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, 2002

                                       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:
<TABLE>
<CAPTION>

             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. [ ]

         Non-affiliates  of the  registrant  held  shares of common  stock as of
April 9, 2003 with an  aggregate  market  value of  approximately  $1,228,371.05
(based upon the last sale price of the common stock on April 9, 2003 as reported
by the NASD Over the Counter Bulletin Board).

         As of April 9, 2003; 79,732,852 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, 2002

                                TABLE OF CONTENTS

PART 1.........................................................................2
------
   ITEM 1.  BUSINESS...........................................................2
            General............................................................2
            Soil Decontamination--Commodore Solution Technologies,
                Inc............................................................3
            Environmental Management - Commodore Advanced Sciences,
                Inc............................................................8
            Environmental Insurance Claim Resolution - Dispute
                Resolution Management, Inc....................................11
            Markets and Customers.............................................12
            Raw Materials.....................................................14
            Backlog...........................................................14
            Research and Development..........................................14
            Intellectual Property.............................................15
            Competition.......................................................15
            Environmental Regulation..........................................17
            Employees.........................................................19
   ITEM 2.  PROPERTIES........................................................19
   ITEM 3.  LEGAL PROCEEDINGS.................................................20
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............20

PART II.......................................................................21
-------
   ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                STOCKHOLDER MATTERS...........................................21
            Market Information................................................21
            Dividend Information..............................................22
            Recent Sales of Unregistered Securities...........................23
   ITEM 6. SELECTED FINANCIAL DATA............................................28
   ITEM 7.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS...........................29
            Overview..........................................................29
            Results of Operations.............................................29
            Liquidity and Capital Resources...................................33
            Net Operating Loss Carryforwards..................................37
            New Accounting Pronouncements.....................................37
            Forward Looking Statements........................................38
   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                MARKET RISK...................................................39
   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................39
   ITEM  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURE...........................39


                                       i
<PAGE>


PART III......................................................................40
   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............40
            Executive Officers and Directors..................................40
            Key Employees.....................................................42
            Board Committees..................................................43
            Compensation of Directors.........................................43
            Compliance with Section 16(a) of the Exchange Act.................44
   ITEM 11.  EXECUTIVE COMPENSATION...........................................45
            Summary Compensation..............................................45
            Stock Options.....................................................47
            Employment Agreements.............................................48
            Compensation Committee Interlocks and Insider
                Participation.................................................49
            Report of the Compensation Committee on Executive
                Compensation..................................................49
   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                AND MANAGEMENT................................................53
            Security Ownership of Certain Beneficial Owners...................53
            Security Ownership of Management..................................55
   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................57
            Organization and Capitalization of the Company....................57
            Services Agreement................................................62
   ITEM 14. CONTROLS AND PROCEDURES...........................................63

PART IV.......................................................................64
-------
   ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
                ON FORM 10-K..................................................64

SIGNATURES....................................................................74
----------

CERTIFICATIONS................................................................75
--------------

SUPPLEMENTAL INFORMATION......................................................79
------------------------

                                       ii
<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;
         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;
         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 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    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.



                                       1
<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 will focus 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;

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

         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.

                                       2
<PAGE>

         The Company currently has identified two operating segments.  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 wastes.

         Through  Dispute  Resolution  Management,   Inc.  (DRM),  a  subsidiary
acquired  August 30,  2000,  the Company  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, the Company no
longer owns an 81%  interest  in DRM.  The loss from the  disposition  of DRM is
recorded at $4,134,000 to Applied.

         The Company's loss of the DRM  subsidiary  may have a material  adverse
effect on the financial condition of the Company and its cash flow problems. 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 at
December 31, 2002.

         Additional  information  regarding  the business of each segment is set
forth  below,  and the  information  in Note  18 to the  Company's  Consolidated
Financial Statements included in this Annual Report on Form 10-K is incorporated
into this Part I by reference.

         The Company was incorporated in Delaware in March 1996. As used in this
Annual Report, and except as the context otherwise requires, the "Company" means
Commodore Applied Technologies,  Inc. and its subsidiaries,  including Commodore
Solutions,  Inc.,  Commodore CFC  Technologies,  Inc.,  and  Commodore  Advanced
Sciences, Inc. The Company's principal executive offices are located at 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

                                       3
<PAGE>

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 treatment
processes at  Envirocare,  this waste could not be treated to meet land disposal
regulation  requirements.   The  waste  stream  was  a  laboratory  mixed  waste
(radioactive)  sludge,  contaminated  with lead and high levels of RCRA  organic
compounds.  The Envirocare Study waste contained the hazardous waste codes F001,
F003,  F005,  and D008.  The  Envirocare  Study waste stream also contained high
water content,  approximately 75%. The Company successfully treated the material
such that it was suitable for land disposal. The results of the Envirocare Study
were presented to the participants of the Waste Management Conference in Tucson,
Arizona in  February  2001.  In the case of third  party  treatability  studies,
customer location processing and new patent data set construction, all tests and
processing results were verified by independent  laboratories agreed upon by the
Company and/or the respective  client.  In the case of internal  Company process
development  testing,  results  were  verified  with  Company  owned  analytical
equipment in addition to periodic independent off-site testing.

         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.

         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) 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 generated aggregate revenues of less than $900,000 from
the implementation of the SET technology since 1999.

                                       4
<PAGE>

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;

                                       5
<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.  Various  revisions to
the equipment and process  parameters are being made to the existing permit. The
revised  permit will be issued  pending the final site selection for the full or

                                       6
<PAGE>

part-time  operation  of any SET system for the  treatment  of PCB  wastes.  The
revised  permit will require the Company to fund closure costs  associated  with
the  implementation  of any SET  system for the  treatment  of PCB  wastes.  The
closure costs are calculated on a site-by-site  basis and are funded accordingly
by the Company.

         Based on currently  published lists of EPA national  operating permits,
the Company  believes  that it  possesses  the only  non-thermal  PCB  treatment
technology  for  multiple  applications  permitted  under  the  EPA's  Alternate
Destruction  Technology Program. EPA regulations  governing permitting have been
in effect for more than 15 years, and according to the latest EPA published list
of  non-thermal  destructive  processes,  only  seven  companies  have met EPA's
stringent  requirements for commercial operation.  Of these, only the Company is
permitted for the chemical  destruction of such a wide range of PCB contaminated
materials.  The EPA's Alternative  Destruction Technology Program is designed to
encourage remediation technologies as an alternative to incineration.

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


                                       7
<PAGE>
         The following  table  displays  selected  test results from  1996-2001.
These tests were conducted on limited quantities of contaminated  material,  and
there can be no assurance  that SET will be able to replicate  any of these test
results on a large-scale commercial basis or on any specific project.
<TABLE>
<CAPTION>
--------------------- ----------------------- --------------------- ------------------ ------------------
                                                                                          Destruction
                                                                     Post-Treatment       Efficiency
      Analyte             Material Type       Pre Treatment (ppm)        (ppm))               (%)
--------------------- ----------------------- --------------------- ------------------ ------------------
<S>                   <C>                     <C>                    <C>               <C>
PCB**                 Sand, clay              777                   <1.0               99.87
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Sand, silt, clay        77                    <2.0               97.41
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Sand, silt              1250                  <2.0               99.9
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB**                 Volcanic soil           102                   0.2                99.8
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Activated carbon        512                   0.93               99.8
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Solid resin             1212                  0.5                99.96
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Sludge                  32,800                1.3                99.996
--------------------- ----------------------- --------------------- ------------------ ------------------
Dioxin                Sludge                  .04                   ND                 99.99
--------------------- ----------------------- --------------------- ------------------ ------------------
DDD                   Clay                    15                    <0.02              99.87
--------------------- ----------------------- --------------------- ------------------ ------------------
TCE**                 Corn cob*               6,400                 <0.5               99.992
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB**                 Metal capacitors*       5.6                   <0.2               96.5
--------------------- ----------------------- --------------------- ------------------ ------------------
RDX                   Soil                    3850                  <1.0               99.98
--------------------- ----------------------- --------------------- ------------------ ------------------
TCE                   Soil*                   48,000                0.5                99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Used motor oil          23,339                <1.0               99.996
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Transformer oil         509,000               20*                99.996
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Mineral oil             5000                  <0.5               99.99
--------------------- ----------------------- --------------------- ------------------ ------------------
PCB                   Hexane                  100,000               0.5                99.995
--------------------- ----------------------- --------------------- ------------------ ------------------
Freon 113**           Aqueous sludge*         276                   ND                 99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
TCE**                 Aqueous sludge*         262                   ND                 99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
CCl4**                Oil*                    200,000               <0.5               99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
R 23                  Refrigerant             999,999               ND                 99.99
--------------------- ----------------------- --------------------- ------------------ ------------------
Dioxin                Oil                     0.4                   .000002            99.99
--------------------- ----------------------- --------------------- ------------------ ------------------
Malathion             Oil                     900,000               ND                 99.999
--------------------- ----------------------- --------------------- ------------------ ------------------
</TABLE>

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


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

                                       8
<PAGE>

technologies and innovative skills related to the identification, investigation,
remediation  and management of hazardous,  mixed and  radiological  waste sites.
Advanced  Sciences  currently  operates a network of six offices located in four
states, with its principal executive offices located in Albuquerque, New Mexico.

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

Services

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

         Remediation  Services.  Having already established a 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
Environmental Services, which owns 14.20% of the Company.  Advanced Sciences has
also retained what it believes are among the most qualified professionals in the
environmental   consulting   business.   Advanced   Sciences'   scientists  have
participated on national boards for risk assessment and quality assurance,  were
instrumental in the development of environmental regulations for the 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.

                                       9
<PAGE>

Contracts

         Parsons  Infrastructure and Technology Group,  Inc.:  Advanced Sciences
provides two to three  engineering  personnel  on a time and  material  basis to
Parsons who supports BWXT,  the operating and  management  contractor at the Y12
facility  in Oak Ridge,  TN. The time and  material  contract  remains  on-going
through 2003.  Advanced  Sciences  provides general  engineering,  draftsmen and
maintenance of engineering drawings for the Y12 facility management group.

         Accelerated  Systems,  Inc.: Advanced Sciences provides one engineering
personnel on a time and material basis to  Accelerated,  supporting  Kaiser-Hill
Company,  LLC  (Kaiser-Hill) in the archiving of engineering,  documentation and
records for the Rocky Flats Environmental Technology Site (RFETS) in Denver, CO.
The time and material contract remains on-going through 2003.

         UT Battelle:  Advanced Sciences provides one engineering personnel 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 2003.

         American  Ecology  Recycle Center (AERC):  Advanced  Sciences  provides
waste  treatment  services  utilizing  the SET  technology  to  AERC.  Equipment
operators  are  provided  on a fixed  unit  rate  based on  pounds  of  material
processed. This fixed unit rate contract remains open through 2003.

         Denver  Regional  Water Council of  Governments:  Advanced  Sciences is
contracted  annually to sample surface waters,  streams,  groundwater  wells and
watersheds  to  Chatfield  damn located  southwest  of Denver.  The contract was
completed in December  2002.  The contract is subject to re-bid for awardment in
February 2003.

         Rocky Flats Environmental  Technology Site (RFETS) Contracts:  Advanced
Sciences had two contract vehicles at RFETS: (i) servicing  Kaiser-Hill  Company
LLC (Kaiser-Hill),  prime integrating and management  responsible for cleanup of
RFETS; and (ii) a lower-tier subcontract with Accelerated Systems LLC. Under its
fixed unit rate type subcontract with Kaiser Hill, Advanced Sciences provided 20
personnel  who  sampled  surface  water or soils,  collected  SDWA and  bioassay
samples  in  radiological   controlled   areas,   and  shipped  the  samples  to
Kaiser-Hill's  laboratories.  Advanced Sciences also provided engineering design
and  documentation  support  services to Kaiser Hill under a time and  materials
type task order executed via its Basic Ordering Agreement (BOA) with Accelerated
Systems.  The RFETS contract expired  September 30, 2002.  Advanced Sciences was
unsuccessful in its attempts to re-bid a multi-year extension to the RFETS.

         Tetra Tech  Contract:  Advanced  Sciences has  completed  its five-year
subcontract under Tetra Tech's general engineering support contract with Bechtel
Jacobs Co, LLC. Bechtel Jacobs is responsible for environmental oversight of the
U.S. DOE's Oak Ridge,  TN site.  Advanced  Sciences  provided 1 to 3 engineering
personnel on a time and material basis to Tetra Tech on a contract basis through
September  2002.  This  contract  remains open but has not been  utilized by the
client since September 2002.

                                       10
<PAGE>

         General Services  Administration  Contract:  In January 2000,  Advanced
Sciences  was  awarded  a 5-year  contract  for  environmental  and  engineering
services by the GSA's Federal Supply  Service.  Work is performed by task orders
not to exceed a $15  million  contract  ceiling.  GSA's  needs were  diverted to
facility  security  and Anthrax  sampling  due to the events of September 11 and
beyond  causing  Advanced  Sciences its expected  backlog of $2 million  through
December 2003. The environmental  advisory services contract includes  providing
expertise in the areas of  environmental  planning  services and  documentation,
environmental compliance services, environmental/occupational training services,
and waste management  services.  To date Advanced Sciences has not performed any
billable services under this contract.

         American Technologies  Incorporated (ATI) Contract:  Advanced Sciences,
under  a fixed  price  type  subcontract  with a  three-year  base  period,  was
providing  facility  maintenance,   surveillance  and  inspection  services  for
American  Technologies,  Inc.  (ATI) in support of Bechtel Jacobs Company at the
East Tennessee  Technology Park (ETTP) at Oak Ridge, TN. The contract expired in
April 2002.


ENVIRONMENTAL INSURANCE CLAIM RESOLUTION-DISPUTE RESOLUTION MANAGEMENT, INC.

         The Company,  through DRM, which was disposed of May 16, 2002, provided
guidance to an  environmentally  impacted Company through the strategic tactical
and implementation issues that are inherent to an insurance recovery effort.

         DRM  was  founded  as  a  division  of  the  KPMG  Peat  Marwick,   LLP
Environmental Management Group in 1994 and purchased by the principals of DRM in
December  1996.  The  Company  purchased  81% of DRM on  August  30,  2000.  The
principals of DRM retained the remaining 19%.

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

         The Company  discontinued  the  operations of its  previously 81% owned
subsidiary,  DRM, on May 16, 2002 as a result of the Company's inability to meet
the terms and conditions of the Stock Purchase Agreement with DRM. The loss from
the  disposition of DRM is recorded at $4,134,000 to the Company.  The Company's
consolidated  financial  statements  include the discontinued  operations of DRM
since August 30, 2000 to May 16, 2002.

                                       11
<PAGE>

Joint Ventures

         Teledyne   Environmental  Joint  Venture.  In  August  1996,  Commodore
Government  Environmental  Technologies,  Inc.  ("Government  Technologies"),  a
wholly-owned  subsidiary of the Company,  entered into a joint venture agreement
with Teledyne Environmental,  Inc. ("Teledyne  Environmental"),  a subsidiary of
Allegheny Teledyne,  Inc., as the exclusive means by which each party (and their
affiliates) would pursue the chemical weapons  destruction and  demilitarization
market  on a  worldwide  basis.  The  purpose  of the  joint  venture,  known as
Teledyne-Commodore,  LLC (the  "LLC"),  a Delaware  limited  liability  company,
encompassed all phases of chemical weapons  demilitarization  including  design,
engineering,  field  work,  ordinance  and  residue  (heel)  neutralization  and
demilitarization,  disposal and  reclamation  through the use,  application  and
commercialization  of the SET process. The LLC's SET process and the ammonia jet
cutting system was unable to compete successfully in the Army's ACWA program.

         Government  Technologies and Teledyne  Environmental  each owned 50% of
the equity, profit and losses of the LLC. Teledyne Environmental and the Company
agreed to cease the operations of and dissolve their  Teledyne-Commodore  LLC as
of October 22, 2001.  There have been no operations  since October 22, 2001. The
companies have not ruled out further collaboration in the future with respect to
demilitarization  of chemical  weapons.  Under the  dissolution  agreement,  the
Company obtained,  from the LLC,  equipment used by the LLC and the intellectual
property  rights of the  relevant  technologies  it  licensed to the LLC as they
applied to chemical  weapons  destruction.  The Company has valued the equipment
obtained  from the LLC on our current  financial  statements at a net book value
($30,000) at the time of dissolution.

         Nuvotec,  Inc.,  Joint  Venture.  In April 2002,  Commodore  Government
Environmental  Technologies,  Inc. ("Government  Technologies"),  a wholly-owned
subsidiary of the Company, entered into a LLC agreement with Technical Resources
International,  Inc., ("TRI"), a wholly owned subsidiary of Nuvotec,  Inc., as a
non-exclusive  means by which each party (and their  affiliates)  may pursue the
mixed  waste  treatment  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,  encompasses  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.  As of
December 31, 2002 there has been no activity in the joint venture.

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. 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, 2002,  sales of  approximately  7% of the Company's

                                       12
<PAGE>

environmental  management services were to private sector customers and sales of
approximately 93% 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 2002,
Advanced  Sciences' Rocky Flats  Contracts,  Oak Ridge  Contracts,  and the AERC
Contract  accounted  for  approximately  72%,  21% and 7%,  respectively  of the
Advanced   Sciences'  sales.  The  Company  has  benefited  from  its  long-term
relationships  with many of its customers that result in a significant amount of
repeat business.

Soil Decontamination

         The  Company   anticipates  that  the  initial  market  for  commercial
applications  of SET  will be the  hazardous  and  mixed  waste  and  industrial
by-products treatment and disposal market. Mixed waste is material that contains
both a hazardous and radioactive component. The most common methods of treatment
and disposal of hazardous wastes and industrial by-products include landfilling,
chemical  and  biological  treatment  and  incineration.  Most  of  the  current
treatment and disposal methods entail air pollution and transportation risks. In
a mixed waste,  both hazardous and nuclear  regulations  apply,  making disposal
difficult,  if not  impossible.  Currently,  there 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 and
the  WCS  Fixed  Facility  Processing  Contract.  The  SET  process  provides  a
significant  advantage by allowing the processed material to be disposed of as a
non-mixed waste by destroying the hazardous component.

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


                                       13
<PAGE>

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.  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,  2002,  total  potential  backlog for the Company was
approximately  $1,200,000  as  compared  with  approximately  $11,000,000  as of
December 31, 2001.  Approximately  $300,000 of the total backlog represents work
for which the Company has entered into a signed agreement or purchase order with
respect  thereto or has received an order to proceed with work up to a specified
dollar amount.  The remaining backlog of approximately  $900,000  represents the
Company's current estimate of work, for which the Company has been notified that
it has  been  chosen  for a  project  but  where a  contract  has  not yet  been
finalized,  options  that  have  yet  to be  formally  exercised,  proposals  in
evaluation  by  our  customers  or  new  bids.   The  Company   estimates   that
approximately  $360,000  of the  total  backlog  represents  work  that  will be
completed in the next 12 months.  Backlog amounts have historically  resulted in
revenues;  however,  no  assurance  can be given that all  amounts  included  in
backlog will  ultimately  be realized,  even if covered by written  contracts or
work orders.


RESEARCH AND DEVELOPMENT

         Research and  development  activities are ongoing and utilize  internal
technical staff, as well as independent  consultants retained by the Company and
its  subsidiaries.  All such  activities  are  company-sponsored.  Research  and
development  expenditures  for the Company and its  subsidiaries  were $297,000,
$423,000,  and  $993,000 for the years ended  December  31, 2002,  2001 and 2000
respectively.

                                       14
<PAGE>

INTELLECTUAL PROPERTY

         The Company  currently  has  twenty-three  (23) issued U.S. and foreign
patents.  Additionally,  the Company  has  twenty-one  (21) 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 13.87 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 initial market for commercial private
sector  applications  of SET will be the hazardous and  non-hazardous  waste and
industrial by-products treatment and disposal market. Several large domestic and
international  companies  and  numerous  small  companies,  many  of  whom  have
substantially   greater   financial  and  other   resources  than  the  Company,
characterize this market.  The Company primarily competes in the hazardous waste
treatment market in the U.S., a market valued at over $3.7 billion for 2003. The
top ten  competitors  in this market account for over 70 percent of the revenues
for this market sector.  The dominant  companies in this sector include URS, The
IT Group,  Inc., Tetra Tech, Inc. and CH2M Hill, Inc. The Company's revenues for
2002 account for less than 1 percent of the dollar volume of the hazardous waste
market.  Although the Company  believes  that it possesses  the only  Nationwide
Permit for  destroying  PCBs,  any one or more of the Company's  competitors  or
other  enterprises  not  presently  known  may  develop  technologies  which are
superior to the  technologies  utilized by the  Company.  To the extent that the

                                       15
<PAGE>

Company's  competitors are able to offer comparable  services at lower prices or
of  higher  quality,  or  more  cost-effective  remediation  alternatives,   the
Company's ability to compete effectively could be adversely affected.

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

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

Environmental Management

         Advanced Sciences has been primarily engaged in providing environmental
engineering  and  scientific   support  services  to  United  States  government
agencies,  such as the DOE and DOD.  Based on market  data  compiled by Advanced
Sciences,  the largest  market for  environmental  services  today is the United
States  government,  which is  expected  to  continue  its  spending  level  for
environmental services at approximately $10 to $11 billion for 2003. The DOE and
DOD are expected to account for approximately 66% of such expenditures. Advanced
Sciences currently occupies a position in the waste management and environmental
services  arena by virtue of its long-term  record for  providing  environmental
services to the United States government.

