and auditing guidance
                        and SEC rules and  regulations.  The adoption of SAB 104
                        did not have a material effect on the Company's  results
                        of operations or financial condition.




--------------------------------------------------------------------------------
                                                                            F-36
<PAGE>


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

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



19.  Recent             In  December   2004,  the  FASB  issued  SFAS  No.  153,
     Accounting         Exchanges of Nonmonetary Assets, which amends Accounting
     Pronounce-         Principles  Board (APB) Opinion No. 29,  Accounting  for
     ments              Nonmonetary Transactions. The guidance in APB Opinion 29
     Continued          is based on the principle  that exchanges of nonmonetary
                        assets should be measured based on the fair value of the
                        assets  exchanged.  The  guidance  in  APB  Opinion  29,
                        however,  included certain exceptions to that principle.
                        SFAS  153  amends  APB  Opinion  29  to  eliminate   the
                        exception   for   nonmonetary   exchanges   of   similar
                        productive   assets  and  replaces  it  with  a  general
                        exception  for exchanges of  nonmonetary  assets that do
                        not have commercial  substance.  A nonmonetary  exchange
                        has commercial substance if the future cash flows of the
                        entity are expected to change  significantly as a result
                        of the  exchange.  SFAS  153  is  effective  for  fiscal
                        periods  beginning after June 15, 2005. The Company does
                        not  expect  that the  adoption  of SFAS 153 will have a
                        material impact on the financial  position or results of
                        operations.

                        In  December  2004,  the  FASB  issued  SFAS  No.  123R,
                        Share-Based Payment, which requires companies to measure
                        and recognize  compensation  expense for all stock-based
                        payments at fair value.  SFAS 123R is effective  for the
                        fiscal year  beginning  after June 15,  2005 and,  thus,
                        will be  effective  for the Company  beginning  with the
                        fiscal year of 2006.  Early  adoption is encouraged  and
                        retroactive  application  of the provisions of SFAS 123R
                        to the  beginning  of the fiscal year that  includes the
                        effective  date  is  permitted,  but not  required.  The
                        Company is currently  evaluating the impact of SFAS 123R
                        and the  adoption  may  have a  material  impact  on the
                        Company's  financial position and results of operations.
                        See Stock  Compensation  in Note 1 for more  information
                        related to the pro forma  effects on  reported  net loss
                        and net  loss  per  share of  applying  the  fair  value
                        recognition   provisions   of  the  previous  SFAS  123,
                        Accounting for Stock-Based Compensation,  to stock-based
                        employee compensation.


--------------------------------------------------------------------------------
                                                                            F-37
<PAGE>


Exhibits.
---------

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

   3.1               Certificate of Incorporation of the Company. (1)

   3.2               By-Laws of the Company. (1)

   4.1               Specimen common stock Certificate. (3)

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

   4.19              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)

   4.22              Warrant to  purchase  shares of common  stock of  Commodore
                     Applied  Technologies,  Inc.  issued to The Shaar Fund Ltd.
                     (20)

   4.22              Certificate  of  Designation  of Series F Preferred  Stock.
                     (20)

   4.23              Warrant to  purchase  shares of common  stock of  Commodore
                     Applied Technologies, Inc. issued to Avalon Research Group,
                     Inc. (20)

   4.24              Certificate  of  Designation  of Series H Preferred  Stock.
                     (24)

   *4.25             Certificate of Designation of Series I Preferred Stock.