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

         In  the  hazardous  waste   management   market,   Advanced   Sciences'
competitors  include such firms as Roy F. Weston,  Jacobs  Engineering,  Science
Applications  International Corp., CH2M Hill and CDM. In providing environmental
impact assessment  services,  Advanced Sciences'  principal  competitors in this

                                       16
<PAGE>

market  sector  include  Tetra  Tech,  The  Earth  Technology   Corp.,  URS  and
Woodward-Clyde.  Primary factors affecting Advanced Sciences' competitiveness in
this  market  are its  ability to  continue  to  attract  and  retain  qualified
technical and professional staff with quality project performance records and to
control its costs of doing business.

         In an effort to maintain its competitive  position,  Advanced  Sciences
believes  that it has  developed  a solid  infrastructure,  acquired a qualified
professional  staff, and developed  aggressive  marketing  objectives to provide
hazardous  waste  management  and  environmental  sciences to the United  States
government and private sector  industrial  customers.  The Company  believes its
competitive  position  with the United  States  government  is  enhanced  by the
physical  proximity  of  Advanced  Sciences'  plants to DOE and DOD  sites,  its
skilled  professional  staff,  prior project  experience  with the United States
government,  numerous  existing  multi-year  contracts  with the  United  States
government, integrated services and high quality performance.

ENVIRONMENTAL REGULATION

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

         TSCA  regulates  the  manufacture,  distribution,  and sale of chemical
substances,  and  requires  testing  of new  chemicals  and new  uses  of  known
chemicals  that may  present  an  unreasonable  risk of  injury to health or the
environment.  The EPA, through TSCA, has adopted  comprehensive  regulations for
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.

                                       17
<PAGE>

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

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

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

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

         The Company  possesses a Nationwide  Permit issued by the EPA under the
Alternative  Destruction Technology Program that allows it to use SET on-site to
treat  PCB-contaminated  soils and  metallic  surfaces.  The  Nationwide  Permit
contains numerous conditions for maintaining the Nationwide Permit and there can
be no assurance that the Company will be able to comply with such  conditions to
maintain  and/or  secure  renewal of the  Nationwide  Permit.  In  addition,  if
environmental  legislation or  regulations  are amended,  or are  interpreted or
enforced differently,  the Company may be required to meet stricter standards of
operation and/or obtain additional  operating  permits or approvals.  Failure to
obtain such permits or otherwise comply with such regulatory  requirements could
have a  material  adverse  effect on the  Company  and its  operations.  Various
revisions to the equipment and process parameters are being made to the existing
permit.  The revised  permit will be issued pending the final site selection for
the full or  part-time  operation  of any SET  system for the  treatment  of PCB
wastes.  The revised  permit will  require  the  Company to fund  closure  costs
associated  with the  implementation  of any SET system for the treatment of PCB
wastes.  The closure costs are calculated on a site-by-site basis and are funded
accordingly by the Company.

                                       18
<PAGE>

EMPLOYEES

         As of December 31, 2002,  the Company  (including all of its direct and
indirect subsidiaries) had a total of 14 full-time and 5 part-time employees, of
which   approximately   15  are   engineers,   scientists,   lawyers  and  other
professionals.  None of such  employees  are  covered by  collective  bargaining
agreements  and the  Company's  relations  with its employees are believed to be
good.


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

         The Company's  principal executive offices are located in 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 and 2003 on a rent-free
basis. The Company is charged for direct labor,  office supplies and third party
vendor  services  that the Company  generates in its  activities in the New York
City  offices.  Also,  the Company  provides  director and officer  insurance to
Environmental  and Separation under its policy at no charge to Environmental and
Separation.

         In addition to the New York, New York facilities, since April 2000, the
Company  has leased  approximately  1600  square  feet of space  from  Shelby T.
Brewer,  a director and executive  officer of the Company,  on a  month-to-month
basis, for a rental payment in the amount of $2300 per month.

         The Company  leases  approximately  10,800  square feet of  laboratory,
office and storage space at Kirtland Air Force Base in  Albuquerque,  New Mexico
for  rental  payments  in  the  amount  of  $3,800  per  month,  pursuant  to  a
month-to-month lease arrangement.

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

         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.



                                       19
<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, 2003, no litigation has been filed against the Company,
or any of the Company's subsidiaries with respect to this indemnification issue.
The  Company  is  currently   investigating   all  of  the  relevant  facts  and
circumstances  in  connection  with  the  Surety's  potential  claim or cause of
action. In the event that the Company is obligated to indemnify the Surety,  the
Company estimates that its liability will not exceed approximately $390,000.

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

         As of April 15, 2003, the Company and its  subsidiaries are involved in
ordinary,  routine  litigation  incidental  to the  conduct  of their  business.
Management  believes  that  none  of  this  litigation,  individually  or in the
aggregate,  is  material  to the  Company's  financial  condition  or results of
operations.


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

         The annual  meeting  for the year 2001 and 2002 will be held during the
year 2003. All  shareholders  of record as of the announced  record date will be
notified  of the meeting in a timely  manner.  All  shareholders  of record will
receive the appropriate financial and proxy materials prior to the meeting.


                                       20
<PAGE>

                                     PART II

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

MARKET INFORMATION

         On June 28,  1996,  the Company  issued  common  stock and  warrants at
initial  public  offering  prices of $6.00 per share and $0.10 per warrant.  The
Company's warrants,  previously extended from June 16, 2001, expired on June 16,
2002.  On March 6, 2003,  the Common  Stock  ceased to be quoted 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"),  where it is currently  traded  under the symbol CXII.  As of
April 15, 2003, there were 215 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
and warrants as reported on the AMEX.

                                    Common Stock                Warrants*
                                  ----------------          ----------------
                                  High         Low          High         Low
                                  ----         ---          ----         ---
Fiscal 2002
      First Quarter.............  $0.21        $0.09        $0.03        $0.01
      Second Quarter............   0.12         0.05         0.01         0.01
      Third Quarter.............   0.09         0.05         -            -
      Fourth Quarter............   0.12         0.04         -            -

Fiscal 2001
      First Quarter.............  $0.75         0.19         0.11         0.02
      Second Quarter............   0.28         0.13         0.07         0.01
      Third Quarter.............   0.17         0.06         0.03         0.01
      Fourth Quarter............   0.18         0.06         0.02         0.01

* Warrants expired on June 16, 2002

ISSUANCE OF COMMON STOCK SUBSEQUENT TO DECEMBER 31, 2002

         The Company  issued a total of  20,705,790  shares of its common  stock
during the period from January 1, 2003 to April 15,  2003,  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").


                                       21
<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, 2002, the Company had paid $134,000 in cash
dividends and the Company has accrued an additional  $772,489 in dividends.  The
Company has the option to pay the  dividends  accrued in all periods after April
30, 2000 in the Company's  common stock rather than cash. On January 9, 2002 the
Company  paid  $36,657  in  common  stock  dividends  representing  the  accrued
dividends on all of the converted  Series E Preferred  Stock shares to date. See
"Recent Sales of Unregistered  Securities -- November 1999 Private  Placement of
Series E Preferred Stock."

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

         The holders of the Company's Series F Convertible  Preferred Stock, par
value  ($0.001)  per share (the "Series F Preferred  Stock"),  are entitled to a
variable rate dividend beginning at 12% and averaging 8.15% over the term of the
securities.  Through  December  31,  2002,  the Company had paid $92,000 in cash
dividends and the Company has accrued an additional  $428,705 in dividends.  The
Company  has the  option  to pay the  dividends  accrued  in all  periods  after
September 31, 2000 in the Company's  common stock rather than cash.  During 2002
the Company  paid  $96,981 in common stock  dividends  representing  the accrued
dividends on all of the converted  Series F shares to date. See "Recent Sales of
Unregistered  Securities  -- March 2000 Private  Placement of Series F Preferred
Stock."

         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, 2002,
the Company had not paid cash  dividends  and the Company has accrued  $8,762 in
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 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.


                                       22
<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

         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 continues to provide
cash  installments  in the form of a loan to the  Company.  The Blum Loan  bears
interest at 9% per annum and has no due date at this time. The current principal
balance  of the Blum  Loan  remains  unpaid as of April  15,  2003.  See "MD&A -
Liquidity and Capital Resources."

         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
shall pay  Milford/Shaar  principal  and interest on a monthly basis in arrears.
The Milford/Shaar  Bridge Loan Notes may be prepaid at any time without penalty.
The Company  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.

         The Company  made all payments on the  Milford/Shaar  Bridge Loan Notes
until  November 13, 2001.  The Company asked for and received a  forbearance  of
payments on the  Milford/Shaar  Bridge Loan Notes from  November  13, 2001 until
August 13, 2002. 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 current principal balance of the Milford/Shaar Bridge Loan Notes
remains  unpaid as of April 15,  2003.  The Company  has not been  notified of a
default of the Milford/Shaar Bridge Loan Notes as of April 15, 2003. See "MD&A -
Liquidity and Capital Resources."

         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  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not  involving  any public  offering of  securities.  See "MD&A - Liquidity  and
Capital Resources."

         In September 2000, the Company  completed  $500,000 in financing in the
form of a loan  (the  "Brewer  Note")  from S.  Brewer  Enterprises,  Inc.  ("SB
Enterprises"),  which is owned by one of its officers and  directors,  Shelby T.
Brewer,  Chairman of the Board and Chief Executive  Officer of the Company.  The
Brewer  Note  bears a 9.75%  interest  rate,  payable  monthly,  with a  balloon
principal  payment at the end of the term. In  connection  with the Brewer Note,
the Company  issued SB  Enterprises a 2-year  warrant for 100,000  shares of the

                                       23
<PAGE>

Company's  common stock at an exercise price of $1.0625 per share.  This warrant
expired by it terms in September of 2002.  The note was due and payable on March
15, 2001. The Brewer Note was convertible into the Company's common stock at the
market price up through March 15, 2001.

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

         On December 12, 2002, SB  Enterprises  executed an Amended and Restated
Promissory Note Extension (the "Restated Brewer Note Extension"), which extended
the maturity  date of the note until  January 1, 2004.  In  connection  with the
Restated  Brewer Note  Extension,  the Company  issued SB  Enterprises  a 2-year
warrant for 1,000,000  shares of the Company's common stock at an exercise price
of $0.05 per share. On March 14, 2003, SB Enterprises issued a conversion notice
for the  remaining  principal  balance of  $250,000  plus  accrued  interest  of
$36,563.  The  conversion  price was calculated by the previous 5-day average of
the  closing  price  of the  Company's  common  stock  and  was  converted  into
13,189,842  shares.  These shares have not been issued to Mr. Brewer as of April
15, 2003. The Company  believes that this issuance of convertible debt is exempt
from the  registration  requirements  of the  Securities  Act under Section 4(2)
thereof as a transaction  not involving any public  offering of securities.  See
"MD&A - Liquidity and Capital Resources."

         In November  2000, the Company  completed  $500,000 in financing in the
form of a loan (the "Weiss Group Note") from a group of four investors;  $75,000
of which was borrowed from the son of Paul E.  Hannesson,  our former  President
and Chief Executive  Officer,  and $25,000 of which was borrowed from Stephen A.
Weiss,  a  shareholder  of  Greenberg  Traurig,  LLP, our former  corporate  and
securities  counsel.  The Weiss Group Note bears interest at 12% per annum,  was
due and payable on February  12, 2001,  and is secured by the first  $500,000 of
loans or dividends that the Company may receive from DRM. As  consideration  for
such loan,  Environmental,  one of the Company's  principal  stockholders owning
approximately 14.20% of the Company's common stock, transferred to the investors
a total of 1,000,000  shares of the Company's  common stock.  All holders of the
Weiss Group Note have granted payment extensions until January 1, 2004.

         Effective  April 16,  2001,  the Company  issued  two-year  warrants to
purchase  1,000,000 shares of its common stock at an exercise price of $0.22 per
share (the  closing  price of our common  stock on the AMEX on such date) to all
holders of the Weiss Group Note in  consideration  of the  extension  of the due
date of such loans by such persons from February 12, 2001 to June 30, 2001.  The
Company   believes  that  this  transaction  is  exempt  from  the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.

         Effective  January 24, 2002,  the Company  issued  warrants to purchase
500,000  shares of its common stock at an exercise price of $0.15 per share (the
closing  price of our common  stock on the AMEX on such date) to all  holders of

                                       24
<PAGE>

the Weiss Group Note in  consideration  of the extension of the due date of such
loans by such persons from June 30, 2001 to May 31, 2002.  The Company  believes
that  this  transaction  is exempt  from the  registration  requirements  of the
Securities  Act under  Section 4(2) thereof as a  transaction  not involving any
public offering of securities. See "MD&A - Liquidity and Capital Resources."

         Effective  October  29,  2002,  the  members  of the Weiss  Group  Note
voluntarily  cancelled all issued  warrants to purchase  1,000,000  shares at an
exercise  price of $0.22 per share of the  Company's  common stock in connection
with the Weiss Group Note.  Effective October 29, 2002, the members of the Weiss
Group Note voluntarily  cancelled all issued warrants to purchase 500,000 shares
at an  exercise  price  of $0.15  per  share of the  Company's  common  stock in
connection with the Weiss Group Note.

         Effective  October 29, 2002,  the Company issued  two-year  warrants to
purchase  1,500,000 shares of its common stock at an exercise price of $0.05 per
share (the  closing  price of our common  stock on the AMEX on such date) to all
holders of the Weiss Group Note in  consideration  of the  extension  of the due
date of such loans by such  persons  from May 31,  2002 to January 1, 2004.  The
Company   believes  that  this  transaction  is  exempt  from  the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not  involving  any public  offering of  securities.  See "MD&A - Liquidity  and
Capital Resources."

May 2002 Settlement Agreement Issuance of Series H Preferred Stock

         On August 30, 2000,  Applied completed a stock purchase  agreement with
Dispute Resolution Management,  Inc. (DRM) and its two shareholders,  William J.
Russell ("Russell") and Tamie B. Speciale ("Speciale").

         On May 16, 2002, a Notice of Default and Right to Pursue  Remedies (the
"Notice")  was issued to the Company by William J. Russell and Tamie B. Speciale
(the  "Pledgees")  claiming  that the  Company  is in  default  under  the Stock
Purchase  Agreement  (the  "Agreement"),  between  the  Company  and DRM and the
related Stock Pledge  Agreement  (the "Stock  Pledge").  As of May 16, 2002, the
Company no longer owns an 81% interest in DRM.

         On August 19, 2002,  the Company  entered  into a settlement  agreement
with DRM (the "DRM  Settlement  Agreement").  Under terms of the DRM  Settlement
Agreement,  the  Company  acknowledged  that  it had  previously  received  back
4,750,000 shares of its common stock from DRM and its  shareholders.  As part of
the DRM  Settlement  Agreement,  the Company  received an  additional  1,187,500
shares of its common stock from DRM and its shareholders.

         Additionally,  the Company  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 $1.00 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:

                                       25
<PAGE>

         a)   The conversion feature shall be exercisable on 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 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 the Company's fiscal year, at the Company's election.

         e)   The Series H Preferred shall not be transferable.


March 2000 Private Placement of Series F Preferred Stock

         On March  20,  2000,  the  Company  completed  a $2.0  million  private
placement  financing  with The Shaar Fund Ltd.  The Company  issued to The Shaar
Fund 226,700 shares of a newly authorized  Series F Convertible  Preferred Stock
(the "Series F  Convertible"),  convertible  into the Company's common stock, at
any  time  after  September  31,  2000,  for a  conversion  price  equal  to the
arithmetic mean of the closing prices of the Company's  common stock as reported
on the  AMEX  for  the  ten  trading  days  immediately  preceding  the  date of
conversion so long as the Company's common stock continues to trade on the AMEX.
In May 2003,  the  Series F  Convertible  will  automatically  convert  into the
Company's  common stock at a conversion  price calculated in accordance with the
above conversion formula plus any accrued and unpaid dividends.

         The Series F Convertible  has a variable rate dividend  averaging 8.15%
over the term of the securities. The Company reserved the right to redeem all of
the  Series F  Convertible  on or before  September  30,  2000 by payment to the
holders of the  shares of the  Series F  Convertible  of $2.3  million  plus any
accrued and unpaid  dividends.  Depending upon the market price of the Company's
common stock at the time of  conversion,  the issuance of the  Company's  common
stock upon  conversion of the Series F Convertible may be subject to shareholder
approval.  In  addition,  the  Company  issued  to The Shaar  Fund a warrant  to
purchase  up to  226,500  shares  of the  Company's  common  stock  (subject  to
adjustment) at a purchase price of $1.94 per share. The warrant expires on March
20, 2005.  The Company also issued to Avalon  Research  Group Inc., as finder in
this  transaction,  a five-year  warrant to purchase up to 250,000 shares of the
Company's  common stock (subject to adjustment) at a purchase price of $1.94 per
share.  The Company also paid Avalon a "finder's  fee" in the amount of $200,000
for this transaction.

                                       26
<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  purchasing  any  securities,  to ask  questions  of, and
receive  answers from,  the Company  concerning  the terms and conditions of the
transaction and to obtain  additional  relevant  information  about the Company.
Based upon the facts above,  the Company  believed this transaction to be exempt
from the registration  requirements of the Securities Act in reliance on Section
4 (2) thereof as a transaction not involving any public offering of securities.

November 1999 Private Placement of Series E Preferred Stock

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

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

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


                                       27
<PAGE>

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

         The following table presents selected financial data of the Company, as
of December 31, 2002,  2001,  2000, 1999, and 1998 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>

                                       1998           1999           2000            2001           2002
                                    -----------    -----------   -----------     -----------    -----------
<S>                                 <C>            <C>           <C>             <C>            <C>
Revenue:
    Contract revenue..............  $    17,470    $ 1   8,147   $    17,057     $     4,590    $     3,710
Cost of sales:
    Cost of sales.................       15,421         16,127        14,452           3,369          2,108
    Research and development......        2,722          1,145           993             423            297
    General and administrative....        8,118          4,037         5,228           2,420          1,792
    Depreciation and amortization.        1,150            696           865             658            314
       Impairment of Machinery....           --             --            --             776             --
       Impairment of Patents......           --             --            --             627             --
       Impairment of Goodwill.....           --             --         6,586              --             --
    Minority interests............          300             --            --              --             --
                                    -----------    -----------   -----------     -----------    -----------

Loss from operations..............      (10,241)        (3,858)      (11,067)         (3,683)          (801)

    Interest income...............          337             39            57              38             --
    Interest expense..............       (1,066)          (166)         (586)           (226)          (104)
    Equity in net losses of
      subsidiary..................       (2,383)            --            --            (295)            --
                                    -----------    -----------   -----------     -----------    -----------

Loss before income taxes .........      (13,353)        (3,985)      (11,596)         (4,166)          (905)
    Income taxes..................  -----------    -----------   -----------     -----------    -----------

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

Net loss .........................      (13,353)   $    (3,985)  $   (11,441)    $    (6,554)   $    (5,972)
                                    ===========    ===========   ===========     ===========    ===========

Net loss per share-- basic and
  diluted.........................  $      (.58)   $      (.16)  $      (.34)    $      (.13)   $      (.11)
                                    ===========    ===========   ===========     ===========    ===========

Weighted  average  number of
  shares..........................       23,194         24,819        35,866          53,241         57,775
                                    ===========    ===========   ===========     ===========    ===========

Consolidated Balance Sheet Data: (in thousands)
                                       1998           1999          2000            2001            2002
                                    -----------    -----------   -----------     -----------    -----------

Cash and cash equivalents.........  $     1,777    $     1,797   $       579     $       170    $        59
Assets held for sale - DRM........           --             --        29,687          29,407             --
Total assets......................       15,617         16,047        37,473          31,200            736
Long term debt....................           --            716           221              --            431
Liabilities held for sale - DRM...           --             --        22,966          22,165             --
Total liabilities.................        3,709          6,096        29,618          29,629          5,025
Minority interests................           --             --            --              --             --
Stockholders' (deficit) equity....       11,908          9,951         7,855           1,571         (4,289)

</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.

         Applied  discontinued  the  operations  of  its  previously  81%  owned
subsidiary  DRM, on May 16, 2002 as a result of Applied's  inability to meet the
terms and conditions of the Stock Purchase Agreement with DRM. The loss from the
disposition  of DRM is recorded at $4,134,000 to Applied.  The Company's loss of
the DRM subsidiary may have a material adverse effect on the financial condition
of the  Company  and its cash flow  problems.  The  Company  currently  requires
additional cash to sustain existing  operations and to meet current  obligations
and ongoing capital  requirements.  Excluding DRM, the Company's current monthly
operating expenses exceed cash revenues by approximately $80,000.

         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.

Results of Operations

Year ended December 31, 2002 compared to Year ended December 31, 2001

         Revenues were $3,710,000 for the year ended December 31, 2002, compared
to $4,590,000  for the year ended December 31, 2001. The decrease in revenues is
due to the decreases in revenue contribution by Advanced Sciences.

                                       29
<PAGE>

         In the case of Advanced Sciences, revenues were $3,448,000 for the year
ended  December  31,  2002,  compared  to  $4,409,000  for the year ended  2001.
Revenues  in 2002  were  primarily  from  engineering  and  scientific  services
performed for the United States  government under a variety of contracts similar
to those in place in 2001.  Advanced  Sciences had two major  customers in 2002,
each of which  represents more than 10% of annual revenue.  The combined revenue
for these two  customers  was  $3,448,000  or 100% of the  Company's  total 2002
revenue. The decline in revenues at Advanced Sciences is primarily the result of
fewer contracts and overall,  less subcontract work being performed in 2002. 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  $3,080,000 for 2001 to $1,854,000 for 2002. 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  $262,000  for the year ended
December  31, 2002 as compared  with  $181,000  for the year ended  December 31,
2001. The increase is primarily due to the increase in  feasibility  studies and
commercial processing. Revenues in 2002 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  $262,000 or 100% of the  Solution's  total 2002  revenue.  The  increase in
revenues at  Solution is  primarily  the result of more  subcontract  work being
performed in 2002.  Cost of sales was  $254,000 for the year ended  December 31,
2002 as compared to $289,000 for the year ended  December 31, 2001. The decrease
in cost of sales is attributable  to lower sales and marketing  expenses for the
SET technology.  Anticipated losses on engagements, if any, will be provided for
by a charge to income during the period such losses are first identified.

         For the year ended December 31, 2002, the Company incurred research and
development  costs of  $297,000,  as  compared  to  $423,000  for the year ended
December 31, 2001. 100% of the research and development  costs are  attributable
to the  operations  of Solution.  In 2002,  the Company  invested  more money in
capital  expenditures and less in laboratory work and consultants than it had in
2001.  Advanced  Sciences did not incur  research and  development  costs in the
years 2001 and 2002.

         General and  administrative  expenses  for the year ended  December 31,
2002 were  $1,792,000 as compared to $2,420,000  for the year ended December 31,
2001. This decrease  reflects the impact of some of the  restructuring  steps in
the Company throughout 2002.

         In the case of  Advanced  Sciences,  general and  administrative  costs
decreased  from  $1,219,000 for the year ended December 31, 2001 to $754,000 for
the year ended  December 31,  2002.  This  decrease  reflects the impact of some
restructuring steps in Advanced Sciences  (including  principally a reduction in
personnel)  the Company  made  throughout  2002 due to the  inability to replace
certain completed contracts.  Solution incurred general and administrative costs
of $203,000 for the year ended  December 31, 2002 as compared  with $313,000 for

                                       30
<PAGE>

the year ended  December 31, 2001.  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 2003.

         The  decrease  in  interest  expense of  $122,000  from 2001 to 2002 is
primarily  related to lower,  amortized  non-cash interest costs associated with
the Brewer Note,  Milford/Shaar  and the Weiss Group Note and lower  balances on
the Company's receivable financing line of credit.

         The loss from  discontinued  operations is  approximately  $933,000 and
$2,388,000  for the years ended  December 31, 2002 and 2001,  respectively.  The
difference  results  primarily  from the  estimated  loss on  disposal of DRM of
approximately $4,134,000.  The remaining difference is the result of the reduced
retainers paid by DRM's current  customers and the lack of material  settlements
on their existing client agreements.

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

         Revenues were $4,590,000 for the year ended December 31, 2001, compared
to $17,057,000 for the year ended December 31, 2000. The decrease in revenues is
due to the decreases in revenue contribution by Advanced Sciences.

         In the case of Advanced Sciences, revenues were $4,409,000 for the year
ended  December  31,  2001,  compared  to  $16,786,000  for the year ended 2000.
Revenues  in 2001  were  primarily  from  engineering  and  scientific  services
performed for the United States  government under a variety of contracts similar
to those in place in 2000.  Advanced  Sciences had two major  customers in 2001,
each of which  represents more than 10% of annual revenue.  The combined revenue
for these two  customers  was  $4,409,000  or 100% of the  Company's  total 2001
revenue. The decline in revenues at Advanced Sciences is primarily the result of
fewer contracts and overall,  less subcontract work being performed in 2001. The
government  decided to deal directly with the  subcontractor  rather than having
Advanced  Sciences  subcontract  this  work on  behalf  of the  government.  The
government took this action, as the subcontracts became too large. Cost of sales
decreased from  $13,962,000 for 2000 to $3,080,000 for 2001. A reduction in cost
of sales at Advanced  Sciences  resulted from fewer contracts and overall,  less
work performed resulting in decreased revenues.  Anticipated losses on contracts
are provided  for by a charge to income  during the period such losses are first
identified.

         In the case of  Solution,  revenues  were  $181,000  for the year ended
December  31, 2001 as compared  with  $271,000  for the year ended  December 31,
2000. The decrease is primarily due to the decrease in  feasibility  studies and
commercial processing. Revenues in 2001 were primarily from remediation services
performed for  engineering  and waste  treatment  companies in the U.S.  under a
variety of contracts. Solution has two major customers, each of which represents
more than 10% of annual  revenue.  The combined  revenue for these two customers
was  $181,000 or 100% of the  Solution's  total 2001  revenue.  The  decrease in
revenues at  Solution is  primarily  the result of less  subcontract  work being
performed in 2001.  Cost of sales was  $289,000 for the year ended  December 31,
2001 as compared to $490,000 for the year ended  December 31, 2000. The decrease
in cost of sales is attributable  to lower sales and marketing  expenses for the

                                       31
<PAGE>

SET technology.  Anticipated losses on engagements, if any, will be provided for
by a charge to income during the period such losses are first identified.

         For the year ended December 31, 2001, the Company incurred research and
development  costs of  $423,000,  as  compared  to  $993,000  for the year ended
December 31, 2000. 100% of the research and development  costs are  attributable
to the  operations  of Solution.  In 2001,  the Company  invested  more money in
capital  expenditures and less in laboratory work and consultants than it had in
2000.  Advanced  Sciences did not incur  research and  development  costs in the
years 2000 and 2001.

         General and  administrative  expenses  for the year ended  December 31,
2001 were $2,420,000,  as compared to $5,228,000 for the year ended December 31,
2000. This decrease  reflects the impact of some of the  restructuring  steps in
the Company throughout 2001.

         In the case of  Advanced  Sciences,  general and  administrative  costs
decreased from $2,355,000 for the year ended December 31, 2000 to $1,219,000 for
the year ended  December 31,  2001.  This  decrease  reflects the impact of some
restructuring steps in Advanced Sciences  (including  principally a reduction in
personnel)  the Company  made  throughout  2001 due to the  inability to replace
certain completed contracts.  Solution incurred general and administrative costs
of $313,000 for the year ended  December 31, 2001 as compared  with $504,000 for
the year ended  December 31, 2000.  This  decrease was  primarily  due to a more
narrowly focused sales and marketing effort for Solution's services.

         The  decrease  in  interest  expense of  $360,000  from 2000 to 2001 is
primarily  related to lower,  amortized  non-cash interest costs associated with
the Brewer Note, Milford/Shaar and the Weiss Group Note.

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

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

         The  gain  (loss)  from   discontinued   operations  is   approximately
$(2,388,000)  and  $155,000  for the years  ended  December  31,  2001 and 2000,
respectively.  The  difference  is the result of the reduced  retainers  paid by
DRM's customers in 2001 as compared to 2000 and the lack of material settlements
on their existing client agreements.


                                       32
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2002 and December 31, 2001  Advanced  Sciences had a $0
and  $108,000  outstanding  balance,  respectively,  on its  revolving  lines of
credit.

         The  Company's  loss of the DRM  subsidiary  effective May 16, 2002 may
have a material adverse effect on the financial condition of the Company and its
cash flow problems.  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 at December 31, 2002.

         In March 2000, the Company  completed $2.0 million in financing through
private  placement.  The  Company  issued  266,700  shares  of a  new  Series  F
Convertible Preferred Stock,  convertible into common stock at the market price,
after  September  30,  2000 and up  through  April  30,  2003 at  which  time it
automatically converts to common stock. The Series F Convertible Preferred Stock
has a variable rate dividend averaging 8.15% over the term of the security.

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

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

         On December 12, 2002, SB  Enterprises  executed an Amended and Restated
Promissory Note Extension (the "Restated Brewer Note Extension"), which extended
the maturity  date of the note until  January 1, 2004.  In  connection  with the
Restated  Brewer Note  Extension,  the Company  issued SB  Enterprises  a 2-year
warrant for 1,000,000  shares of the Company's common stock at an exercise price
of $0.05 per share. On March 14, 2003, SB Enterprises issued a conversion notice
for the  remaining  principal  balance of  $250,000  plus  accrued  interest  of
$36,563.  The  conversion  price was calculated by the previous 5-day average of
the  closing  price  of the  Company's  common  stock  and  was  converted  into
13,189,842  shares.  These shares have not been issued to Mr. Brewer as of April
15, 2003. The Company  believes that this issuance of convertible debt is exempt
from the  registration  requirements  of the  Securities  Act under Section 4(2)
thereof as a transaction not involving any public offering of securities.

                                       33
<PAGE>

         In October  2001,  ASI  refinanced  their line of credit with  Commerce
Funding  Corporation (the "Commerce  Credit Line").  The Commerce Credit Line is
not to exceed 85  percent  of  eligible  receivables  or  $1,000,000  and is due
October 2002, and  subsequently  extended  until  November  2003,  with interest
payable  monthly at prime plus 2 percent (6.75 percent as of December 31, 2002).
The Commerce  Credit Line is  collateralized  by the  receivables  of ASI and is
guaranteed by the Company.  The Commerce Credit Line contains certain  financial
covenants and restrictions  including minimum ratios that ASI must satisfy.  ASI
was in compliance  with the  covenants of the Commerce  Credit Line at April 15,
2003.

         In addition,  the Commerce  Credit Line  agreement  stipulates  that no
payments  shall  be made by ASI to the  Company  other  than  monthly  scheduled
payments of principal with respect to the $8,280,000  subordinated  indebtedness
owed  by  ASI  to  the  Company  (which  is  eliminated  in  consolidation)  and
intercompany  indebtedness not to exceed $20,000 in any month. In addition,  ASI
shall not incur  indebtedness  in excess of $25,000,  other than trade payables,
the  above  subordinated  indebtedness  and  other  contractual  obligations  to
suppliers and customers incurred in the ordinary course of business.

         In November  2000, the Company  completed  $500,000 in financing in the
form of a loan (the "Weiss Group Note") from a group of four investors;  $75,000
of which was borrowed from the son of Paul E.  Hannesson,  our former  President
and Chief Executive  Officer,  and $25,000 of which was borrowed from Stephen A.
Weiss,  a  shareholder  of  Greenberg  Traurig,  LLP, our former  corporate  and
securities  counsel.  The Weiss Group Note bears interest at 12% per annum,  was
due and payable on February  12, 2001,  and is secured by the first  $500,000 of
loans or dividends that the Company may receive from DRM. As  consideration  for
such loan,  Environmental,  one of the Company's  principal  stockholders owning
approximately 16.58% of the Company's common stock, transferred to the investors
a total of 1,000,000  shares of the Company's  common stock.  All holders of the
Weiss Group Note have granted payment extensions until January 1, 2004.

         Effective  April 16,  2001,  the  Company  issued  warrants to purchase
1,000,000  shares of its common  stock at an  exercise  price of $0.22 per share
(the closing  price of our common stock on the AMEX on such date) to all holders
of the Weiss Group Note in  consideration  of the  extension  of the due date of
such loans by such persons from February 12, 2001 to June 30, 2001.  The Company
believes that this transaction is exempt from the  registration  requirements of
the Securities Act under Section 4(2) thereof as a transaction not involving any
public offering of securities.

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

         Effective  October  29,  2002,  the  members  of the Weiss  Group  Note
voluntarily  cancelled all issued  warrants to purchase  1,000,000  shares at an
exercise  price of $0.22 per share of the  Company's  common stock in connection
with the Weiss Group Note.  Effective October 29, 2002, the members of the Weiss
Group Note voluntarily  cancelled all issued warrants to purchase 500,000 shares
at an  exercise  price  of $0.15  per  share of the  Company's  common  stock in
connection with the Weiss Group Note.

                                       34
<PAGE>

         Effective  October 29, 2002,  the Company  issued  warrants to purchase
1,500,000  shares of its common  stock at an  exercise  price of $0.05 per share
(the closing  price of our common stock on the AMEX on such date) to all holders
of the Weiss Group Note in  consideration  of the  extension  of the due date of
such loans by such  persons  from May 31,  2002 to January 1, 2004.  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 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
shall pay  Milford/Shaar  principal  and interest on a monthly basis in arrears.
The Milford/Shaar  Bridge Loan Notes may be prepaid at any time without penalty.
The Company  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.

         The Company  made all payments on the  Milford/Shaar  Bridge Loan Notes
until  November 13, 2001.  The Company asked for and received a  forbearance  of
payments on the  Milford/Shaar  Bridge Loan Notes from  November  13, 2001 until
August 13, 2002. 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 current principal balance of the Milford/Shaar Bridge Loan Notes
remains  unpaid as of April 15,  2003.  The Company  has not been  notified of a
default of the Milford/Shaar Bridge Loan Notes as of April 15, 2003.

         On October 2, 2002,  Mr.  Bentley Blum, a Director of the Company,  had
previously  loaned the Company $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  continues  to provide  cash
installments in the form of a loan to the Company.  The Blum Loan bears interest
at 9% per annum and has no due date at this time. The current  principal balance
of the Blum Loan remains unpaid as of April 15, 2003.

         On August 30, 2000,  Applied completed a stock purchase  agreement with
Dispute Resolution Management,  Inc. (DRM) and its two shareholders,  William J.
Russell ("Russell") and Tamie B. Speciale ("Speciale").

         On May 16, 2002, a Notice of Default and Right to Pursue  Remedies (the
"Notice")  was issued to the Company by William J. Russell and Tamie B. Speciale
(the  "Pledgees")  claiming  that the  Company  is in  default  under  the Stock
Purchase  Agreement  (the  "Agreement"),  between  the  Company  and DRM and the
related Stock Pledge  Agreement  (the "Stock  Pledge").  As of May 16, 2002, the
Company no longer owns an 81% interest in DRM.

         On August 19, 2002,  the Company  entered  into a settlement  agreement
with DRM (the "DRM  Settlement  Agreement").  Under terms of the DRM  Settlement
Agreement,  the  Company  acknowledged  that  it had  previously  received  back
4,750,000 shares of its common stock from DRM and its  shareholders.  As part of
the DRM  Settlement  Agreement,  the Company  received an  additional  1,187,500
shares of its common stock from DRM and its shareholders.

                                       35
<PAGE>

         Additionally,  the Company  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 $1.00 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:

         f)   The conversion feature shall be exercisable on June 30, 2003.

         g)   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.

         h)   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.

         i)   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 the Company's fiscal year, at the Company's election.

         j)   The Series H Preferred shall not be transferable.

         The financial information included in the accompanying form 10K for the
period  ending  December  31,  2002  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's loss of the DRM
subsidiary may have a material adverse effect on the financial  condition of the
Company and its cash flow problems.  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.  Because of the dissolution of DRM, it
has been reflected as Assets Held for Sale - Component DRM and Liabilities  Held
for Sale -  Component  DRM at  December  31,  2002 and 2001 and as  discontinued
operations for the years ended December 31, 2002, 2001 and 2000.

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

         For the year ended December 31, 2002,  the Company  incurred a net loss
of  $5,972,000,  as  compared  to a net loss of  $6,554,000  for the year  ended
December 31, 2001.

                                       36
<PAGE>

         As shown in the financial  statements  for the years ended December 31,
2002, 2001, and 2000, the Company incurred losses of $5,972,000,  $6,554,000 and
$11,441,000  respectively.  The Company has also  experienced  net cash  inflows
(outflows) from operating activities of ($121,000),  $965,000,  and ($2,629,000)
for the years ended December 31, 2002, 2001 and 2000  respectively.  At December
31, 2002 and 2001 the Company had working capital  (deficit) of $(4,276,000) and
$(6,368,000)  respectively.  The  decrease in the working  capital  deficit from
December 31, 2001 to December 31, 2002 is mainly due to the Company's  reduction
of accounts payable during the year ended December 31, 2002.

         As shown in the financial  statements  for the years ended December 31,
2002 and 2001 the Company had stockholders' (deficit) equity of ($4,289,000) and
$1,571,000 respectively. The Company's net decrease in stockholders' equity from
December  31, 2001 to December  31,  2002 is  primarily  due to the loss for the
period  ($5,972,000),  the majority of which ($4,134,000) is associated with the
disposal of the DRM component.

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

NET OPERATING LOSS CARRYFORWARDS

         The  Company  has net  operating  loss  carryforwards  (the  "NOLs") of
approximately  $32,000,000,  which  expire in the years 2002 through  2022.  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 June 2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations."  This  Statement  addresses  financial  accounting and
reporting for obligations  associated with the retirement of tangible long-lived
assets and the associated  asset retirement  costs.  This Statement is effective
for financial  statements issued for fiscal years beginning after June 15, 2002.
This Statement  address  financial  accounting and reporting for the disposal of
long-lived assets. Applied is currently assessing the impact of this statement.

         In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS 145,  "Rescission of FASB  Statements  No. 4, 44 and 64,  Amendment of FASB
Statement  No. 13, and  Technical  Corrections."  This  statement  requires  the
classification of gains or losses from the  extinguishments  of debt to meet the
criteria of APB Opinion No. 30  "Reporting  the Results of  Operations-Reporting
the  Effects  of  Disposal  of  a  Business,   Extraordinary   and  Unusual  and
Infrequently Occurring Events and Transactions" before they can be classified as
extraordinary  in the income  statement.  As a result,  companies  that use debt
extinguishment as part of their risk management cannot classify the gain or loss
from  that   extinguishment  as  extraordinary.   The  statement  also  requires
sale-leaseback  accounting  for certain lease  modifications  that have economic
effects similar to sale-leaseback transactions.  The Company does not expect the
adoption  of SFAS 145 to have a material  impact on its  financial  position  or
future operations.

         In June 2002, the Financial  Accounting Standards Board ("FASB") issued
SFAS 146,  "Accounting for Costs  Associated with Exit or Disposal  Activities."
This standard which is effective for exit or disposal activities initiated after
December 31, 2002,  provides new guidance on the  recognition,  measurement  and

                                       37
<PAGE>

reporting of costs  associated  with these  activities.  The  standard  requires
companies to recognize costs  associated  with exit or disposal  activities when
they are  incurred  rather  than at the date the  company  commits to an exit or
disposal plan. The adoption of SFAS 146 by the Company is not expected to have a
material impact on the financial position or future operations.

         In December 2002,  the Financial  Accounting  Standards  Board ("FASB")
issued  SFAS  148,  "Accounting  for  Stock-Based   Compensation-Transition  and
Disclosure-an  amendment of FASB  Statement No. 123," which is effective for all
fiscal years ending after December 15, 2002.  SFAS No. 148 provides  alternative
methods of transition  for a voluntary  change to the fair value based method of
accounting for  stock-based  employee  compensation  under SFAS No. 123 from the
intrinsic value based method of accounting  prescribed by Accounting  Principles
Board Opinion No. 25. SFAS 148 also changes the disclosure  requirements of SFAS
123, requiring a more prominent disclosure of pro-forma effect of the fair value
based method of accounting for  stock-based  compensation.  The adoption of SFAS
No.  148 by the  Company is not  expected  to have a  significant  impact on the
Company's financial position or future operations.

         In November 2002, FASB Interpretation No. 45,  "Guarantor's  Accounting
and Disclosure  Requirements for Guarantees,  Including Indirect  Guarantees and
Indebtedness of Others," ("FIN 45") was issued. This interpretation requires the
initial  recognition and initial  measurement,  on a prospective  basis only, of
guarantees  issued or modified  after December 31, 2002.  Additionally,  certain
disclosure  requirements  are effective for  financial  statements  ending after
December 15, 2002. The  disclosures  required of us by FIN 45 in its fiscal 2002
consolidated  financial  statements  are in note 13. We do not believe  that the
adoption  of this  interpretation  in 2003  will have a  material  impact on our
consolidated financial statements.

         In January 2003, the FASB issued  Interpretation No. 46,  Consolidation
of Variable  Interest  Ethics (FIN No. 46),  which  addresses  consolidation  by
business  enterprises of variable  interest  entities.  FIN No. 46 clarifies the
application  of  Accounting  Research  Bulletin No. 51,  Consolidated  Financial
Statements,  to  certain  entities  in which  equity  investors  do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated   financial  support  from  other  parties.   FIN  No.  46  applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable  interest entities in which an enterprise holds a variable
interest that it acquired  before  February 1, 2003.  Applied does not expect to
identify any variable interest entities that must be consolidated.  In the event
a  variable  interest  entity  is  identified,   Applied  does  not  expect  the
requirements of FIN No. 46 to have a material impact on its financial  condition
or results of operations.

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.

                                       38
<PAGE>

         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;
         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;
         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 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    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-43 of this  Annual  Report and are  incorporated  herein by
reference.


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

         None.


                                       39
<PAGE>

                                    PART III

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

EXECUTIVE OFFICERS AND DIRECTORS

         The names  and ages of the  executive  officers  and  directors  of the
Company,  and their  positions  with the  Company  as of April  15,  2003 are as
follows:

Name                           Age    Position
--------------------------------------------------------------------------------
Shelby T. Brewer, Ph.D.        66     Chairman of the Board, President and
                                      Chief Executive Officer
--------------------------------------------------------------------------------
James M. DeAngelis             42     Chief Financial and Administrative
                                      Officer, Treasurer
--------------------------------------------------------------------------------
Bentley J. Blum                61     Director
--------------------------------------------------------------------------------
Frank E. Coffman               61     Director
--------------------------------------------------------------------------------
Paul E. Hannesson              62     Director
--------------------------------------------------------------------------------
Michael P. Kalleres            63     Director
--------------------------------------------------------------------------------
William A. Wilson              88     Director
--------------------------------------------------------------------------------

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

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

                                       40
<PAGE>

interests. Mr. Blum is a principal stockholder of Environmental. Mr. Blum is the
brother-in-law of Paul E. Hannesson, a director of the Company.

         FRANK E. COFFMAN,  Ph.D.  has served as a director of the Company since
June 2002. Mr. Coffman also currently serves as Senior Vice President, Corporate
Development  Officer of Holmes & Narver.  (August 1997 - Present).  Mr.  Coffman
served  as  Senior  Vice  President,   Government  &  Commercial  Programs,   IT
Corporation,  from January 1995 to May 1997 and as Vice President,  Government &
Commercial  Programs,  IT  Corporation  from 1984 to 1995. 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. Mr. Coffman served as Chief of the Energy
Research Development Agency, Fusion Systems and Applications Studies Branch from
1970 to 1975. Mr. Coffman serves on the Board of Directors of Holmes and Narver.
Mr.  Coffman  holds a Ph.D.  in nuclear  physics  and a Master of Arts degree in
plasma  physics from  Vanderbilt  University.  Mr.  Coffman  holds a Bachelor of
Science degree in physics from Western Kentucky University.