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

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

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

   10.32             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)

                                       72
<PAGE>

   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)

   10.50             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)

   10.55             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)

   10.71             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. (23)

   10.78             Warrant to purchase  222,222  shares of common stock of the
                     Company issued to Klass Partners. (23)

   10.79             Warrant to purchase  166,667  shares of common stock of the
                     Company issued to Mathers Associates. (23)

   10.80             Warrant to purchase  41,666  shares of common  stock of the
                     Company issued to Jon Paul Hannesson. (23)

                                       73
<PAGE>

   10.81             Warrant to purchase  41,666  shares of common  stock of the
                     Company issued to Krista S. Hannesson. (23)

   10.82             Warrant to purchase  27,778  shares of common  stock of the
                     Company issued to Stephen A. Weiss. (23)

   10.84             Registration  Rights Agreement dated May 22, 2001,  between
                     Commodore Applied Technologies, Inc., and Dr. Marion Danna.
                     (23)

   10.85             Warrant to purchase  500,000  shares of common stock of the
                     Company issued to Dr. Marion Danna. (23)

   10.86             Secured  Promissory  Note,  dated June 13, 2001,  issued to
                     Milford  Capital & Management  in the  principal  amount of
                     $500,000. (23)

   10.87             Secured Promissory Note, dated June 13, 2001, issued to the
                     Shaar Fund, Ltd. in the principal amount of $500,000. (23)

   10.88             Registration  Rights Agreement dated June 13, 2001, between
                     Commodore Applied Technologies, Inc., and Milford Capital &
                     Management. (23)

   10.89             Registration  Rights Agreement dated June 13, 2001, between
                     Commodore Applied  Technologies,  Inc., and the Shaar Fund,
                     Ltd. (23)

   10.90             Warrant to purchase  166,667  shares of common stock of the
                     Company issued to Milford Capital & Management. (23)

   10.91             Warrant to purchase  166,667  shares of common stock of the
                     Company issued to the Shaar Fund, Ltd. (23)

   10.94             Forbearance  Agreement  dated  January  11,  2002,  between
                     Commodore Applied Technologies, Inc., and Milford Capital &
                     Management. (23)

   10.95             Forbearance  Agreement  dated  January  11,  2002,  between
                     Commodore Applied  Technologies,  Inc., and the Shaar Fund,
                     Ltd. (23)

   10.96             Forbearance  Agreement  dated  February 13,  2002,  between
                     Commodore Applied Technologies, Inc., and Milford Capital &
                     Management. (23)

   10.97             Forbearance  Agreement  dated  February 13,  2002,  between
                     Commodore Applied  Technologies,  Inc., and the Shaar Fund,
                     Ltd. (23)

   10.98             Forbearance   Agreement  dated  March  13,  2002,   between
                     Commodore Applied Technologies, Inc., and Milford Capital &
                     Management. (23)

   10.99             Forbearance   Agreement  dated  March  13,  2002,   between
                     Commodore Applied  Technologies,  Inc., and the Shaar Fund,
                     Ltd. (23)

   10.101            Forbearance   Agreement   dated  April  1,  2002,   between
                     Commodore Applied  Technologies,  Inc., and the Shaar Fund,
                     Ltd. (24)

   10.102            Forbearance   Agreement   dated  April  1,  2002,   between
                     Commodore Applied Technologies, Inc., and Milford Capital &
                     Management. (24)

   10.103            Memorandum of  Understanding  for Amendment of $500,000 CXI
                     Bridge Loan  Documents,  dated April 29, 2002, by and among
                     the  Company,   Commodore  Environmental  Services,   Inc.,
                     Mathers Associates,  Klass Partners, Jon Paul Hannesson and
                     Stephen A. Weiss. (24)

   10.104            Forbearance Agreement dated May 13, 2002, between Commodore
                     Applied Technologies, Inc., and the Shaar Fund, Ltd. (24)

   10.105            Forbearance Agreement dated May 13, 2002, between Commodore
                     Applied   Technologies,   Inc.,   and  Milford   Capital  &
                     Management. (24)

                                       74
<PAGE>

   10.106            Forbearance   Agreement   dated  June  13,  2002,   between
                     Commodore  Applied Technologies,  Inc., and the Shaar Fund,
                     Ltd. (24)

   10.107            Forbearance   Agreement   dated  June  13,  2002,   between
                     Commodore Applied Technologies, Inc., and Milford Capital &
                     Management. (24)