         James M.  dEAngelis  has served as a director of the Company since June
2002. Mr.  DeAngelis was appointed Vice  President-Finance  and Treasurer of the
Company in July 1998 and was  promoted  to Chief  Financial  and  Administrative
Officer and Secretary in December 1998. Mr.  DeAngelis has also served as Senior
Vice  President-Sales  & Marketing of Separation  since July 1996,  after having
served as its Vice  President-Marketing  since November 1995. Mr.  DeAngelis has
also served as the  President of CFC  Technologies  since  September  1994,  and
served as Vice  President-Marketing  of  Environmental  from  September  1992 to
September 1995. Mr. DeAngelis holds a Masters in Business  Administration degree
from the American  Graduate School of  International  Management.  Mr. DeAngelis
holds Bachelor of Science  degrees in Biology and Physiology from the University
of Connecticut.

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

         Vice Admiral MICHAEL P. KALLERES, USN (Ret) has served as a director of
the Company since June 2002. VADM Kalleres currently serves as President of Dare
to Excel Inc. (1998 to present). He also served as President and Chief Executive
Officer of Global Associates, Ltd., Technology Services Group from 1994 to 1998.
VADM  Kalleres  retired from active duty in  September  1994 after 32 years as a

                                       41
<PAGE>

naval officer.  His last assignment was as Commander,  Military Sealift Command,
an organization of over 8,000 people, from which he successfully operated nearly
150  maritime  vessels and 27 offices  worldwide.  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. He is also a
Distinguished  Graduate  of the U.S.  Naval War  College  and a graduate  of the
National  War  College.  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.  Vice Admiral  Kalleres was awarded a Bachelor of Science Degree
in  Industrial   Management  and   Engineering   from  the  Krannert  School  of
Management-Purdue  University,  and a Master of Science  Degree in Political and
International Affairs from George Washington University.

         WILLIAM A. WILSON  (Ambassador) has served as a director of the Company
since  June  2002.  Mr.  Wilson  has been  active in  ranching  and  farming  in
California  and Mexico from 1980 to the present.  Mr.  Wilson was active in real
estate  development  in California  from 1961 through 1980. Mr. Wilson served as
Chief  Engineer of Wilson Oil Tools from 1938 through 1955 and as Chairman  from
1955 to 1961 when the  company  was sold to Joy  Manufacturing,  Co. 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.  Mr. Wilson is a Trustee of Saint
John's  Hospital and a member of the Knights of Malta.  Mr. Wilson served on the
Board of Directors of Jorgensen  Steel Co. from 1973 to 1984 and again from 1986
to 1991.  Mr.  Wilson also served on the Board of Directors of Pennzoil  Company
from  1983 to  1987.  Mr.  Wilson  holds a  Stanford  University  BA  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,  2002,  are as
follows:

Name                       Age        Position
----                       ---        --------
O. Mack Jones              62         President of Advanced Sciences

         O. Mack Jones has been serving as Acting President of Advanced Sciences
since  February  2001.  Mr.  Jones  also has served as Vice  President  of Field
Operations  since  April  1998,  managing  its field  treatability  studies  and
commercial projects.  On February 28, 2001, Mr. Jones was appointed President of
Advanced  Sciences.  Mr. Jones  served as a consultant  to the Company from June
1996 to April 1998, assisting in the  commercialization of the solvated electron

                                       42
<PAGE>

technology.  From  September  1994 to May 1996,  he served  as a  consultant  to
Environmental  assisting in the development of the solvated electron technology.
From 1991 to May 1996,  Mr. Jones served as the founder and principal  executive
officer of an environmental  consulting company,  Florida Vector Services, which
provided  both  consulting  and  hands-on   remediation  services  primarily  in
TSCA-related  areas. From 1986 to 1991, Mr. Jones was Vice  President-Operations
with Quadrex  Environmental  Company,  managing the company's field  remediation
businesses.  Mr. Jones is a  professional  mechanical  engineer who held several
managerial  operating  positions in power  generation  and  distribution  arenas
during  his  twenty-six  years of  service  to  General  Electric  Company.  His
experience includes commercial nuclear, fossil, and hydro power construction and
maintenance,  industrial  power  delivery  systems,  and  industrial  drives and
controls.

BOARD COMMITTEES

         The Company's  Board of Directors has (i) an Audit Committee and (ii) a
Compensation,  Stock  Option  and  Benefits  Committee.  The  Company  no longer
maintains an Executive  and Finance  Committee  (the  "Finance  Committee").  On
August 30, 2000, the Board of Directors unanimously voted to abolish the Finance
Committee and  determined  that the entire Board of Directors  would perform its
function.

         As of December 31, 2002, the Audit Committee was composed of Michael P.
Kalleres  as  Chairman,  Frank  E.  Coffman,  William  A.  Wilson  and  James M.
DeAngelis.  The  responsibilities of the Audit Committee include recommending to
the Board of Directors the firm of independent accountants to be retained by the
Company,  reviewing  with the Company's  independent  accountants  the scope and
results  of  their  audits,  reviewing  with  the  independent  accountants  and
management  the  Company's  accounting  and reporting  principles,  policies and
practices, as well as the Company's accounting, financial and operating controls
and staff,  supervising the Company's  policies relating to business conduct and
dealing  with  conflicts of interest  relating to officers and  directors of the
Company.

         As of December 31, 2002,  the  Compensation,  Stock Option and Benefits
Committee,  was composed of Frank E. Coffman, as Chairman,  Michael P. Kalleres,
William A. Wilson and 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,  and
determining the recipients, amounts and other terms (subject to the requirements
of the 1998 Stock  Option Plan) of options  which may be granted  under the 1998
Stock  Option Plan from time to time and  providing  guidance to  management  in
connection with establishing additional benefit plans.

COMPENSATION OF DIRECTORS

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

                                       43
<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  and  the  AMEX.   Such  persons  are  required  by  regulations
promulgated  under the  Exchange  Act to furnish the Company  with copies of all
Section 16(a) forms filed with the Commission.

         Based  solely  upon a review  of Forms 3 and 4 and  amendments  thereto
furnished to the Company  during the year ended  December  31, 2002,  and upon a
review of Forms 5 and amendments  thereto  furnished to the Company with respect
to the year ended December 31, 2002, or upon written representations received by
the Company from certain  reporting  persons that such persons were not required
to file Forms 5, the Company  believes  that no director,  executive  officer or
holder of more than 10% of the outstanding shares of common stock failed to file
on a timely  basis the reports  required by Section  16(a) of the  Exchange  Act
during,  or with respect to, the year ended December 31, 2002 with the exception
of a Form 4 filing inadvertently filed late for Shelby T. Brewer.



                                       44
<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 2002, 2001 and 2000 to all persons serving as
the Company's Chief Executive Officer during 2000, to each of the Company's four
most  highly  compensated  executive  officers  other  than the Chief  Executive
Officer whose total salary and bonus  compensation  exceeded $100,000 during any
such year.

                           Summary Compensation Table
<TABLE>
<CAPTION>

                                           Annual Compensation                           Long-Term Compensation
                                  ------------------------------------------------  --------------------------------------
                                                                         Other                      Securities
                                                                         Annual       Restricted       Under-       LTIP   All Other
                                                                        Compen-        Stock          Lying         Pay-    Compen-
     Name and Principal                         Salary       Bonus      sation        Award(s)       Options        outs    sation
       Position                     Year         ($)          ($)         ($)           ($)            (#)           ($)      ($)
--------------------------------  --------  --------------  -------  -------------  ------------  --------------   -------- --------
          (a)                       (b)          (c)          (d)         (e)           (g)            (g)           (h)      (i)
<S>                                 <C>      <C>              <C>         <C>            <C>    <C>                   <C>  <C>
Shelby T. Brewer, Ph.D.(1)          2002      69,677(2)       -0-         -0-            -0-     2,865,200(3)         -0-  30,000(4)
Chief Executive Officer             2001      90,317(2)       -0-         -0-            -0-       200,000(3)         -0-      -0-
                                    2000      58,707(2)       -0-         -0-            -0-       640,000(3)         -0-      -0-

Paul E. Hannesson                   2002         -0-          -0-         -0-            -0-     1,181,925(6)         -0-      -0-
Former Chief Executive Officer      2001      77,242(5)       -0-         -0-            -0-            -0-           -0-      -0-
                                    2000     358,934(5)       -0-         -0-            -0-            -0-           -0-      -0-

James M. DeAngelis(7)               2001     114,175(8)       -0-         -0-            -0-     1,841,688(9)         -0-      -0-
Senior Vice President & Chief       2000     164,368(8)       -0-         -0-            -0-       300,000(9)         -0-      -0-
Financial Officer                   1999     147,614(8)       -0-         -0-            -0-            -0-           -0-      -0-

William E. Ingram                   2002         -0-          -0-         -0-            -0-            -0-           -0-      -0-
Former Vice President &             2001      20,645(10)      -0-         -0-            -0-            -0-           -0-      -0-
Controller                          2000     147,842(10)      -0-         -0-            -0-       100,000(11)        -0-      -0-

O. Mack Jones(12)                   2002     110,019(13)      -0-         -0-            -0-     1,759,375(14)        -0-      -0-
President                           2001     134,805(13)      -0-         -0-            -0-       100,000(14)        -0-      -0-
Advanced Sciences                   2000     143,755(13)      -0-         -0-            -0-            -0-           -0-      -0-

Peter E Harrod                      2002         -0-          -0-         -0-            -0-            -0-           -0-      -0-
Former President                    2001      49,460(15)      -0-         -0-            -0-            -0-           -0-      -0-
Advanced Sciences                   2000     187,036(15)      -0-         -0-            -0-       200,000(16)        -0-      -0-
</TABLE>

                                       45
<PAGE>

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

         (2)  Represents  the amount of Mr.  Brewer's  base  salary  paid by the
              Company.  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 April 15, 2003. 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 April 15, 2003.
              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
              Shelby T. Brewer paid on behalf of Mr. Brewer by the Company.

         (5)  Represents the amount of Mr.  Hannesson's  base salary paid by the
              Company.  The Company previously recorded a liability for $344,000
              representing  amounts owed to Mr.  Hannesson  under his employment
              contract,  but deferred per agreement.  The deferred salary amount
              was used by Mr.  Hannesson  to  offset a portion  of the  exercise
              price and taxes  with  respect  to Mr.  Hannesson's  stock  option
              exercise  of 830,000  stock  options in July  2000.  See  "Certain
              Relationships and Related  Transactions--Services  Agreement." Mr.
              Hannesson was replaced by Shelby T. Brewer  effective  January 15,
              2001. Mr. Hannesson remains a director of the Company.

         (6)  Represents shares of common stock underlying stock options granted
              to Mr.  Hannesson by the Company in his capacity as an officer and
              director of the Company.  Mr. Hannesson canceled prior options for
              2,147,500 shares of common stock voluntarily on October 2, 2002

         (7)  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.

         (8)  Represents  the amount of Mr.  DeAngelis'  base salary paid by the
              Company. 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 April 15, 2003.  Mr.  DeAngelis'  total base
              salary  for 2001 was  $165,000  of which  $33,000  was  originally
              deferred  until  December 31, 2002, and remains unpaid as of April
              15,  2003.  Mr.  DeAngelis'  base  salary  for  2000  and 1999 was
              $165,000 and $145,000 respectively.

         (9)  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.

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

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

         (12) 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.

         (13) Represents  the  amount  of Mr.  Jones'  base  salary  paid by the
              Company.  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 April 15, 2003. Mr. Jones' total base salary
              for 2001 was $165,000 of which $33,000  originally  deferred until
              December 31, 2001,  and remains  unpaid as of March 25, 2002.  Mr.
              Jones' base salary for 2000 and 1999 was $150,000.

         (14) 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.

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

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

                                       46
<PAGE>

 STOCK OPTIONS

         The following table sets forth certain  information  concerning options
granted during the year ended December 31, 2002 to the individuals listed in the
Summary Compensation Table pursuant to the Company's 1998 Stock Option Plan (the
"1998 Plan") and to certain  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, 2002.
<TABLE>
<CAPTION>

                        Option Grants in Last Fiscal Year

                                Individual Grants


                                                                                                       Potential Realizable Value
                                 Number of         Percent of                                               at Assumed
                                 Securities       Total Options    Exercise of                             Annual Rates of
                                 Underlying        Granted to         Base                             Stock Price Appreciation
                                  Options         Employees in        Price        Expiration             for Option Term(6)
       Name                      Granted (#)     Fiscal Year(5)    ($/Share)         Date                5% ($)          10% ($)
----------------------------    ---------------  ---------------   -------------  --------------    ----------------------------
              (a)                   (b)                (c)            (d)             (e)                 (f)           (g)

<S>                              <C>                   <C>            <C>           <C>                   <C>           <C>
Shelby T. Brewer............     2,865,200(1)          29.10%         0.07          12/14/08              18,844        76,302

James M. DeAngelis..........     1,841,688(2)          18.70%         0.07          12/14/08              12,113        49,045

O. Mack Jones...............     1,759,375(3)          17.87%         0.07          12/14/08              11,571        46,853

Paul E. Hannesson...........     1,181,925(4)          12.00%         0.07          12/14/08               7,773        31,475

</TABLE>

         (1)  Options to purchase  865,200 shares of common stock were issued on
              October 2, 2002 as part of the 1998 Plan of which 100% vested upon
              issuance.  Additionally,  Options to purchase  2,000,000 shares of
              common  stock were  issued on October 2, 2002  outside of the 1998
              Plan of which  100%  will  vest  upon the  award of a mixed  waste
              processing contract in Hanford,  Washington to the Company.  Prior
              to the  issuance  of new  options on  October  2,  2002,  existing
              options  to  purchase   840,000   shares  of  common   stock  were
              voluntarily cancelled by the individual.

         (2)  Options to purchase  841,688 shares of common stock were issued on
              October 2, 2002 of which 100% vested upon issuance.  Additionally,
              Options to purchase  1,000,000  shares of common stock were issued
              on  October  2, 2002  outside  of the 1998 Plan of which 100% will
              vest  upon  the  award of a mixed  waste  processing  contract  in
              Hanford,  Washington to the Company.  Prior to the issuance of new
              options on October 2, 2002,  existing  options to purchase 681,250
              shares  of  common  stock  were   voluntarily   cancelled  by  the
              individual.

         (3)  Options to purchase  1,759,375  shares of common stock were issued
              on October 2, 2002 of which 100%  vested upon  issuance.  Prior to
              the issuance of new options on October 2, 2002,  existing  options
              to  purchase  437,500  shares of  common  stock  were  voluntarily
              cancelled by the individual.

         (4)  Options to purchase  1,181,925  shares of common stock were issued
              on October 2, 2002 of which 100%  vested upon  issuance.  Prior to
              the issuance of new options on October 2, 2002,  existing  options
              to  purchase  2,147,500  shares of common  stock were  voluntarily
              cancelled by the individual.

                                       47
<PAGE>

         (5)  Percentages  based on 9,847,218  stock  options  granted (the 1998
              Plan and outside the 1998 Plan) during the year ended December 31,
              2002.

         (6)  The closing price for the  Company's  common stock on December 31,
              2002 was $0.06.  The closing price is used for all the  subsequent
              stock appreciation calculations.

         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, 2002 by the individuals listed
in the Summary Compensation Table.
<TABLE>
<CAPTION>

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

                                                                                    Number of
                                                                              Securities Underlying             Value of Unexercised
                                                                               Unexercised Options              In-the-Money Options
                                           Shares             Value           at Fiscal Year-End(#)            at Fiscal Year-End($)
                                        Acquired on         Realized               Exercisable/                     Exercisable/
               Name                     Exercise (#)         ($)(1)               Un-exercisable                 Un-exercisable(2)
-----------------------------------  ------------------  ---------------  ------------------------------  -----------------------
                (a)                         (b)                (c)                     (d)                              (e)
<S>                                         <C>                <C>             <C>                                  <C>
Shelby T. Brewer................            -0-                -0-               865,200 / 2,000,000                 -0- / -0-
Paul E. Hannesson...............            -0-                -0-             1,181,925 / -0-                       -0- / -0-
James M. DeAngelis..............            -0-                -0-               841,688 / 1,000,000                 -0- / -0-
O. Mack Jones...................            -0-                -0-             1,759,375 / -0-                       -0- / -0-
</TABLE>


         (1)  Represents the difference  between the last reported sale price of
              the Common  Stock on December 31, 2002  ($0.06),  and the exercise
              price of the option ($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, 2002,  multiplied by the  applicable
              number of securities.



EMPLOYMENT AGREEMENTS

         The Company has no employment contracts.




                                       48
<PAGE>


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, 2002 were Frank E. Coffman (Chairman), Michael P. Kalleres, William
A. Wilson and 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 Frank E. Coffman (Chairman),  Michael P. Kalleres, William A. Wilson
and Shelby T. Brewer at December 31, 2002,  all of whom,  with the  exception of
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, 2002,  addressing  the  Company's
compensation  policies  for  2002  as  they  affected  the  Company's  executive
officers.

Overview and Philosophy

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

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

         o    attract, motivate and retain the highest quality executives;

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

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

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

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

                                       49
<PAGE>

         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
2001  consisted of base salary,  annual  incentive  compensation  and  long-term
incentive   compensation  in  the  form  of  stock  options.   The  Compensation
Committee's policies with respect to each of these elements, including the basis
for the  compensation  awarded to the Company's  Chief  Executive  Officer,  are
discussed below.

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

         In 2002, total compensation was paid to executives primarily based upon
individual  performance  and the  extent to which the  business  plans for their
areas of responsibility were achieved or exceeded. On balance, performance goals
were  substantially  met  or  exceeded  and  therefore   compensation  was  paid
accordingly.

         Mr. Brewer,  the Chairman of the Board,  President and Chief  Executive
Officer of the Company  received  annual  compensation  based upon,  among other
things,  individual  performance  and the extent to which the business plans for
his areas of  responsibility  were achieved or exceeded.  Mr. Brewer  received a
base salary at an annual rate of  $250,000 in 2001 and 2002,  of which  $160,000
annually was deferred until December 31, 2002 and remains unpaid as of April 15,
2003, for services rendered to the Company.

                                       50
<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 2002,
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 2001
goals and his individual  contributions  to the Company and its affiliates.  The
Compensation  Committee  concluded  that he had  achieved his 2001 goals and had
provided a  leadership  role in  achieving  the  Company's  and its  affiliates'
strategic  priorities for 2001. 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  increased  from $90,000 for 2000 to $250,000
for 2001 and 2002,  representing an increase of  approximately  277%. On January
15,  2001,  Mr.  Brewer  agreed to defer a  portion  of his base  salary  (64%),
reducing  his base salary to $90,000,  of which  $160,000  annually was deferred
until December 31, 2002 and remains unpaid as of April 15, 2003.

         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 2002, 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 9,847,218, 920,000, and 2,243,769 stock options were granted
pursuant  to the 1998  Plan in 2002,  2001  and  2000  respectively.  2,865,000,
200,000 and 640,000 of such options were granted to Mr. Brewer in 2002, 2001 and
2000 respectively,  and 4,634,238,  400,000,  and 0 of such options were granted
(in the aggregate) to other individuals named in the Summary  Compensation Table
in 2002,  2001 and 2000  respectively.  The number of stock  options  granted in
2002, 2001 and 2000 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.


                                       51
<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 2001 to the individuals listed
in the Summary Compensation Table will be fully deductible by the Company.

Conclusion

         The  Compensation  Committee  believes  that the  quality of  executive
leadership  significantly  affects the long-term  performance of the Company and
that  it is in the  best  interest  of the  stockholders  to  compensate  fairly
executive leadership for achievement meeting or exceeding the high standards set
by the  Compensation  Committee,  so long as there is a corresponding  risk when
performance  falls short of such standards.  A primary goal of the  Compensation
Committee  is to relate  compensation  to  corporate  performance.  Based on the
Company's  performance in 2002,  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

                                                    William A. Wilson (Chairman)
                                                                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.

                                       52
<PAGE>

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

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         The following table sets forth certain information,  as of December 31,
2002,  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(6)      Beneficially Owned

Commodore Environmental              8,382,302(7)                 14.20%
Services, Inc.(1)..............

Credit Agricole Deux Sevres(2).      7,743,578(8)                 13.12%

Bentley J. Blum(1).............      6,249,553(9)                 10.59%

Robert S. Goldsmith(3).........      5,000,000(10)                 8.47%

Shelby T. Brewer(4)............      4,359,313(11)                 6.98%

Tamie P. Speciale(5)...........      3,145,000(12)                 5.32%


         (1)  The address of Commodore Environmental Services, Inc., and Bentley
              J. Blum is 150 East 58th Street,  Suite 3238,  New York,  New York
              10155.

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

         (3)  The  address  of Robert  S.  Goldsmith  is 117 East  77th  Street,
              Apartment 2A, New York, New York 10021.

         (4)  The address of Shelby T. Brewer is 2151 Jamieson  Street,  Carlyle
              Towers, Suite 1607, Alexandria, Virginia 84101.

         (5)  The  address of Tamie P.  Speciale is 132 West  Pierpoint  Avenue,
              Suite 400, Salt Lake City, Utah 84101.

         (6)  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.

         (7)  Excludes warrants to purchase an aggregate of 19,188,009 shares of
              common  stock at exercise  prices  ranging from $1.42 per share to
              $2.15 per share.  See "Market for  Registrant's  Common Equity and
              Related   Stockholder   Matters--Recent   Sales  of   Unregistered
              Securities" and "Certain Relationships and Related Transactions."