   10.108            Settlement  Agreement  dated  August 19,  2002 by and among
                     Commodore Applied  Technologies,  Inc.,  Dispute Resolution
                     Management, Inc., William J. Russell and Tamie P. Speciale.
                     (24)

   10.109            Liability  Release  Agreement  dated  August  19,  2002  by
                     Dispute Resolution Management, Inc., William J. Russell and
                     Tamie P. Speciale to Commodore Applied  Technologies,  Inc.
                     (24)

   10.110            Liability  Release  Agreement  dated  August  19,  2002  by
                     Commodore Applied Technologies,  Inc. to Dispute Resolution
                     Management, Inc., William J. Russell and Tamie P. Speciale.
                     (24)

   10.112            Warrant to  purchase  1,000,000  shares of common  stock of
                     Commodore Applied  Technologies,  Inc. issued to Dr. Shelby
                     T. Brewer. (24)

   10.113            Registration Rights Agreement, dated October 2, 2002 issued
                     to Dr. Shelby T. Brewer. (24)

   10.114            Memorandum of  Understanding  for Amendment of $500,000 CXI
                     Bridge Loan  Documents,  dated  November 18,  2002,  by and
                     among the Company,  Commodore Environmental Services, Inc.,
                     Mathers Associates,  Klass Partners, Jon Paul Hannesson and
                     Stephen A. Weiss. (24)

   10.115            Warrant to purchase  222,222  shares of common stock of the
                     Company issued to Klass Partners. (24)

   10.116            Warrant to purchase  166,667  shares of common stock of the
                     Company issued to Mathers Associates. (24)

   10.117            Warrant to purchase  41,667  shares of common  stock of the
                     Company issued to Jon Paul Hannesson. (24)

   10.118            Warrant to purchase  41,666  shares of common  stock of the
                     Company issued to Krista S. Hannesson. (24)

   10.119            Warrant to purchase  27,778  shares of common  stock of the
                     Company issued to Stephen A. Weiss. (24)

   10.120            Warrant to purchase  500,000  shares of common stock of the
                     Company issued to Klass Partners. (24)

   10.121            Warrant to purchase  300,000  shares of common stock of the
                     Company issued to Mathers Associates. (24)

   10.122            Warrant to purchase  75,000  shares of common  stock of the
                     Company issued to Jon Paul Hannesson. (24)

   10.123            Warrant to purchase  75,000  shares of common  stock of the
                     Company issued to Krista S. Hannesson. (24)

   10.124            Warrant to purchase  50,000  shares of common  stock of the
                     Company issued to Stephen A. Weiss. (24)

   10.126            Warrant to purchase  500,000  shares of common stock of the
                     Company issued to Dr. Marion Danna. (25)

   10.127            Warrant  to  purchase  27,355,800  shares of  common  stock
                     issued to Blum Asset Trust. (25)

   10.128            Forbearance  Agreement  dated  February  1,  2004,  between
                     Commodore Applied Technologies, Inc., and Milford Capital &
                     Management. (25)

                                       75
<PAGE>

   10.129            Warrant to purchase  250,000  shares of common stock of the
                     Company issued to Milford Capital & Management. (25)

   10.130            Memorandum of  Understanding  for Amendment of $500,000 CXI
                     Bridge Loan  Documents,  dated  February 15,  2004,  by and
                     among the Company, Mathers Associates,  Klass Partners, Jon
                     Paul Hannesson and Stephen A. Weiss. (25)

   10.131            Warrant to purchase  222,222  shares of common stock of the
                     Company issued to Klass Partners. (25)

   10.132            Warrant to purchase  166,667  shares of common stock of the
                     Company issued to Mathers Associates. (25)

   10.133            Warrant to purchase  41,667  shares of common  stock of the
                     Company issued to Jon Paul Hannesson. (25)

   10.134            Warrant to purchase  41,667  shares of common  stock of the
                     Company issued to Krista S. Hannesson. (25)