         (8)  Consists of (i) 6,000,000 shares of common stock pledged to Credit
              Agricole  Deux  Sevres  from   Environmental  in  connection  with
              Environmental's  default on $4.0 million of  convertible  bonds on
              February 06, 2001; and (ii) Credit Agricole Deux Sevres'  indirect

                                       53
<PAGE>

              beneficial ownership of common stock based upon their ownership of
              16,800,000  shares of  Environmental's  common  stock  pledged  to
              Credit Agricole Deux Sevres from  Environmental in connection with
              Environmental's  default on $4.0 million of  convertible  bonds on
              February 06, 2001.

         (9)  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  Plan;  and  (iii)  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 15, 2003,  and  4,500,000  shares of  Environmental
              common  stock  underlying  currently  exercisable  stock  options,
              representing   together  41.02%  of  the  outstanding   shares  of
              Environmental.  Does not include  450,400 shares of  Environmental
              common  stock owned by Simone Blum,  the mother of Mr.  Blum,  and
              385,000 shares of Environmental common stock owned by Samuel Blum,
              the father of Mr. Blum. Mr. Blum disclaims any beneficial interest
              in the shares of  Environmental  common stock owned by his spouse,
              mother and father.

         (10) Consists of  5,000,000  shares of our common  stock  purchased  by
              Robert S. Goldsmith.

         (11) 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 1998 Plan;  and (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.

         (12) Consists of (i)  2,850,000  shares of our common  stock  issued to
              Tamie P.  Speciale and George H.  Speciale  with joint tenancy and
              rights of  survivorship,  by the  Company in  connection  with the
              dissolution  of the Company's  ownership of 81.0% of DRM; and (ii)
              340,000  shares  of  our  common  stock   underlying  a  currently
              exercisable  five year  warrant at an exercise  price of $2.00 per
              share granted to Ms. Tamie P. Speciale and George H. Speciale with
              joint  tenancy  and  rights of  survivorship,  by the  Company  in
              connection  with the  dissolution  of the  Company's  ownership of
              81.0% of DRM.


                                       54
<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT

         The following table sets forth certain  information with respect to the
beneficial  ownership  of common  stock as of April 15,  2003 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.


                                                               Percentage of
                                                                 Outstanding
                                                              Shares of Common
  Name and Address of                Number of Shares         Stock Beneficially
  Beneficial Owner(1)              Beneficially Owned(6)           Owned
--------------------------------------------------------------------------------
Commodore Environmental
Services, Inc......................       8,382,302(7)                14.20%

Credit Agricole(2) ................       7,743,578(8)                13.12%

Bentley J. Blum....................       6,249,553(9)                10.59%

Robert S. Goldsmith(3).............       5,000,000(10)                8.47%

Shelby T. Brewer, PhD(4)...........       4,359,313(11)                6.98%

Tamie P. Speciale(5)...............       3,145,000(12)                5.32%

Paul E. Hannesson..................       1,491,978(13)                4.35%

James M. DeAngelis.................       1,730,700(14)                3.16%

O. Mack Jones......................       1,708,452(15)                2.89%

Frank E. Coffman, PhD..............         139,669(16)                  *

Michael P. Kalleres, VADM..........         139,669(17)                  *

William A. Wilson..................         139,669(18)                  *

All executive officers and               17,163,864                   28.68%
Directors as a group (8 persons)...

* Percentage ownership is less than 1%.

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

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

         (3)  The  address  of Robert  S.  Goldsmith  is 117 East  77th  Street,
              Apartment 2A, New York, New York 10021.

         (4)  The address of Shelby T. Brewer is 2151 Jamieson  Street,  Carlyle
              Towers, Suite 1607, Alexandria, Virginia 84101.

         (5)  The  address of Tamie P.  Speciale is 132 West  Pierpoint  Avenue,
              Suite 400, Salt Lake City, Utah 84101.

         (6)  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.

                                       55
<PAGE>

         (7)  Excludes warrants to purchase an aggregate of 19,188,009 shares of
              common  stock at exercise  prices  ranging from $1.42 per share to
              $2.15 per share.  See "Market for  Registrant's  Common Equity and
              Related   Stockholder   Matters--Recent   Sales  of   Unregistered
              Securities" and "Certain Relationships and Related Transactions."

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

         (9)  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  Plan;  and  (iii)  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 15, 2003,  and  4,500,000  shares of  Environmental
              common  stock  underlying  currently  exercisable  stock  options,
              representing   together  41.02%  of  the  outstanding   shares  of
              Environmental.  Does not include  450,400 shares of  Environmental
              common  stock owned by Simone Blum,  the mother of Mr.  Blum,  and
              385,000 shares of Environmental common stock owned by Samuel Blum,
              the father of Mr. Blum. Mr. Blum disclaims any beneficial interest
              in the shares of  Environmental  common stock owned by his spouse,
              mother and father.

         (10) Consists of  5,000,000  shares of our common  stock  purchased  by
              Robert S. Goldsmith.

         (11) 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.  Shelby T.  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 1998 Plan;  and (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.

         (12) Consists of (i)  2,850,000  shares of our common  stock  issued to
              Tamie P.  Speciale and George H.  Speciale  with joint tenancy and
              rights of  survivorship,  by the  Company in  connection  with the
              dissolution  of the Company's  ownership of 81.0% of DRM; and (ii)
              340,000  shares  of  our  common  stock   underlying  a  currently
              exercisable  five year  warrant at an exercise  price of $2.00 per
              share granted to Ms. Tamie P. Speciale and George H. Speciale with
              joint  tenancy  and  rights of  survivorship,  by the  Company  in
              connection  with the  dissolution  of the  Company's  ownership of
              81.0% of DRM

         (13) Consists of: (i) 750,000  shares of common stock;  (ii)  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; 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

                                       56
<PAGE>

              Environmental  common  stock owned by the  Hannesson  Family Trust
              (Suzanne  Hannesson  and  John  D.  Hannesson,  trustees)  for the
              benefit  of Mr.  Hannesson's  spouse  and (c)  500,000  shares  of
              Environmental  common  stock in  exchange  for options to purchase
              950,000 shares of Environmental  common stock, issued to Hannesson
              Family  Trust,  representing  together  7.18%  of the  outstanding
              shares of Environmental common stock as of March 15, 2001, and (d)
              currently  exercisable  options  to  purchase  525,705  shares  of
              Environmental  common stock,  representing  together  7.78% of the
              outstanding shares of Environmental common stock. Does not include
              (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.

         (14) 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; and
              (iv) Mr. DeAngelis' indirect beneficial  ownership of common stock
              based upon his ownership of 580,000 shares of Environmental.

         (15) Consists of 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. (Disclose on Table)

         (16) Consists of 140,000  shares of common stock  underlying  currently
              exercisable  stock options  granted to Mr. Frank E. Coffman by the
              Company under the Company's 1998 Plan.

         (17) Consists of 140,000  shares of common stock  underlying  currently
              exercisable  stock options granted to Mr. Michael P. Kalleres VADM
              by the Company under the Company's 1998 Plan.

         (18) Consists of 140,000  shares of common stock  underlying  currently
              exercisable  stock options granted to Mr. William A. Wilson by the
              Company under the Company's 1998 Plan.

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


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

ORGANIZATION AND CAPITALIZATION OF THE COMPANY

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

         In March 1996,  the Company was formed as a wholly owned  subsidiary of
Environmental.  Prior to its IPO, in  exchange  for the  issuance of  15,000,000
shares of common stock,  Environmental contributed to the Company (i) all of the

                                       57
<PAGE>

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

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

         In December  1996,  the Company  transferred  certain of its  operating
assets related to its SET technology to Solution, subject to certain liabilities
related to such assets,  in exchange for 100 shares of common stock of Solution,
representing  all of the  issued  and  outstanding  shares of  capital  stock of
Solution.  Solution  agreed  to  assume  all of the net  assets  of the  Company
relating  to its SET  technology  at  December  1,  1996,  which  assets  had an
aggregate  value of  approximately  $4.0 million at such date,  and all known or
unknown  contingent  or  un-liquidated  liabilities  of and claims  against  the
Company  and its  subsidiaries  to the extent they relate to or arise out of the
transferred assets. The Company retained,  among other things, (a) all temporary
cash investments of the Company at December 1, 1996,  aggregating  approximately
$14.1 million, and (b) the principal executive offices and related assets of the
Company that, at the time, were located in McLean,  Virginia.  See "Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations--Liquidity and Capital Resources."

         On August 30, 2000,  Applied completed a stock purchase  agreement with
Dispute Resolution Management,  Inc. (DRM) and its two shareholders,  William J.
Russell ("Russell") and Tamie B. Speciale ("Speciale").

         On May 16, 2002, a Notice of Default and Right to Pursue  Remedies (the
"Notice")  was issued to the Company by William J. Russell and Tamie B. Speciale
(the  "Pledgees")  claiming  that the  Company  is in  default  under  the Stock
Purchase  Agreement  (the  "Agreement"),  between  the  Company  and DRM and the

                                       58
<PAGE>

related Stock Pledge  Agreement  (the "Stock  Pledge").  As of May 16, 2002, the
Company no longer owns an 81% interest in DRM.

         On August 19, 2002,  the Company  entered  into a settlement  agreement
with DRM (the "DRM  Settlement  Agreement").  Under terms of the DRM  Settlement
Agreement,  the  Company  acknowledged  that  it had  previously  received  back
4,750,000 shares of its common stock from DRM and its  shareholders.  As part of
the DRM  Settlement  Agreement,  the Company  received an  additional  1,187,500
shares of its common stock from DRM and its shareholders.

         Additionally,  the Company  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 $1.00 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 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 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 the Company's fiscal year, at the Company's election.
         e)   The Series H Preferred shall not be transferable.

         The financial information included in the accompanying form 10K for the
period  ending  December  31,  2002  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's loss of the DRM
subsidiary may have a material adverse effect on the financial  condition of the
Company and its cash flow problems.  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.  Because of the dissolution of DRM, it
has been reflected as Assets Held for Sale - Component DRM and Liabilities  Held
for Sale -  Component  DRM at  December  31,  2000 and 2001 and as  discontinued
operations for the years ended December 31, 2002, 2001 and 2000.

         On June 13,  2001,  the  Company  issued  and sold to  Milford  Capital
Management, Inc. and the Shaar Fund, Ltd. (hereinafter known as "Milford/Shaar")
one-year,  15% Senior Secured Promissory Notes (the  "Milford/Shaar  Bridge Loan
Notes") in the aggregate principal amount of $1,000,000.  In connection with the
Milford/Shaar Bridge Loan Notes, the Company issued to Milford/Shaar a five-year
warrant for 333,333 shares of the Company's common stock at an exercise price of
$0.22 per share. The Company pledged its equipment and SET related  intellectual

                                       59
<PAGE>

property as  collateral  for the  Milford/Shaar  Bridge Loan Notes.  The Company
shall pay  Milford/Shaar  principal  and interest on a monthly basis in arrears.
The Milford/Shaar  Bridge Loan Notes may be prepaid at any time without penalty.
The Company  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.

         The Company  made all payments on the  Milford/Shaar  Bridge Loan Notes
until  November 13, 2001.  The Company asked for and received a  forbearance  of
payments on the  Milford/Shaar  Bridge Loan Notes from  November  13, 2001 until
August 13, 2002. 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 current principal balance of the Milford/Shaar Bridge Loan Notes
remains  unpaid as of April 15,  2003.  The Company  has not been  notified of a
default of the Milford/Shaar Bridge Loan Notes as of April 15, 2003. See "MD&A -
Liquidity and Capital Resources."

         In September 2000, the Company  completed  $500,000 in financing in the
form of a loan  (the  "Brewer  Note")  from S.  Brewer  Enterprises,  Inc.  ("SB
Enterprises"),  which is owned by one of its officers and  directors,  Shelby T.
Brewer,  Chairman of the Board and Chief Executive  Officer of the Company.  The
Brewer  Note  bears a 9.75%  interest  rate,  payable  monthly,  with a  balloon
principal  payment at the end of the term. In  connection  with the Brewer Note,
the Company  issued SB  Enterprises a 2-year  warrant for 100,000  shares of the
Company's  common stock at an exercise price of $1.0625 per share.  This warrant
expired by it terms in September of 2002.  The note was due and payable on March
15, 2001. The Brewer Note was convertible into the Company's common stock at the
market price up through March 15, 2001.

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

         On December 12, 2002, SB  Enterprises  executed an Amended and Restated
Promissory Note Extension (the "Restated Brewer Note Extension"), which extended
the maturity  date of the note until  January 1, 2004.  In  connection  with the
Restated  Brewer Note  Extension,  the Company  issued SB  Enterprises  a 2-year
warrant for 1,000,000  shares of the Company's common stock at an exercise price
of $0.05 per share. On March 14, 2003, SB Enterprises issued a conversion notice
for the  remaining  principal  balance of  $250,000  plus  accrued  interest  of
$36,563.  The  conversion  price was calculated by the previous 5-day average of
the  closing  price  of the  Company's  common  stock  and  was  converted  into
13,189,842  shares.  These shares have not been issued to Mr. Brewer as of April
15, 2003. The Company  believes that this issuance of convertible debt is exempt
from the  registration  requirements  of the  Securities  Act under Section 4(2)
thereof as a transaction  not involving any public  offering of securities.  See
"MD&A - Liquidity and Capital Resources."

                                       60
<PAGE>

         In November  2000, the Company  completed  $500,000 in financing in the
form of a loan (the "Weiss Group Note") from a group of four investors;  $75,000
of which was borrowed from the son of Paul E.  Hannesson,  our former  President
and Chief Executive  Officer,  and $25,000 of which was borrowed from Stephen A.
Weiss,  a  shareholder  of  Greenberg  Traurig,  LLP, our former  corporate  and
securities  counsel.  The Weiss Group Note bears interest at 12% per annum,  was
due and payable on February  12, 2001,  and is secured by the first  $500,000 of
loans or dividends that the Company may receive from DRM. As  consideration  for
such loan,  Environmental,  one of the Company's  principal  stockholders owning
approximately 16.58% of the Company's common stock, transferred to the investors
a total of 1,000,000  shares of the Company's  common stock.  All holders of the
Weiss Group Note have granted payment extensions until January 1, 2004.

         Effective  April 16,  2001,  the  Company  issued  warrants to purchase
1,000,000  shares of its common  stock at an  exercise  price of $0.22 per share
(the closing  price of our common stock on the AMEX on such date) to all holders
of the Weiss Group Note in  consideration  of the  extension  of the due date of
such loans by such persons from February 12, 2001 to June 30, 2001.  The Company
believes that this transaction is exempt from the  registration  requirements of
the Securities Act under Section 4(2) thereof as a transaction not involving any
public offering of securities.

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

         Effective  October  29,  2002,  the  members  of the Weiss  Group  Note
voluntarily  cancelled all issued  warrants to purchase  1,000,000  shares at an
exercise  price of $0.22 per share of the  Company's  common stock in connection
with the Weiss Group Note.  Effective October 29, 2002, the members of the Weiss
Group Note voluntarily  cancelled all issued warrants to purchase 500,000 shares
at an  exercise  price  of $0.15  per  share of the  Company's  common  stock in
connection with the Weiss Group Note.

         Effective  October 29, 2002,  the Company  issued  warrants to purchase
1,500,000  shares of its common  stock at an  exercise  price of $0.05 per share
(the closing  price of our common stock on the AMEX on such date) to all holders
of the Weiss Group Note in  consideration  of the  extension  of the due date of
such loans by such  persons  from May 31,  2002 to January 1, 2004.  The Company
believes that this transaction is exempt from the  registration  requirements of
the Securities Act under Section 4(2) thereof as a transaction not involving any
public offering of securities. See "MD&A - Liquidity and Capital Resources."

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

                                       61
<PAGE>

shares of the  Company's  common stock at an exercise  price of $0.22 per share.
The Company  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not  involving  any public  offering of  securities.  See "MD&A - Liquidity  and
Capital Resources."

         On October 2, 2002,  Mr.  Bentley Blum, a Director of the Company,  had
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  continues  to provide  cash
installments in the form of a loan to the Company.  The Blum Loan bears interest
at 9% per annum and has no due date at this time. The current  principal balance
of the Blum Loan remains  unpaid as of April 15, 2003. See "MD&A - Liquidity and
Capital Resources."

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


                                       62
<PAGE>

ITEM 14. CONTROLS AND PROCEDURES.
-------  -----------------------

         (a)  Evaluation of disclosure  controls and procedures.  As required by
              Rule 13a-15  under the Exchange  Act,  within the 90 days prior to
              the  filing  date of  this  report,  the  Company  carried  out an
              evaluation of the effectiveness of the design and operation of the
              Company's disclosure controls and procedures.  This evaluation was
              carried out under the  supervision and with the  participation  of
              the Company's  management,  including the Company's  President and
              Chief Executive Officer, and the Company's Chief Financial Officer
              and Chief  Accounting  Officer.  Based upon that  evaluation,  the
              Company's  President  and  Chief  Executive  Officer,   and  Chief
              Financial Officer and Chief Accounting Officer have concluded that
              the Company's  disclosure controls and procedures are effective in
              timely  alerting  them to  material  information  relating  to the
              Company  required  to be included in the  Company's  periodic  SEC
              filings. Disclosure controls and procedures are controls and other
              procedures that are designed to ensure that  information  required
              to be disclosed in Company  reports  filed or submitted  under the
              Exchange  Act is recorded,  processed,  summarized  and  reported,
              within the time periods  specified in the  Securities and Exchange
              Commission's  rule and forms.  Disclosure  controls and procedures
              include,  without limitation,  controls and procedures designed to
              ensure  that  information  required  to be  disclosed  in  Company
              reports   filed  under  the  Exchange  Act  is   accumulated   and
              communicated to management,  include the Company's Chief Executive
              Officer,  and Chief Financial Officer and Chief Accounting Officer
              as  appropriate,  to allow  timely  decisions  regarding  required
              disclosures.

         (b)  Changes  in  internal  controls.  There  have been no  changes  in
              internal  controls or in other  factors  that could  significantly
              affect these controls  subsequent to the date of their evaluation,
              including  any  corrective  actions  with  regard  to  significant
              deficiencies and material weaknesses.


                                       63
<PAGE>

PART IV
-------

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

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

         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.

                                       64
<PAGE>

COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2002 and 2001



<PAGE>


                                            COMMODORE APPLIED TECHNOLOGIES, INC.
                                                                AND SUBSIDIARIES
                                                                           Index
--------------------------------------------------------------------------------





                                                                            Page
                                                                            ----


Commodore Applied Technologies, Inc.

     Independent Auditors' Report                                           F-1


     Consolidated Balance Sheet as of December 31, 2002 and 2001            F-2


     Consolidated Statements of Operations for the years ended
       December 31, 2002, 2001 and 2000                                     F-3


     Consolidated Statements of Stockholders' (Deficit) Equity for
       the years ended December 31, 2002, 2001 and 2000                     F-4


     Consolidated Statements of Cash Flows for the years
       ended December 31, 2002, 2001 and 2000                               F-7


     Notes to Consolidated Financial Statements                             F-11



<PAGE>

                                                    INDEPENDENT AUDITORS' REPORT


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

We  have  audited  the   consolidated   balance   sheet  of  Commodore   Applied
Technologies,  Inc.  and  Subsidiaries  as of December 31, 2002 and 2001 and the
related consolidated  statements of operations,  stockholders'  (deficit) equity
and cash flows for the years ended  December 31,  2002,  2001,  and 2000.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Commodore Applied
Technologies,  Inc. and  Subsidiaries  as of December 31, 2002 and 2001, and the
results of their  operations  and their cash flows for the years ended  December
31, 2002,  2001, and 2000, in conformity  with accounting  principles  generally
accepted in the United States of America.

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



                                        TANNER + CO.