   10.135            Warrant to purchase  27,778  shares of common  stock of the
                     Company issued to Stephen A. Weiss. (25)

   10.136            Warrant to purchase  500,000  shares of common stock of the
                     Company issued to Klass Partners. (25)

   10.137            Warrant to purchase  300,000  shares of common stock of the
                     Company issued to Mathers Associates. (25)

   10.138            Warrant to purchase  75,000  shares of common  stock of the
                     Company issued to Jon Paul Hannesson. (25)

   10.139            Warrant to purchase  75,000  shares of common  stock of the
                     Company issued to Krista S. Hannesson. (25)

   10.140            Warrant to purchase  50,000  shares of common  stock of the
                     Company issued to Stephen A. Weiss. (25)

   10.141            Warrant to purchase  444,444  shares of common stock of the
                     Company issued to Klass Partners. (25)

   10.142            Warrant to purchase  333,334  shares of common stock of the
                     Company issued to Mathers Associates. (25)

   10.143            Warrant to purchase  83,332  shares of common  stock of the
                     Company issued to Jon Paul Hannesson. (25)

   10.144            Warrant to purchase  83,332  shares of common  stock of the
                     Company issued to Krista S. Hannesson. (25)

   10.145            Warrant to purchase  55,556  shares of common  stock of the
                     Company issued to Stephen A. Weiss. (25)

   10.146            Series E Convertible  Preferred  automatic  conversion date
                     extension dated March 10, 2004, between the Company and The
                     Shaar Fund, Ltd. (25)

   10.147            Series F Convertible  Preferred  automatic  conversion date
                     extension dated April 9, 2004,  between the Company and The
                     Shaar Fund, Ltd. (25)

   10.148            Dividend  Forgiveness  letter dated April 9, 2004,  between
                     the Company and The Shaar Fund, Ltd. (25)

   *10.149           Promissory  Note dated April 12, 2005,  between the Company
                     and The Shaar Fund, Ltd.

   *10.150           Amended and  Restated  Security  Agreement  dated April 12,
                     2005, between the Company and The Shaar Fund, Ltd.

   *10.151           Patent Collateral  Assignment dated April 12, 2005, between
                     the Company and The Shaar Fund, Ltd.

                                       76
<PAGE>

   *10.152           Amended and  Restated  Guaranty  and  Suretyship  Agreement
                     dated  April 12,  2005,  between  the Company and The Shaar
                     Fund, Ltd.

   *10.153           Exchange  Agreement  dated  April  12,  2005,  between  the
                     Company and The Shaar Fund, Ltd.

   *14.01            Code of Ethics of Commodore Applied 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.

   *31.1             Certification Pursuant to Section 302 of the Sarbanes-Oxley
                     Act of 2002

   *31.2             Certification Pursuant to Section 302 of the Sarbanes-Oxley
                     Act of 2002

   *32.1             Certification  Pursuant  to  18  U.S.C.  Section  1350,  as
                     Adopted Pursuant to Section 906 of the  Sarbanes-Oxley  Act
                     of 2002

   *32.2             Certification  Pursuant  to  18  U.S.C.  Section  1350,  as
                     Adopted Pursuant to Section 906 of the  Sarbanes-Oxley  Act
                     of 2002

   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).

                                       77
<PAGE>

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

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

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

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

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

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

   (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).

   (23)   Incorporated  by  reference  and filed as an Exhibit  to  Registrant's
          Annual Report on Form 10-K for the fiscal year ended December 31, 2001
          filed with the  Securities  and Exchange  Commission on April 15, 2002
          (File No. 1-11871).

   (24)   Incorporated  by  reference  and filed as an Exhibit  to  Registrant's
          Annual Report on Form 10-K for the fiscal year ended December 31, 2002
          filed with the  Securities  and Exchange  Commission on April 15, 2003
          (File No. 1-11871).