Salt Lake City, Utah
February 6, 2003, except for Note 20, which is dated April 11, 2003

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

                                                                         Commodore Applied Technologies, Inc.
                                                                                             and Subsidiaries
                                                                                   Consolidated Balance Sheet

                                                                                   December 31, 2002 and 2001
                                                                         (Amounts in thousands except shares)
-------------------------------------------------------------------------------------------------------------

                                                                                    2002           2001
                                                                                -----------------------------
        Assets
        ------
<S>                                                                             <C>             <C>
Current assets:
  Cash and cash equivalents                                                     $          59   $        170
  Accounts receivable, net                                                                 96            599
  Prepaid assets and other current assets                                                 163            327
                                                                                -----------------------------

        Total current assets                                                              318          1,096

Property and equipment, net                                                               358            597

Intangible assets:
  Patents and completed technology, net of accumulated
   amortization of $40 and $1,375, respectively                                            60            100
                                                                                -----------------------------

        Total intangible assets                                                            60            100

Assets held for sale - component DRM                                                        -         29,407
                                                                                -----------------------------

Total assets                                                                    $         736   $     31,200
                                                                                -----------------------------

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                         Commodore Applied Technologies, Inc.
                                                                                             and Subsidiaries
                                                                                   Consolidated Balance Sheet
                                                                                                    Continued

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

                                                                                    2002           2001
                                                                                -----------------------------

        Liabilities and Stockholders' (Deficit) Equity
        ----------------------------------------------

<S>                                                                             <C>             <C>
Current liabilities:
  Accounts payable                                                              $       1,077   $      3,916
  Related party payable                                                                    80            160
  Line of credit                                                                            -            108
  Notes payable                                                                           714          1,245
  Other accrued liabilities                                                             2,723          2,035
                                                                                -----------------------------

        Total current liabilities                                                       4,594          7,464

Liabilities held for sale - component DRM                                                   -         22,165
Long-term debt                                                                            431              -
                                                                                -----------------------------

        Total liabilities                                                               5,025         29,629
                                                                                -----------------------------

Commitments and contingencies                                                               -              -

Stockholders' (deficit) equity:
  Convertible Preferred Stock, Series E, F and H, par value $.001 per share,
   aggregate liquidation value of $6,716,000 and $5,403,000 at December 31,
   2002 and 2001, respectively, 5% to 12% cumulative dividends for Series E
   and F, 3% dividends for Series H, 1,561,700 shares authorized, 1,213,700
   shares and 441,700 shares issued and outstanding at December 31, 2002
   and 2001, respectively                                                                   1              -
  Common Stock, par value $.001 per share, 125,000,000 shares authorized,
   59,027,062 shares and 55,417,354 shares issued and outstanding,
   at December 31, 2002 and 2001, respectively                                             59             55
  Additional paid in capital                                                           67,129         66,759
  Accumulated deficit                                                                 (71,215)       (65,243)
                                                                                -----------------------------

                                                                                       (4,026)         1,571

  Treasury stock, 3,437,500 shares at December 31, 2002                                  (263)             -
                                                                                -----------------------------

        Total stockholders' (deficit) equity                                           (4,289)         1,571
                                                                                -----------------------------

                                                                                $         736   $      31,200
                                                                                -----------------------------


-------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.                                                                                               F-2

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                        Commodore Applied Technologies, Inc.
                                                                                            and Subsidiaries
                                                                        Consolidated Statement of Operations

                                                                         December 31, 2002 and 2001 and 2000
                                                                (Amounts in thousands except per share data)
------------------------------------------------------------------------------------------------------------

                                                                     2002           2001          2000
                                                                 -------------------------------------------

<S>                                                              <C>              <C>           <C>
Revenue                                                          $       3,710    $     4,590   $    17,057

Costs and expenses:
  Cost of revenues                                                       2,108          3,369        14,452
  Research and development                                                 297            423           993
  General and administrative                                             1,792          2,420         5,228
  Depreciation and amortization                                            314            658           865
  Impairment of machinery                                                    -            776             -
  Impairment of patents                                                      -            627             -
  Impairment of goodwill                                                     -              -         6,586
                                                                 -------------------------------------------

        Total operating expenses                                         4,511          8,273        28,124
                                                                 -------------------------------------------

        Loss from operations                                              (801)        (3,683)      (11,067)

Other income (expense):
  Interest income                                                            -             38            57
  Interest expense                                                        (104)          (226)         (586)
  Equity in losses of unconsolidated subsidiary                              -           (295)            -
                                                                 -------------------------------------------

        Loss from continuing operations
        before provision for income taxes                                 (905)        (4,166)      (11,596)

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

        Loss from continuing operations                                   (905)        (4,166)      (11,596)

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

(Loss) gain from discontinued operations                                  (933)        (2,388)          155
                                                                 -------------------------------------------

        Net loss                                                 $      (5,972)   $    (6,554)  $   (11,441)
                                                                 -------------------------------------------

Net loss per share from continuing operations
- basic and diluted                                              $       (0.02)   $     (0.08)  $     (0.34)

Net (loss) gain per share from discontinued
operations - basic and diluted                                   $       (0.09)   $     (0.05)  $      0.00
                                                                 -------------------------------------------

Total net loss per share - basic and diluted                     $       (0.11)   $     (0.13)  $     (0.34)
                                                                 -------------------------------------------

Number of weighted average shares outstanding                           57,775         53,241        35,866
                                                                 -------------------------------------------

------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.                                                                                              F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                                          Commodore Applied Technologies, Inc.
                                                                                                              and Subsidiaries
                                                                      Consolidated Statement of Stockholders' (Deficit) Equity

                                                                               Years Ended December 31, 2002 and 2001 and 2000
                                                                                          (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, 2000                     335,000  $    -   30,962,938  $  31  $ 57,168  $   (47,248)  $      -   $   9,951

Issuance of Series F Convertible Preferred
Stock and warrants at redemption value       266,700       1            -      -     1,770            -          -       1,771

Conversion of Series E and F Convertible
Preferred Stock into common stock            (45,000)      -      440,581      -         -            -          -           -

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

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

Issuance of common stock and warrants
in acquisition                                     -       -   15,500,000     16     7,506            -          -       7,522

Preferred stock dividends                          -       -            -      -      (634)           -          -        (634)

Exercise of stock options                          -       -    1,326,866      1       596            -          -         597

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

Balance, December 31, 2000                   556,700       1   48,330,385     48    66,495      (58,689)         -       7,855

------------------------------------------------------------------------------------------------------------------------------
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
                                                                                                                     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           (115,000)     (1)   4,072,225      4        (3)           -          -           -

Sale of common stock for cash                      -       -    1,973,077      2       146            -          -         148

Sale of warrants for cash                          -       -            -      -       105            -          -         105

Conversion of debt to common stock                 -       -    1,041,667      1       249            -          -         250

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

Preferred stock dividends                          -       -            -      -      (408)           -          -        (408)

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

Balance, December 31, 2001                   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

------------------------------------------------------------------------------------------------------------------------------
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>
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-6

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                         Commodore Applied Technologies, Inc.
                                                                                             and Subsidiaries
                                                                         Consolidated Statement of Cash Flows

                                                              Years Ended December 31, 2002 and 2001 and 2000
                                                      (Amounts in thousands except shares and per share data)
-------------------------------------------------------------------------------------------------------------

                                                                     2002            2001           2000
                                                               ----------------------------------------------
<S>                                                            <C>                <C>           <C>
Cash flows from operating activities:
  Net loss                                                     $        (5,972)   $    (6,554)  $    (11,441)
  Add: net loss (income) from discontinued operations                      933          2,388           (155)
  Add: net loss from disposal of discontinued operations                 4,134              -              -
  Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
    Depreciation and amortization                                          314            658            865
    (Gain) loss on disposition of property and equipment                   (35)             -              5
    Imputed interest expense                                                 -            167            333
    Impairment of goodwill                                                   -              -          6,586
    Impairment of machinery                                                  -            776              -
    Impairment of patents                                                    -            627              -
    Loss from unconsolidated subsidiary                                      -            295              -
    Provision for related party bad debt                                     -              -            109
    Amortization of debt discount                                            6            187            174
    Changes in assets and liabilities:
      Accounts receivable, net                                             503          2,964            (11)
      Restricted cash                                                        -              -             21
      Prepaid assets                                                        24             97            401
      Net assets of component DRM                                          (83)        (1,559)           512
      Accounts payable and accrued liabilities                              53            919            (28)
                                                               ----------------------------------------------

        Net cash provided by (used in) operating activities               (123)           965         (2,629)

Cash flows from investing activities:
  Equipment purchased or constructed                                         -            (51)          (114)
  Patents acquired                                                           -              -            (36)
  Advances from (to) related parties, net                                   45            (87)           (97)
  Contributions to affiliate                                                 -              -           (325)
                                                               ----------------------------------------------

        Net cash provided by (used in) investing activities                 45           (138)          (572)


-------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.                                                                                               F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                         Commodore Applied Technologies, Inc.
                                                                                             and Subsidiaries
                                                                         Consolidated Statement of Cash Flows
                                                                                                    Continued

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

                                                                     2002            2001           2000
                                                               ----------------------------------------------
<S>                                                            <C>                <C>           <C>
Cash flows from financing activities:
  Proceeds from sale of common stock and warrants                            -            253            597
  Proceeds from sale of preferred stock                                      -              -          1,771
  Preferred stock dividends                                                  -              -           (214)
  (Repayments)/borrowings under line of credit                            (108)        (1,351)          (256)
  Borrowings on debt and warrants                                          431          1,090          1,000
  Payments on long-term debt and notes payable                            (356)        (1,228)          (915)
                                                               ----------------------------------------------

        Net cash (used in) provided by financing activities                (33)        (1,236)         1,983
                                                               ----------------------------------------------

        Net change in cash and cash equivalents                           (111)          (409)        (1,218)

Cash and cash equivalents at beginning of year                             170            579          1,797
                                                               ----------------------------------------------

Cash and cash equivalents at end of year                       $            59    $       170   $        579
                                                               ----------------------------------------------


Supplemental disclosure of cash flow information:

     Cash paid during the year for:

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

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


-------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.                                                                                               F-8
</TABLE>
<PAGE>
                                            Commodore Applied Technologies, Inc.
                                                                and Subsidiaries
                                            Consolidated Statement of Cash Flows
                                                                       Continued

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

Non-Cash Investing and Financing Activities:

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.


2001
----

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

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

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

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

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

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

<PAGE>

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

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

2000

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

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

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

  Assets and liabilities acquired:

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

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

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


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

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

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

         o    The Company financed  equipment of $188 and prepaid assets of $271
              with notes payable and long-term debt of $459.

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


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

<PAGE>

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

                                                      December 31, 2002 and 2001
                                  (In thousands except share and per share data)
--------------------------------------------------------------------------------

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

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

                        Through  Dispute  Resolution  Management,  Inc. (DRM), a
                        subsidiary  acquired August 30, 2000 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 6).  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.


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

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

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

1.   Summary of         Principles of Consolidation
     Significant        The  consolidated   financial   statements  include  the
     Accounting         accounts of Applied and its majority-owned subsidiaries.
     Policies           Dispute  Resolution  Management,  Inc.  is  included  as
     Continued          discontinued  operations  from  August 30, 2000 (date of
                        acquisition)  through May 16, 2002 (date of dissolution)
                        (see Note 6).  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.

                        The investment in  Teledyne-Commodore,  LLC, a 50% owned
                        joint venture with  Teledyne  Environmental,  Inc.,  was
                        accounted  for  under  the  lower of cost or  market  at
                        December 31, 2000 as operations  had ceased.  During the
                        year ended  December  31,  2001,  the joint  venture was
                        dissolved,  and Applied's  share of the related loss was
                        included in losses of unconsolidated subsidiaries.

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

                        Concentration of Credit Risk and Significant Customers
                        Applied  maintains  its  cash in bank  deposit  accounts
                        which, at times,  may exceed  federally  insured limits.
                        Applied has not experienced any losses in such accounts.

                        With  respect to trade  receivables,  Applied  generally
                        does not require collateral as the majority of Applied's
                        services are performed for the U.S. Government and prime
                        contractors  that  serve  the U.S.  Government.  Applied
                        believes  it is not  exposed to any  significant  credit
                        risk on cash, cash equivalents and trade receivables.


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

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

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


1.   Summary of         Sales  to  major customers  which exceeded 10 percent of
     Significant        revenues are as follows:
     Accounting
     Policies
     Continued                               Years Ended December 31,
                                    ------------- -------------- ---------------
                                        2002          2001            2000
                                    ------------- -------------- ---------------

                        Customer A    $   2,622    $    3,252      $     1,476
                        Customer B    $     784    $    1,148      $       742
                        Customer C    $       -    $        -      $    11,618

                        The contract with Customer C ended on December 31, 2000,
                        and the  contract  with  Customer  A ended on October 1,
                        2002.

                        Risk and Uncertainty
                        Applied's   operations   involving  the  separation  and
                        destruction  of PCBs  requires  a  permit  from the EPA.
                        Applied  had a valid  nationwide  permit  related to the
                        treatment  of PCBs in  certain  substances.  The  permit
                        expired September 15, 2001.  Applied is currently in the
                        process of applying  for a renewal of the permit.  Until
                        the permit is  reviewed  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. Presently,
                        there is no information to suggest that the EPA will not
                        renew  Applied's  permit  or grant  them  the  requested
                        revision.

                        Property and Equipment
                        Property   and   equipment   are   recorded   at   cost.
                        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
                        Completed  technology  represents certain technology and
                        related patents acquired in connection with the purchase
                        of third-party interests in Commodore Laboratories, Inc.
                        ("Labs").  Completed  technology  and  patents are being
                        amortized on a straight-line  basis over their estimated
                        1.5 year lives remaining at December 31, 2002.

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

<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.

                        During the year ended December 31, 2001 Applied recorded
                        an impairment  on its  equipment and related  patents of
                        completed technology of $776 and $627, respectively.

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

                        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.

                        Prior to 2001,  most of CASI's  contracts  provided  for
                        reimbursement  of costs  plus  fixed  fees.  Direct  and
                        indirect  contract costs incurred in reimbursement  plus
                        cost  contracts  are  subject  to audit  by the  Defense
                        Contract  Audit  Agency  ("DCAA").  Management  does not
                        expect these audits to  materially  affect the financial
                        statements and have established  appropriate  allowances
                        to  cover   potential  audit   disallowances.   Contract
                        revenues   have  been  recorded  in  amounts  which  are
                        expected to be realized upon final settlement.  The DCAA
                        has audited CASI's contracts  through 1996. An allowance
                        for doubtful  accounts and potential  disallowances  has
                        been  established  based upon the  portion of billed and
                        unbilled  receivables  that  management  believes may be
                        uncollectible.

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

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

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

1.   Summary of         Revenue Recognition - Continued
     Significant        DRM's revenue is  recognized  on retainers  according to
     Accounting         the terms of each  contract.  Revenue is  recognized  on
     Policies           contingent  success  fees  as  each  dispute  with  each
     Continued          insurer is resolved and a binding  settlement  agreement
                        has  been   executed  by  all   parties.   All  revenues
                        associated  with DRM have been  classified  in Applied's
                        current financial statements in discontinued operations.
                        Applied disposed of its ownership of DRM on May 16, 2002
                        (see Note 6).

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

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


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

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

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

1.   Summary of         Stock-Based Compensation
     Significant        At  December  31,  2002,  Applied  has  one  stock-based
     Accounting         employee  compensation  plan,  which is  described  more
     Policies           fully in Note 13.  Applied  accounts for its plans under
     Continued          the  recognition  and  measurement   principles  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. 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. 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,
                                       ----------------------------------------
                                           2002         2001         2000
                                      ----------------------------------------

 Net loss, as reported                $    (5,972) $    (6,554) $    (11,441)
 Deduct:
    Total stock- based employee
    compensation expense determined
    under fair value based method
    for all awards, net of related
    tax effects                              (500)        (256)       (1,178)
                                      ----------------------------------------

 Pro forma net loss                   $    (6,472) $    (6,810) $    (12,619)
                                      ----------------------------------------

 Loss per share:
    Basic and diluted - as reported   $      (.11) $      (.13) $       (.34)
                                      ----------------------------------------

    Basic and diluted - pro forma     $      (.12) $      (.14) $       (.37)
                                      ----------------------------------------

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

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

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


1.   Summary of         Fair Value of Financial Instruments
     Significant        The fair value of financial instruments is determined by
     Accounting         reference  to various  market  data and other  valuation
     Policies           techniques as appropriate.  Accounts  receivable,  notes
     Continued          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, 2002 and 2001.

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

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

2.   Going              The accompanying  consolidated financial statements have
     Concern            been  prepared  under the  assumption  that Applied will
                        continue   as   a   going   concern.   Such   assumption
                        contemplates   the   realization   of  assets   and  the
                        satisfaction  of  liabilities  in the  normal  course of
                        business.   As  shown  in  the  consolidated   financial
                        statements,  Applied incurred losses for the years ended
                        December  31,  2002,  2001 and 2000.  Applied also has a
                        working  capital  deficit  at  December  31,  2002.  The
                        consolidated  financial  statements  do not  include any
                        adjustments  that might be necessary  should  Applied be
                        unable to continue as a going concern.


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

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

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


2.   Going              Applied's  continuation  as a going concern is dependent
     Concern            upon its  ability to  generate  sufficient  cash flow to
     Continued          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.   Receivables        The  components  of  Applied's  trade receivables are as
                        follows as of December 31:

                                                      2002            2001
                                                -------------------------------

        Contract receivables                           272           1,010

        Less:  Allowance for doubtful accounts
         and potential disallowances                  (176)           (411)
                                                -------------------------------

          Total receivables, net                $       96 $           599
                                                -------------------------------

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


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

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

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


4.   Property           Property and equipment consist of the following:
     and
     Equipment
                                            Average          December 31
                                          Useful Life     2002        2001
                                          --------------------------------------

        Machinery and equipment              3           $   615     $   599
        Furniture and fixtures               5               223         223
        Computer equipment                   4               510         882
        Leasehold improvements               5                19          19
                                                       ------------------------

                                                           1,367       1,723

        Less:  accumulated depreciation
            and amortization                              (1,009)     (1,126)
                                                       ------------------------

        Total property and equipment                     $   358     $   597
                                                       ------------------------

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


5.   Other Assets       Applied  had  an  investment  in a  joint  venture  with
                        Teledyne  Environmental,  Inc.  (LLC).  Applied  did not
                        record  its  equity in the losses of the LLC in 2000 and
                        1999 as the LLC agreement states that members of the LLC
                        can only be asked to fund  approved  capital  calls  and
                        Applied  had no  obligation  to fund these 2000 and 1999
                        losses.  During the year ended  December 31,  2001,  the
                        joint venture was dissolved,  and Applied's share of the
                        related loss to dissolve  the joint  venture of $295 was
                        included in losses of unconsolidated subsidiaries.


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

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

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


6.   Acquisition        On August 30, 2000,  Applied  completed a stock purchase
     and                agreement with Dispute Resolution Management, Inc. (DRM)
     Dissolution        and its two  shareholders.  This  agreement  amended and
     of Dispute         restated in its entirety  the terms of an agreement  and
     Resolution         plan of merger,  which  Applied had  previously  entered
     Management         into with DRM and its shareholders. On May 16, 2002, the
                        acquisition  of DRM was dissolved,  and Applied  entered
                        into a settlement agreement with DRM on August 19, 2002.

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

                            a)     10.5 million  shares of Applied common stock.
                                   Of these 10.5  million  shares,  9.5  million
                                   shares are  subject  to a one-year  option to
                                   repurchase  any or all shares.  The  extended
                                   option expired on May 16, 2002.

                            b)     5 million  shares of Applied  common stock in
                                   exchange   for  an  option  to  purchase  the
                                   remaining  19%  interest  in DRM.  The option
                                   expires after five years and the option price
                                   was to be based upon the  relative  appraised
                                   values  of DRM  and  Applied  at the  time of
                                   purchase.

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

                            d)     Quarterly earn-out distributions equal to 35%
                                   of the  cash  flow of DRM  over  an  earn-out
                                   period commencing as of September 1, 2000 and
                                   ending December 31, 2005.  Applied had agreed
                                   that  if DRM  had not  distributed  to  these
                                   shareholders  a total of $10  million in cash
                                   in earn-out  payments by December  31,  2003,
                                   Applied would make up the difference  between
                                   $10 million and the actual cash  distributed.
                                   This difference  could have been paid in cash
                                   or Applied  common  shares at Applied's  sole
                                   discretion.

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

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

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


6.   Acquisition        Applied had an absolute and  irrevocable  obligation  to
     and                repurchase, by the end of the option period, that number
     Dissolution        of 9.5 million shares of Applied common stock  necessary
     of Dispute         to provide the  holders of those  shares with a total of
     Resolution         $14.5  million.  It was Applied's  intention to exercise
     Management         its option to reacquire  these shares  during the period
     Continued          and sell these shares to generate the cash  necessary to
                        meet the $14.5 million  obligation.  The  obligation was
                        recorded as a note payable and interest had been imputed
                        on the  note  payable  to  record  debt  at the  time of
                        acquisition of $13,122.

                        The  former   owners  of  DRM  entered  into   five-year
                        employment  agreement  with DRM  providing  for starting
                        salaries of $262 per year, with annual  increases of not
                        more than 5%. In  addition,  these  individuals  entered
                        into five-year non-competition agreements with DRM.

                        Applied valued the consideration given as follows:

        9.5 million option common shares                    $       13,122
        5.0 million common shares                                    5,469
        1.0 million common shares                                    1,094
        Warrants to purchase 1.0 million shares                        959
        Future payment guarantee                                    10,000
        Imputed interest on future payment guarantee                (2,588)
                                                            --------------

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

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

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


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

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

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

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

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


6.   Acquisition        Covenants not to compete were being amortized over their
     and                5 year life.  Prior to January  1,  2002,  goodwill  was
     Dissolution        being amortized over 20 years.
     of Dispute
     Resolution         On May 16, 2002, a Notice of Default and Right to Pursue
     Management         Remedies (the "Notice") was issued to Applied by William
     Continued          J.  Russell  and  Tamie  B.  Speciale  (the  "Pledgees")
                        claiming  that  Applied  was in default  under the Stock
                        Purchase  Agreement (the  "Agreement"),  between Applied
                        and DRM and the  related  Stock  Pledge  Agreement  (the
                        "Stock Pledge").  As of May 16, 2002,  Applied no longer
                        owned an 81% interest in DRM.

                        On August 19,  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. The Series H Preferred  shall have the following
                        rights, privileges, and limitations:

                            a)     The  conversion  feature shall be exercisable
                                   on 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.


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

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

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



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

                            e)     The   Series  H   Preferred   shall   not  be
                                   transferable.

                        For the year ended December 31, 2002 Applied  recorded a
                        loss on the  disposal  of DRM in the  amount of  $4,134.
                        Applied's loss of the DRM subsidiary may have a material
                        adverse effect on the financial condition of Applied and
                        its  cash  flow  problems.  Applied  currently  requires
                        additional  cash to sustain  existing  operations and to
                        meet   current    obligations    and   ongoing   capital
                        requirements.


7.   Other              Other accrued liabilities consist of the following:
     Accrued
     Liabilities
                                                    2002           2001
                                                ------------------------------

        Dividend payable                        $       1,210 $           816
        Compensation and employee benefits                842             658
        Loss reserve                                      238             200
        Related parties                                   185             185
        Accrued interest                                  155             110
        Other                                              93              66
                                                ------------------------------

                                                $       2,723 $         2,035
                                                ------------------------------


--------------------------------------------------------------------------------
                                                                            F-23

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

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



8.   Line               At December  31,  2002 and 2001,  CASI had a $0 and $108
     of                 outstanding balance,  respectively,  on a revolving line
     Credit             of  credit.  The line of credit is not to exceed  85% of
                        eligible  receivables or $2,500 and is due November 2003
                        with interest  payable monthly at prime plus 2.0 percent
                        (6.75%  at  December  31,  2002).  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.

9.   Notes              Notes payable consist of the following at December 31:
     Payable
                                                      2002           2001
                                                  ------------------------------

 Notes payable to individuals with interest at
 15%, due in aggregate monthly installments,
 beginning in July 2001, of $83,33 plus
 interest, maturing through August 2002.  In
 connection with the notes, Applied issued
 warrants to purchase 333,334 shares of stock
 which were valued at $70,000 and recorded as a
 discount on the notes to be amortized over
 their respective terms.  The notes are in
 default, but Applied has not received notice of
 default.                                            $       583  $         583

 Unamortized discount for warrants                             -            (18)

 Notes payable to an insurance company with
 interest at 8.18%, secured by an insurance
 contract and due November 2003                              131            214


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

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

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



9.   Notes
     Payable
     Continued

 Notes payable to individuals with interest at
 12%, originally due February 13, 2001 and
 extended until May 31, 2002, and then until
 January 1, 2004 and reclassified as long-term
 debt (see Note 10).                                           -            216

 Note payable to an officer of Applied with
 interest at 9.75%.  The note is unsecured and
 is convertible into common stock of Applied at
 the market rate of the common stock.  During
 2001 the officer converted $250,000 of the note
 for 1,041,667 shares of common stock.  The note
 was originally due March 15, 2001 but has been
 extended until January 1, 2004 during 2002 and
 reclassified as long-term debt (see Note 10).                 -            250
                                                     ---------------------------

                                                     $       714  $       1,245
                                                     ---------------------------


10.  Long-Term          Applied has the following long-term debt at December 31,
     Debt               2002:

 Note payable to an officer of Applied with interest at 9.75%.
 The note is unsecured and is convertible into common stock of
 Applied at the market rate of the common stock.  During 2001
 the officer converted $250,000 of the note for 1,041,667
 shares of common stock.  The note was originally due March 15,
 2001 but has been extended until until January 1, 2004 and
 reclassified from notes payable (see Note 9).  Applied also
 has imputed a discount for warrants issued for $41 in
 connection with the extension of the note which is being
 amortized over the extended term of the note                     $         250

 Notes payable to individuals with interest at 12%, originally
 due February 13, 2001 and extended until May 31, 2002, and
 then until January 1, 2004 during 2002 and reclassified from
 notes payable (see Note 9).  The note is secured by accounts
 receivable.                                                                216



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

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

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

10.  Long-Term
     Debt
     Continued

 Unamortized discount imputed for warrants                                  (35)
                                                                  --------------

                                                                            431

 Less current maturities                                                      -
                                                                  --------------

                                                                  $         431
                                                                  --------------

                        Future maturities on long-term debt are as follows:

                                Year
                                ----

                                2003                                          -
                                2004                                        431
                                                                  --------------

                                    Total                                   431
                                                                  --------------

11.  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:

                                          2002         2001          2000
                                      -----------------------------------------

 Expected tax benefit at federal
   statutory rate                     $     (2,030) $     (2,228) $     (3,890)
 State income tax benefit, net of
   federal income tax benefit                 (358)         (393)         (686)
 Interest accretion                             24           753           333
 Other                                         604           226           453
 Disposition of discontinued
   operations                                1,654             -             -
 Change in valuation allowance                 106         1,642         3,790
                                      -----------------------------------------

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

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

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

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


11.  Income             The components  of the  net deferred tax  as of December
     Taxes              31, are as follows:
     Continued
                                                        2002          2001
                                                    ---------------------------

      Reserve for uncollectable
        receivables and potential
        disallowances                               $         153  $       226
      Depreciation and amortization                            -           (41)
      Net operating loss carryforward                     11,716        11,500
      Impairment charges                                   2,480         2,480
      Other                                                   21            99
                                                    ---------------------------

                                                          14,370        14,264

 Valuation allowance                                     (14,370)      (14,264)
                                                    ---------------------------

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

                        Applied conducts a periodic examination of its valuation
                        allowance.  Factors considered in the evaluation include
                        recent  and  expected   future  earnings  and  Applied's
                        liquidity and equity positions.  As of December 31, 2002
                        and 2001, 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, 2002 of approximately  $32,000 which expire
                        in years 2010 through 2022.  The NOL  carryforwards  are
                        limited  to use  against  future  taxable  income due to
                        changes in ownership and control.


12.  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 special dividend will not be paid on
                        any stock  converted  to common stock on or before April
                        30, 2001.

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

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

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


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

                        During the year ended  December 31, 2001,  22,000 shares
                        of Series E Convertible  Preferred  Stock were converted
                        into  1,256,713  shares of common stock.  As of December
                        31,   2002  there  are   278,000   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 special  dividend  will
                        not be paid on stock  converted  to  common  stock on or
                        before September 30, 2001.

                        The  Series  F   Convertible   Preferred   Stock  has  a
                        liquidation  preference of $10 per share.  In connection
                        with the  issuance  of  Series F  Convertible  Preferred
                        Stock,  Applied  issued  warrants  to  purchase  363,475
                        shares of common  stock at  $1.93875  per  share.  These
                        warrants expire on March 16, 2005.

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

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

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


12.  Stockholders'      Series F Convertible Preferred Stock - Continued
     Equity             The Series F Convertible  Preferred Stock is convertible
     Continued          into common stock at any time on or after  September 30,
                        2000. On conversion,  the investor will receive for each
                        converted  preferred  share the greater number of common
                        stock as  determined  by (1) the face  value  per  share
                        ($10) plus accrued  dividends  divided by the average of
                        the closing  prices over a ten  consecutive  trading day
                        period ending on the trading day  immediately  preceding
                        the conversion date, or (2) $7.50 (the cash invested for
                        each preferred share) divided by $1.93875.

                        During  the  years  ended  December  31,  2002 and 2001,
                        28,000  shares and 93,000 shares of Series F Convertible
                        Preferred  Stock were converted to 2,496,423  shares and
                        2,815,512 shares of common stock, respectively.  Applied
                        has  135,700  shares  of  Series  F  convertible   stock
                        outstanding at December 31, 2002.

                        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 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.

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

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

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


12.  Stockholders'      Series H Convertible Preferred Stock - Continued
     Equity
     Continued
                           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.

                            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.

                        Cumulative unpaid dividends on Preferred Stock is $1,210
                        and $816 at December 31, 2002 and 2001.


13.  Stock Options      Applied  has  adopted  the  intrinsic  value  method  of
     and Stock          accounting  for stock options and warrants  under APB 25
     Warrants           with footnote disclosures of the pro forma effects as if
                        the FAS 123 fair value method had been adopted. See Note
                        1 for the pro  forma  effect  on net loss  per  share if
                        Applied had applied the fair value recognition provision
                        of FAS 123.

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

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

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


13.  Stock Options      FAS 123  requires  stock  options to be valued  using an
     and Stock          approach such as the Black-Scholes option pricing model.
     Warrants           The Black-Scholes model calculates the fair value of the
     Continued          grant  based upon the  following  assumptions  about the
                        underlying  stock:  The expected  dividend  yield of the
                        stock is  zero,  the  assumed  volatility  is 197%,  the
                        expected  risk-free  rate  of  return  is  4.5  percent,
                        calculated  as  the  rate  offered  on  U.S.  Government
                        securities  with the same term as the  expected  life of
                        the  options,  and  the  expected  term  is the  maximum
                        possible term under the option.

                        Stock options issued during the years ended December 31,
                        2002,  2001 and 2000 had an average value of $.07,  $.28
                        and $.53, respectively.

                        Stock Options
                        In December 1998,  Applied adopted its 1998 Stock Option
                        Plan  pursuant  to  which   officers,   directors,   key
                        employees  and/or  consultants  of Applied  can  receive
                        non-qualified   stock  options  to  purchase  up  to  an
                        aggregate  5,000,000  shares of Applied's  Common Stock.
                        During  1999 and 2000  Applied  increased  the number of
                        shares   authorized   by  5,000,000   shares  each  year
                        resulting in 15,000,000 shares currently available under
                        the 1998 stock option plan.  Exercise prices  applicable
                        to stock  options  issued  under this Plan  represent no
                        less  than  100% of the  fair  value  of the  underlying
                        common  stock as of the  date of  grant.  Stock  options
                        granted under the plan may vest  immediately  or for any
                        period up to five years.

                        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.

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

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

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


13.  Stock              Stock Options - Continued
     Options            A summary  of the status of  options  granted  under the
     and Stock          Plan as of December 31, 2002,  2001 and 2000 and changes
     Warrants           during the periods then ended is presented below:
     Continued

                       2002                 2001                 2000
              -----------------------------------------------------------------
                Shares    Weighted    Shares   Weighted    Shares   Weighted
                           Average              verage               verage
                          Exercise             Axercise             Axercise
                            Price              E Price              E Price
              -----------------------------------------------------------------

 Options
 outstanding
 - beginning
 of year        7,266,908  $ 0.84   7,529,056  $   0.86   7,169,747   $   .61
   Granted      9,847,218    0.07     920,000      0.28   2,243,769      1.05
   Exercised            -       -           -         -  (1,326,866)      .46
   Rescinded   (3,744,373)   0.74           -         -           -         -
   Forfeited   (3,165,160)   0.55  (1,182,148)     0.49    (557,594)      .59
              -----------------------------------------------------------------

 Options
 outstanding
 - end of year 10,204,593  $ 0.24   7,266,908  $   0.84   7,529,056   $  0.86
              -----------------------------------------------------------------

                        The  following  table   summarizes   information   about
                        employee stock options outstanding at December 31, 2002:

                         Options and Warrants            Options and Warrants
                              Outstanding                     Exercisable
                 ---------------------------------------------------------------
                                Weighted
                                Average     Weighted                 Weighted
     Range of                  Remaining    Average                   Average
    Exercisable     Number    Contractual   Exercise     Number      Exercise
      Prices      Outstanding     Life       Price    Exercisable      Price
  ------------------------------------------------------------------------------

  $ 0.07 - 0.07    9,847,218   5.96 years   $   0.07   6,847,218      $   0.07
    2.00 - 6.00      357,375   3.98 years       4.86     357,375          4.86
                 ---------------------------------------------------------------

                  10,204,593  5.89 years   $    0.24   7,204,593      $   0.31
                 ---------------------------------------------------------------

--------------------------------------------------------------------------------
                                                                            F-32

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

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



13.  Stock              Stock Warrants
     Options            Outstanding warrants (vested and not vested) at December
     and Stock          31, 2002 are as follows:
     Warrants
     Continued

   Granted                                    Number of   Current
   1999 and    Granted  Granted    Granted    Warrants   Exercise   Expiration
    Prior       2000      2001      2002        2002       Price       Date
 -------------------------------------------------------------------------------

   10,905,444  2,764,141  234,893  2,233,885   16,138,363  $  4.65 December 2003
      662,267    127,596   13,074    127,430      930,367     2.93 March 2003
    1,766,861     49,020   26,679    261,688    2,104,248     1.24 February 2004
      312,500          -        -          -      312,500     1.20 November 2004
      250,000          -        -          -      250,000     1.20 November 2004
            -     25,000        -          -       25,000     1.94 March 2005
            -    250,000        -          -      250,000     1.94 March 2005
            -    226,500        -          -      226,500     1.94 March 2005
            -  1,000,000        -          -    1,000,000     2.00 August 2005
            -          -  333,334          -      333,334     0.22 June 2006
            -          -        -  2,500,000    2,500,000     0.05 October 2004
 ---------------------------------------------------------

   13,897,072  4,442,257  607,980  5,123,003   24,070,312
 ---------------------------------------------------------

                        There were no warrants exercised in 2002, 2001 and 2000.
                        1,833,109 and  11,299,807  warrants  expired in 2002 and
                        2001,   respectively,   and   1,000,000   warrants  were
                        rescinded in 2002.  As of December 31, 2002 all warrants
                        are exercisable.

                        The   16,138,363,   930,367   and   2,104,248   warrants
                        outstanding at December 31, 2002 are warrants granted to
                        Commodore  Environmental  Services,  Inc.  in  1999  and
                        prior,  and  contain   anti-dilution   provisions.   The
                        warrants  granted  in 2002,  2001 and 2000  were  issued
                        pursuant to these anti-dilution provisions.


14.  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
                        available to common shareholders by the weighted average
                        number of shares outstanding during the period.  Diluted
                        earnings  per share  are  computed  using  the  weighted
                        average  number  of  shares  determined  for  the  basic
                        computations  plus the  number of shares  that  would be
                        issued assuming all contingently  issuable shares having
                        a dilutive effect on earnings per share were outstanding
                        for the period.

--------------------------------------------------------------------------------
                                                                            F-33

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

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



14.  Earnings Per
     Share
     Continued                                  Years Ended December 31,
                                       -----------------------------------------
                                            2002          2001           2000
                                       -----------------------------------------

    Net loss                           $    (5,972) $     (6,554) $     (11,441)
    Preferred stock dividends                 (528)         (408)          (634)
                                       -----------------------------------------

    Net loss available to
      common shareholders              $    (6,500) $     (6,962) $     (12,075)
                                       -----------------------------------------

    Weighted average common
       shares outstanding (basic)       57,775,000    53,241,000     35,866,000
    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)     57,775,000    53,241,000     35,866,000
                                       -----------------------------------------

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

                        (*) Due to Applied's loss from continuing  operations in
                        2002, 2001 and 2000, the incremental  shares issuable in
                        connection with these  instruments are anti-dilutive and
                        accordingly not considered in the calculation.


15.  Related Party      Applied   had   the  following  material  related  party
     Transactions       transactions:

                        Applied at December 31, 2001 had obligations relating to
                        the purchase of 81% of DRM (see Note 6).

                        During the year ended December 31, 2000 a shareholder of
                        Applied  sold,  at a discount,  1,000,000  common shares
                        that it owned of Applied to individuals  who loaned $500
                        to  Applied.  The  discount  amount  of $500 was used to
                        offset  receivables from related parties and result in a
                        net related party payable of $80 and $160 as of December
                        31, 2002 and 2001, respectively.

--------------------------------------------------------------------------------
                                                                            F-34

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

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


15.  Related Party      In addition,  Applied has payables to related parties of
     Transactions       $185 and $185 at December 31, 2002 and 2001  recorded in
     Continued          accrued  liabilities.  Applied expensed as bad debt $109
                        of  related  party  receivables  during  the year  ended
                        December 31, 2000.

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

16.  Commitments        Operating Leases
     and                Applied and its subsidiaries are  committed  under  non-
     Contingencies      cancelable  operating leases for office  space and other
                        equipment.  Future  obligations under the  leases are as
                        follows:

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

                                                                $         274
                                                                -------------


                        Rent expense  approximated $204, $429, and $403 in 2002,
                        2001 and 2000, respectively.

                        Executive Bonus Plan
                        Applied has a five-year Executive Bonus Plan (the "Bonus
                        Plan") under which a number of executives  and employees
                        of Applied are entitled to formula  bonuses.  No bonuses
                        are accrued at December 31, 2002 and 2001.

                        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-35

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

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


16.  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.  The  maximum   exposure  is
                        approximately  $390.  No amount  has been  reflected  in
                        these   financial   statements  as  the  amount  is  not
                        determinable.


17.  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,
                        $35 and $91 during the years ended  December  31,  2002,
                        2001 and 2000, respectively.


18.  Discontinued       Condensed  financial  information  for  DRM,  which  was
     Operations         discontinued,  is as follows for the year ended December
                        31, 2002,  2001 and 2000,  which includes DRM operations
                        from August 30, 2000 (date of  acquisition)  through May
                        16, 2002 (date of dissolution):

                                            2002          2001           2000
                                       -----------------------------------------

    Revenues                           $         718  $    5,961   $      3,574

    Costs and expenses                        (1,515)     (6,056)         2,367
    Interest expense                            (186)     (2,090)          (711)
    Minority interest                             50        (203)          (341)
                                       -----------------------------------------

    Net (loss) gain before income
       tax expense                              (933)     (2,388)           155
    Income tax expense                             -           -             -
                                       -----------------------------------------

    Net (loss) gain from discontinued
       operations                               (933)     (2,388)           155
                                       -----------------------------------------

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

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

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


18.  Discontinued       Net  (liabilities)  assets  of  discontinued  operations
     Operations         consists of the following at December 31, 2001:
     Continued

 Cash                                                        $      1,101
 Accounts receivable                                                  218
 Prepaid assets and other current assets                               46
 Property and equipment, net                                          127
 Covenants not to compete                                           1,925
 Goodwill                                                          23,409
 Other long-term assets                                             2,581
                                                             --------------

      Assets held for sale - component DRM                   $     29,407
                                                             --------------

 Accounts payable                                            $        (51)
 Current portion of long-term debt                                 (2,650)
 Notes payable                                                    (14,500)
 Other accrued liabilities                                             (2)
 Long-term debt                                                    (4,340)
 Minority interest                                                   (622)
                                                             --------------

      Liabilities held for sale - component DRM              $    (22,165)

19.  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-37

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

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


19.  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.

                       2002
                       ----
<TABLE>
<CAPTION>
                                                                                              Corporate
                                                                                               Overhead
                                                        Total         CASI       Solution      & Other
                                                    -----------------------------------------------------
<S>                                                 <C>             <C>         <C>            <C>
Revenue                                             $       3,710   $    3,448  $        262   $        -

Costs and expenses:
     Cost of sales                                          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 income                                                 -            -             -            -
Interest expense                                             (104)           -             -         (104)
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-38

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

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


                       2001
                       ----
<TABLE>
<CAPTION>
                                                                                              Corporate
                                                                                               Overhead
                                                        Total         CASI       Solution      & Other
                                                    -----------------------------------------------------
<S>                                                 <C>             <C>         <C>            <C>
Revenue                                             $       4,590   $    4,409  $        181 $          -

Costs and expenses:
     Cost of sales                                          3,369        3,080           289            -
     Research and development                                 423            -           423            -
     General and administrative                             2,420        1,219           313          888
     Depreciation and amortization                            658            -           515          143
     Impairment of machinery                                  776            -             -          776
     Impairment of patents                                    627            -             -          627
                                                    -----------------------------------------------------

         Total costs and expenses                           8,273        4,299         1,540        2,434
                                                    -----------------------------------------------------

Income (loss) from operations                              (3,683)         110        (1,359)      (2,434)

Interest income                                                38           38             -            -
Interest expense                                             (226)           -           (86)        (140)
Equity in losses of unconsolidated
  subsidiary                                                 (295)           -             -         (295)
                                                    -----------------------------------------------------

Income (loss) from continuing operations                   (4,166)         148        (1,445)      (2,869)

Loss from discontinued operations                          (2,388)           -             -       (2,388)
                                                    -----------------------------------------------------

Net (loss) income                                   $      (6,554)  $      148  $     (1,445)  $   (5,257)
                                                    -----------------------------------------------------

Total assets                                        $      31,200   $    1,277  $        600   $   29,323
                                                    -----------------------------------------------------

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


</TABLE>
--------------------------------------------------------------------------------
                                                                            F-39

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

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


                       2000
                       ----
<TABLE>
<CAPTION>
                                                                                              Corporate
                                                                                               Overhead
                                                        Total         CASI       Solution      & Other
                                                    -----------------------------------------------------
<S>                                                 <C>             <C>         <C>            <C>
Revenue                                             $      17,057   $   16,786  $        271   $        -

Costs and expenses:
     Cost of sales                                         14,452       13,962           490            -
     Research and development                                 993            -           993            -
     General and administrative                             5,228        2,355           504        2,369
     Depreciation and amortization                            865            -           378          487
     Impairment of goodwill                                 6,586            -             -        6,586
                                                    -----------------------------------------------------

         Total costs and expenses                          28,124       16,317         2,365        9,442
                                                    -----------------------------------------------------

Income (loss) from operations                             (11,067)         469        (2,094)      (9,442)

Interest income                                                57            -             -           57
Interest expense                                             (586)        (123)          (86)        (377)
Income taxes                                                    -            -             -            -
                                                    -----------------------------------------------------

Income (loss) from continuing operations                  (11,596)         346        (2,180)      (9,762)

Income (loss) from discontinued operations                    155            -             -          155
                                                    -----------------------------------------------------

Net income (loss)                                   $     (11,441)  $      346  $     (2,180)  $   (9,607)
                                                    -----------------------------------------------------

Total assets                                        $      37,473   $    4,255  $      1,724   $   31,494
                                                    -----------------------------------------------------

Expenditures for long-lived assets                  $         302   $      170  $        132   $        -
                                                    -----------------------------------------------------

</TABLE>
--------------------------------------------------------------------------------
                                                                            F-40

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

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


20.  Subsequent         Applied  issued  a total  of  20,705,790  shares  of its
     Event              common  stock  from the period  from  January 1, 2003 to
                        April 11, 2003 in  connection  with  various  conversion
                        notices  from the holders of Series E and F  Convertible
                        Preferred Stock.


21.  Recent             In June 2001, the FASB issued SFAS No. 143,  "Accounting
     Accounting         for  Asset  Retirement   Obligations."   This  Statement
     Pronounce-         addresses   financial   accounting   and  reporting  for
     ments              obligations  associated  with the retirement of tangible
                        long-lived  assets and the associated  asset  retirement
                        costs.   This   Statement  is  effective  for  financial
                        statements  issued for fiscal years beginning after June
                        15, 2002. This Statement  address  financial  accounting
                        and  reporting  for the disposal of  long-lived  assets.
                        Applied  is  currently  assessing  the  impact  of  this
                        statement.