   (25)   Incorporated  by  reference  and filed as an Exhibit  to  Registrant's
          Annual Report on Form 10-K for the fiscal year ended December 31, 2003
          filed with the  Securities  and Exchange  Commission on April 15, 2004
          (File No. 1-11871).

                                       78
<PAGE>

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

   1.     The Company filed a Current  Report on Form 8-K, dated March 16, 2005,
          regarding  a  press  release  issued  by the  Company  announcing  the
          Company's  subsidiary,  CASI,  progress  on the eDAM  contract  in Oak
          Ridge,  TN,  CASI was awarded a one year  contract  from WESKEM of Oak
          Ridge to support  their  sampling  efforts with the Waste  Disposition
          Services Project, and the protest of the award of the FFTF contract is
          ongoing.

   2.     The Company filed a Current  Report on Form 8-K, dated April 15, 2004,
          regarding a press release  issued by the Company  announcing  its 2003
          year end earnings.

   3.     The Company  filed a Current  Report on Form 8-K,  dated May 19, 2004,
          regarding a press release  issued by the Company  announcing  its 2004
          1st quarter earnings.

   4.     The Company filed a Current Report on Form 8-K, dated August 16, 2004,
          regarding a press release  issued by the Company  announcing  its 2004
          2nd quarter earnings.

   5.     The Company  filed a Current  Report on Form 8-K,  dated  September 2,
          2004,  regarding a press release issued by the Company  announcing its
          subsidiary CASI was awarded the eDAM contract in Oak Ridge, TN.

   6.     The Company  filed a Current  Report on Form 8-K,  dated  November 12,
          2004,  regarding a press release issued by the Company  announcing its
          2003  annual   meeting  date,  the  SBA  challenge  to  the  Company's
          subsidiary, CASI, eDAM contract award, and the protest of the award of
          the FFTF contract by the losing teams,  one of which the Company was a
          member.

   7.     The Company  filed a Current  Report on Form 8-K,  dated  November 16,
          2004,  regarding a press release issued by the Company  announcing its
          2004 3rd quarter earnings.

   8.     The Company  filed a Current  Report on Form 8-K,  dated  December 17,
          2004,  regarding a press release issued by the Company announcing that
          its subsidiary,  CASI, has started the eDAM contract in Oak Ridge, TN,
          rescheduled its 2003 annual meeting date to February 8, 2005, CASI was
          awarded a one year  contract  from  Duratek  Federal  Services  in Oak
          Ridge,  TN, and the  protest of the award of the FFTF  contract to the
          GAO is ongoing.




                                       79
<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, 2005               COMMODORE APPLIED TECHNOLOGIES, INC.

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

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

<TABLE>
<CAPTION>

<S>                               <C>                                       <C>
/s/ Shelby T. Brewer              Chairman of the Board and Chief           April 15, 2005
-----------------------------     Executive Officer (principal executive
Dr. Shelby T. Brewer              officer)

/s/ James M. DeAngelis            Senior Vice President and Chief           April 15, 2005
-----------------------------     Financial Officer (principal financial
James M. DeAngelis                officer)

/s/ Bentley J. Blum               Director                                  April 15, 2005
-----------------------------
Bentley J. Blum

/s/ Frank E. Coffman              Director                                  April 15, 2005
-----------------------------
Dr. Frank E. Coffman

/s/ Paul E. Hannesson             Director                                  April 15, 2005
-----------------------------
Paul E. Hannesson

/s/ O. Mack Jones                 Director                                  April 15, 2005
-----------------------------
O. Mack Jones

/s/ Michael P. Kalleres           Director                                  April 15, 2005
-----------------------------
VADM Michael P. Kalleres

/s/ William A. Wilson             Director                                  April 15, 2005
-----------------------------
Ambassador William A. Wilson
</TABLE>

                                       80
<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  sent to its  security  holders an annual  report and proxy
material during the 2004 fiscal year.


                                       81