                        In April 2002, the FASB issued SFAS No. 145, "Rescission
                        of FASB Statements No. 4, 44, 64,  Amendment of SFAS No.
                        13,   and   Technical   Corrections."   This   statement
                        eliminates   extraordinary   accounting   treatment  for
                        reporting gain or loss on debt extinguishment.  SFAS No.
                        145 also amends SFAS No. 13, "Accounting for Leases", to
                        require  sale-leaseback  accounting  for  certain  lease
                        modifications   that  have  economic  effects  that  are
                        similar to  sale-leaseback  transactions and changes the
                        provisions  under SFAS 13 related  to  original  lessees
                        being relieved of primary  obligation  under an original
                        lease.   SFAS  No.  145  also  makes  various  technical
                        corrections  to  existing  pronouncements  that  are not
                        substantive  in nature.  The  provisions of SFAS No. 145
                        related to the rescission of SFAS No. 4 are effective in
                        fiscal years  beginning  after May 15, 2002 with earlier
                        application  encouraged.  The provisions of SFAS No. 145
                        related to SFAS No. 13 are  effective  for  transactions
                        occurring after May 15, 2002,  with earlier  application
                        encouraged.  All other  provisions  of SFAS No.  145 are
                        effective  for financial  statements  issued on or after
                        May 15, 2002, with earlier application  encouraged.  Our
                        adoption  of  this  statement  did not  have a  material
                        impact on our  consolidated  results  of  operations  or
                        financial position.


--------------------------------------------------------------------------------
                                                                            F-41

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

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


21.  Recent             In May 2002,  the FASB issued SFAS No. 146,  "Accounting
     Accounting         for Costs Associated with Exit or Disposal  Activities."
     Pronounce-         SFAS  No.  146  addresses   financial   accounting   and
     ments              reporting  for costs  associated  with exit or  disposal
     Continued          activities  and  nullifies  Emerging  Issues  Task Force
                        (EITF)  Issue  No.  94-3,  "Liability   Recognition  for
                        Certain Employee Termination Benefits and Other Costs to
                        Exit an Activity  (including certain Costs Incurred in a
                        Restructuring)."  SFAS No. 146 requires that a liability
                        for an exit cost or disposal activity be recognized when
                        the liability is incurred,  whereas under EITF No. 94-3,
                        a liability  was  recognized  at the date of an entity's
                        commitment   to  an  exit   plan.   SFAS  No.  146  also
                        establishes that fair value is the objective for initial
                        measurement of the liability. The provisions of SFAS No.
                        146 are effective for exit or disposal  activities  that
                        are initiated  after  December 31, 2002. The adoption of
                        this statement has changed the timing of recognition for
                        certain  exit  costs,  so that  certain  exit  costs are
                        recognized  over the period in which the exit activities
                        occur.

                        In  December   2002,  the  FASB  issued  SFAS  No.  148,
                        "Accounting for Stock-Based Compensation--Transition and
                        Disclosure,  an  Amendment of FASB  Statement  No. 123".
                        SFAS  No.  148  amends  SFAS  No.  123  "Accounting  for
                        Stock-Based   Compensation,"   to  provide   alternative
                        methods of transition for a voluntary change to the fair
                        value   based   method  of   accounting   for   employee
                        stock-based  compensation.  In  addition,  SFAS No.  148
                        amends the  disclosure  requirements  of SFAS No. 123 to
                        require  prominent  disclosure  in  annual  and  interim
                        financial  statements about the method of accounting for
                        stock-based  compensation  and its  effect  on  reported
                        results.  The disclosure  provisions of SFAS No. 148 are
                        included  in  the  accompanying  Notes  to  Consolidated
                        Financial   Statements.   We   continue   to  apply  the
                        principles   of  APB   Opinion   No.   25  and   related
                        interpretations   in  accounting  for  our   stock-based
                        compensation plans.

--------------------------------------------------------------------------------
                                                                            F-42

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

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


21.  Recent             In   November   2002,   FASB   Interpretation   No.  45,
     Accounting         "Guarantor's  Accounting and Disclosure Requirements for
     Pronounce-         Guarantees,    Including    Indirect    Guarantees   and
     ments              Indebtedness  of Others,"  ("FIN 45") was  issued.  This
     Continued          interpretation  requires  the  initial  recognition  and
                        initial  measurement,  on a  prospective  basis only, of
                        guarantees  issued or modified  after December 31, 2002.
                        Additionally,   certain   disclosure   requirements  are
                        effective for financial statements ending after December
                        15, 2002.  The  disclosures  required of us by FIN 45 in
                        its fiscal 2002 consolidated financial statements are in
                        note 13. We do not  believe  that the  adoption  of this
                        interpretation  in 2003 will have a  material  impact on
                        our consolidated financial statements.

                        In January 2003, the FASB issued  Interpretation No. 46,
                        Consolidation of Variable  Interest Ethics (FIN No. 46),
                        which addresses consolidation by business enterprises of
                        variable  interest  entities.  FIN No. 46 clarifies  the
                        application  of  Accounting  Research  Bulletin  No. 51,
                        Consolidated  Financial Statements,  to certain entities
                        in   which   equity    investors   do   not   have   the
                        characteristics  of a controlling  financial interest or
                        do not have sufficient  equity at risk for the entity to
                        finance its activities without  additional  subordinated
                        financial support from other parties. FIN No. 46 applies
                        immediately to variable  interest entities created after
                        January 31, 2003, and to variable  interest  entities in
                        which an enterprise obtains an interest after that date.
                        It applies in the first  fiscal  year or interim  period
                        beginning  after June 15,  2003,  to  variable  interest
                        entities  in  which  an  enterprise   holds  a  variable
                        interest  that it  acquired  before  February  1,  2003.
                        Applied   does  not  expect  to  identify  any  variable
                        interest  entities  that  must be  consolidated.  In the
                        event a variable interest entity is identified,  Applied
                        does not expect the requirements of FIN No. 46 to have a
                        material impact on its financial condition or results of
                        operations.



--------------------------------------------------------------------------------
                                                                            F-43

<PAGE>

Exhibits.
--------

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

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

   3.1        Certificate of Incorporation of the Company. (1)

   3.2        By-Laws of the Company. (1)

   4.1        Specimen common stock Certificate. (3)

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

   4.3        Specimen Warrant Certificate. (1)

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

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

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

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

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

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

   4.10       Warrant to purchase  1,000,000  shares of common  stock  issued to
              Environmental. (9)

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

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

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

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

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

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

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

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

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

                                       65
<PAGE>

   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.

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

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

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

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

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

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

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

   10.8       Executive Bonus Plan of the Company. (1)

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

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

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

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

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

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

                                       66
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

   10.30      Teaming Agreement, dated March 18, 1997, by and between ICF Kaiser
              Engineers, Inc. and Advanced Sciences. (14)

   10.31      Memorandum  of  Understanding  between  Lockheed  Martin  Advanced
              Environmental Systems, Inc. and Advanced Sciences. (14)

   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)

                                       67
<PAGE>

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

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

   10.39      Warrant to purchase  340,000  shares of common  stock of Commodore
              Applied Technologies, Inc. issued to William J. Russell. (20)

   10.40      Warrant to purchase  340,000  shares of common  stock of Commodore
              Applied Technologies, Inc. issued to Tamie P. Speciale. (20)

   10.41      Warrant to purchase  300,000  shares of common  stock of Commodore
              Applied Technologies, Inc. issued to Diane Archangeli. (20)

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

   10.43      Specimen Form of Common Stock Certificate. (1)

   10.44      Promissory  Note,  dated  September 15, 2000,  issued to Shelby T.
              Brewer in the principal amount of $500,000. (20)

   10.45      Registration Rights Agreement,  dated September 15, 2000 issued to
              Shelby T. Brewer. (20)

   10.46      Stock Pledge Agreement, dated September 15, 2000 between Commodore
              Environmental Technologies, Inc., and Shelby T. Brewer. (20)

   10.47      Warrant to purchase  100,000  shares of common  stock of Commodore
              Applied Technologies, Inc. issued to Shelby T. Brewer. (20)

   10.48      Amended and Restated  Promissory  Note,  dated September 15, 2000,
              issued to Shelby T. Brewer in the  principal  amount of  $500,000.
              (20)

   10.49      Registration  Rights  Agreement,  dated  March 15,  2001 issued to
              Shelby T. Brewer. (20)

   10.50      Secured  Promissory Note, dated November 13, 2000, issued to Klass
              Partners Ltd. in the principal amount of $250,000. (20)

   10.51      Secured  Promissory  Note,  dated  November  13,  2000,  issued to
              Mathers Associates in the principal amount of $150,000. (20)

   10.52      Secured  Promissory Note,  dated November 13, 2000,  issued to Jon
              Paul Hannesson in the principal amount of $75,000. (20)

   10.53      Secured  Promissory  Note,  dated  November  13,  2000,  issued to
              Stephen A. Weiss in the principal amount of $25,000. (20)

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

   10.55      Securities  Purchase  Agreement,  dated  November 13, 2000, by and
              among   Commodore   Applied    Technologies,    Inc.,    Commodore
              Environmental Services, Inc., Mathers Associates,  Klass Partners,
              Ltd., Jon Paul Hannesson and Stephen A. Weiss. (20)

   10.56      Security  Agreement,  dated November 13, 2000 by and among Mathers
              Associates,  Klass Partners, Ltd., Jon Paul Hannesson,  Stephen A.
              Weiss and Commodore Applied Technologies, Inc. (20)

   10.57      Registration  Rights  Agreement,  dated  November 13, 2000,  among
              Mathers  Associates,  Klass  Partners,  Ltd., Jon Paul  Hannesson,
              Stephen A. Weiss and Commodore Applied Technologies, Inc. (20)

   10.58      Dispute Resolution  Management,  Inc.  Undertaking  Letter,  dated
              November 13, 2000. (20)

   10.59      Nationwide  Permit Extension for PCB Disposal issued by the EPA to
              Commodore Remediation Technologies, Inc. (20)

   10.60      Contract between Commodore Solutions and Waste Control Specialists
              dated February 12, 2000. (20)

                                       68
<PAGE>

   10.70      Conversion   Notice,   dated  April  9,  2001  between  S.  Brewer
              Enterprises,  Inc. and the Company for the  conversion of $250,000
              of the Restated Brewer Note. (20)

   10.71      Memorandum of  Understanding  for Amendment of $500,000 CXI Bridge
              Loan  Documents,  dated April 16, 2001,  by and among the Company,
              Commodore  Environmental Services,  Inc., Mathers Associates,  Jon
              Paul Hannesson and Stephen A. Weiss. (20)

   10.72      Klass  Partners  Ltd.  Agreement  for Amendment of CXI Bridge Loan
              Documents,  dated  April  16,  2001,  by  the  Company  and  Klass
              Partners, Ltd. (20)

   10.73      Warrant to purchase  300,000 shares of common stock of the Company
              issued to Mathers Associates. (20)

   10.74      Warrant to purchase  75,000  shares of common stock of the Company
              issued to Jon Paul Hannesson. (20)

   10.75      Warrant to purchase  75,000  shares of common stock of the Company
              issued to Krista S. Hannesson. (20)

   10.76      Warrant to purchase  50,000  shares of common stock of the Company
              issued to Stephen A. Weiss. (20)

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

   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)

   10.83      Securities   Purchase   Agreement  dated  May  22,  2001,  between
              Commodore Applied Technologies, Inc., and Dr. Marion Dana. (23)

   10.84      Registration   Rights  Agreement  dated  May  22,  2001,   between
              Commodore Applied Technologies, Inc., and Dr. Marion Dana. (23)

   10.85      Warrant to purchase  500,000 shares of common stock of the Company
              issued to Dr. Marion Dana. (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)

                                       69
<PAGE>

   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)

   10.92      Amended and Restated Stock Purchase Agreement, dated September 21,
              2001, by and among Commodore Applied  Technologies,  Inc., Dispute
              Resolution  Management,  Inc.,  William  J.  Russell  and Tamie P.
              Speciale. (21)

   10.93      Amended and Restated Stock Purchase  Agreement,  dated October 31,
              2001, by and among Commodore Applied  Technologies,  Inc., Dispute
              Resolution  Management,  Inc.,  William  J.  Russell  and Tamie P.
              Speciale. (22)

   10.94      Forbearance  Agreement dated January 11, 2002,  between  Commodore
              Applied Technologies, Inc., and Milford Capital & Management. (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)

   10.100     LLC Agreement,  dated April 2, 2002, between Technical  Resources,
              Inc. (a wholly owned  subsidiary  of Nuvotec,  Inc.) and Commodore
              Government Environmental Technologies, Inc. (23)

   *10.101    Forbearance  Agreement  dated  April 1,  2002,  between  Commodore
              Applied Technologies, Inc., and the Shaar Fund, Ltd.

   *10.102    Forbearance  Agreement  dated  April 1,  2002,  between  Commodore
              Applied Technologies, Inc., and Milford Capital & Management.

   *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.

   *10.104    Forbearance  Agreement  dated  May  13,  2002,  between  Commodore
              Applied Technologies, Inc., and the Shaar Fund, Ltd.

                                       70
<PAGE>

   *10.105    Forbearance  Agreement  dated  May  13,  2002,  between  Commodore
              Applied Technologies, Inc., and Milford Capital & Management.

   *10.106    Forbearance  Agreement  dated  June 13,  2002,  between  Commodore
              Applied Technologies, Inc., and the Shaar Fund, Ltd.

   *10.107    Forbearance  Agreement  dated  June 13,  2002,  between  Commodore
              Applied Technologies, Inc., and Milford Capital & Management.

   *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.

   *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.

   *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.

   *10.111    Amended  and  Restated  Promissory  Note,  dated  October 2, 2002,
              issued to Shelby T. Brewer in the principal amount of $250,000.

   *10.112    Warrant to purchase  1,000,000 shares of common stock of Commodore
              Applied Technologies, Inc. issued to Shelby T. Brewer.

   *10.113    Registration  Rights  Agreement,  dated  October 2, 2002 issued to
              Shelby T. Brewer.

   *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.

   *10.115    Warrant to purchase  222,222 shares of common stock of the Company
              issued to Klass Partners.

   *10.116    Warrant to purchase  166,667 shares of common stock of the Company
              issued to Mathers Associates.

   *10.117    Warrant to purchase  41,667  shares of common stock of the Company
              issued to Jon Paul Hannesson.

   *10.118    Warrant to purchase  41,666  shares of common stock of the Company
              issued to Krista S. Hannesson.

   *10.119    Warrant to purchase  27,778  shares of common stock of the Company
              issued to Stephen A. Weiss.

   *10.120    Warrant to purchase  500,000 shares of common stock of the Company
              issued to Klass Partners.

   *10.121    Warrant to purchase  300,000 shares of common stock of the Company
              issued to Mathers Associates.

   *10.122    Warrant to purchase  75,000  shares of common stock of the Company
              issued to Jon Paul Hannesson.

   *10.123    Warrant to purchase  75,000  shares of common stock of the Company
              issued to Krista S. Hannesson.

                                       71
<PAGE>

   *10.124    Warrant to purchase  50,000  shares of common stock of the Company
              issued to Stephen A. Weiss.

   *10.125    Conversion  Notice,   dated  March  14,  2003  between  S.  Brewer
              Enterprises,  Inc. and the Company for the  conversion of $250,000
              of the Restated Brewer Note.

   16.1       Letter regarding change in certifying accountant. (12)

   16.2       Letter regarding change in certifying accountant. (17)

   *22.1      Subsidiaries of the Company.

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

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

   *99.3      Certification  pursuant  to 18 U.S.C.  Section  1350,  as  adopted
              pursuant by Section 906 of the Sarbanes-Oxley Act of 2002.

   *99.4      Certification  pursuant  to 18 U.S.C.  Section  1350,  as  adopted
              pursuant by Section 906 of the Sarbanes-Oxley Act of 2002.


* Filed herewith.

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

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

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

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

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

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

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

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

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

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

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

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

                                       72
<PAGE>

   (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).


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


         1.   The  Company  filed a Current  Report  on Form 8-K,  dated May 21,
              2002,  regarding the receipt of a Notice of Default  regarding the
              Stock  Purchase  Agreement  and the Stock  Pledge  Agreement  with
              Dispute Resolution Management, Inc.

         2.   The Company filed a Current  Report on Form 8-K,  dated August 16,
              2002,  regarding  the  failure  of its  wholly  owned  subsidiary,
              Commodore Advance Sciences, Inc., to obtain a further extension of
              its Analytical  Services  Support  subcontract to provide sampling
              and analytical work in support of the closure of the Department of
              Energy's Rocky Flats site.


                                       73
<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, 2003               COMMODORE APPLIED TECHNOLOGIES, INC.

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

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


/s/ Shelby T. Brewer       Chairman of the Board and Chief        April 15, 2003
------------------------   Executive Officer (principal
Shelby T. Brewer           executive officer)

/s/ James M. DeAngelis     Senior Vice President and Chief        April 15, 2003
------------------------   Financial Officer (principal
James M. DeAngelis         financial officer)


/s/ Bentley J. Blum        Director                               April 15, 2003
------------------------
Bentley J. Blum

/s/ Frank E. Coffman       Director                               April 15, 2003
------------------------
Frank E. Coffman

/s/ Paul E. Hannesson      Director                               April 15, 2003
------------------------
Paul E. Hannesson

/s/ Michael P. Kalleres    Director                               April 15, 2003
------------------------
Michael P. Kalleres

/s/ William A. Wilson      Director                               April 15, 2003
------------------------
William A. Wilson



                                       74
<PAGE>

CERTIFICATIONS

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                    ----------------------------------------



I, Shelby T. Brewer, certify that:

1. I have  reviewed  this  annual  report  on  Form  10-K of  Commodore  Applied
Technologies, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects  the  financial  condition,  results  of  operations  and cash flows of
Commodore  Applied  Technologies,  Inc. as of, and for, the periods presented in
this annual report.

4. Commodore  Applied  Technologies,  Inc.'s other certifying  officer and I are
responsible for establishing and maintaining  disclosure controls and procedures
(as defined in Exchange  Act Rules  13a-14 and  15d-14)  for  Commodore  Applied
Technologies, Inc. and have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
material information relating to Commodore Applied Technologies, Inc., including
its  consolidated  subsidiaries,  is made  known to us by  others  within  those
entities,  particularly  during the period in which this annual  report is being
prepared;

         b)  evaluated  the  effectiveness  of Commodore  Applied  Technologies,
Inc.'s  disclosure  controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the Evaluation Date); and

         c)  presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. Commodore Applied  Technologies,  Inc.'s other certifying  officer and I have
disclosed,   based  on  our  most  recent   evaluation,   to  Commodore  Applied
Technologies,  Inc.'s  auditors and the audit  committee  of  Commodore  Applied
Technologies,  Inc.'s board of directors (or persons  performing  the equivalent
functions):


                                       75
<PAGE>


         a) all significant  deficiencies in the design or operation of internal
controls which could adversely affect  Commodore  Applied  Technologies,  Inc.'s
ability  to  record,  process,  summarize  and  report  financial  data and have
identified  for Commodore  Applied  Technologies,  Inc.'s  auditors any material
weaknesses in internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
other employees who have a significant role in Commodore  Applied  Technologies,
Inc.'s internal controls; and

6. Commodore Applied  Technologies,  Inc.'s other certifying  officer and I have
indicated in this annual report whether or not there were significant changes in
internal controls or in other factors that could  significantly  affect internal
controls  subsequent  to the date of our most recent  evaluation,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.


/s/ Shelby T. Brewer
-----------------------
Shelby T. Brewer
Chief Executive Officer
April 15, 2003


                                       76
<PAGE>


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                    ----------------------------------------



I, James M. DeAngelis, certify that:

1. I have  reviewed  this  annual  report  on  Form  10-K of  Commodore  Applied
Technologies, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects  the  financial  condition,  results  of  operations  and cash flows of
Commodore  Applied  Technologies,  Inc. as of, and for, the periods presented in
this annual report.

4. Commodore  Applied  Technologies,  Inc.'s other certifying  officer and I are
responsible for establishing and maintaining  disclosure controls and procedures
(as defined in Exchange  Act Rules  13a-14 and  15d-14)  for  Commodore  Applied
Technologies, Inc. and have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
material information relating to Commodore Applied Technologies, Inc., including
its  consolidated  subsidiaries,  is made  known to us by  others  within  those
entities,  particularly  during the period in which this annual  report is being
prepared;

         b)  evaluated  the  effectiveness  of Commodore  Applied  Technologies,
Inc.'s  disclosure  controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the Evaluation Date); and

         c)  presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. Commodore Applied  Technologies,  Inc.'s other certifying  officer and I have
disclosed,   based  on  our  most  recent   evaluation,   to  Commodore  Applied
Technologies,  Inc.'s  auditors and the audit  committee  of  Commodore  Applied
Technologies,  Inc.'s board of directors (or persons  performing  the equivalent
functions):



                                       77
<PAGE>

         a) all significant  deficiencies in the design or operation of internal
controls which could adversely affect  Commodore  Applied  Technologies,  Inc.'s
ability  to  record,  process,  summarize  and  report  financial  data and have
identified  for Commodore  Applied  Technologies,  Inc.'s  auditors any material
weaknesses in internal controls; and

         b) Any fraud,  whether or not  material,  that  involves  management or
other employees who have a significant role in Commodore  Applied  Technologies,
Inc.'s internal controls; and

6. Commodore Applied  Technologies,  Inc.'s other certifying  officer and I have
indicated  in this  annual  report  whether  there were  significant  changes in
internal controls or in other factors that could  significantly  affect internal
controls  subsequent  to the date of our most recent  evaluation,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.


/s/ James M. DeAngelis
-----------------------
James M. DeAngelis
Chief Financial Officer
April 15, 2003


                                       78
<PAGE>

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

         The Company has not sent to its security  holders any annual  report or
proxy material during the 2002 fiscal year.


                                       79