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, 2003

                                       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>

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

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

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

<PAGE>

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

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

         Non-affiliates  of the  registrant  held  shares of common  stock as of
April 14, 2004 with an  aggregate  market value of  approximately  $3,334,203.34
(based  upon the  last  sale  price of the  common  stock on April  14,  2004 as
reported by the NASD Over the Counter Bulletin Board).

         As of April 14, 2004,  126,773,071  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, 2003

                                TABLE OF CONTENTS



PART 1.........................................................................1
------
    ITEM 1.  BUSINESS..........................................................1
             General...........................................................1
             Soil Decontamination--Commodore Solution
                 Technologies, Inc.............................................2
             Environmental Management - Commodore Advanced
                 Sciences, Inc.................................................7
             Markets and Customers.............................................9
             Raw Materials....................................................10
             Backlog..........................................................10
             Research and Development.........................................10
             Intellectual Property............................................11
             Competition......................................................11
             Environmental Regulation.........................................13
             Employees........................................................14
    ITEM 2.  PROPERTIES.......................................................15
    ITEM 3.  LEGAL PROCEEDINGS................................................15
    ITEM 4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY
             HOLDERS..........................................................16

PART II.......................................................................17
-------
    ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS..............................................17
             Market Information...............................................17
             Dividend Information.............................................18
             Recent Sales of Unregistered Securities..........................19
    ITEM 6.  SELECTED FINANCIAL DATA..........................................25
    ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS..............................26
             Overview.........................................................26
             Results of Operations............................................26
             Liquidity and Capital Resources..................................29
             Net Operating Loss Carryforwards.................................32
             New Accounting Pronouncements....................................32
             Forward Looking Statements.......................................33
    ITEM 7A. QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT
             MARKET RISK......................................................34
    ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................34
    ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE..............................34
    ITEM 9A. CONTROLS AND PROCEDURES..........................................35

<PAGE>

PART III......................................................................36
    ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
             REGISTRANT.......................................................36
             Executive Officers and Directors.................................36
             Key Employees....................................................38
             Board Committees.................................................39
             Compensation of Directors........................................39
             Compliance with Section 16(a) of the Exchange Act................39
             Audit Committee and Financial Expert.............................40
             Code of Ethics...................................................40
    ITEM 11. EXECUTIVE COMPENSATION...........................................41
             Summary Compensation.............................................41
             Stock Options....................................................43
             Short Term Incentive Plan........................................45
             New Plan Benefits Tables.........................................46
             Employment Agreements............................................48
             Compensation Committee Interlocks and Insider
                 Participation................................................48
             Report of the Compensation Committee on Executive
                 Compensation.................................................48
             Compensation, Stock Option and Benefits Committee................48
             Equity Compensation Plan Information.............................49
             Shareholder Return Performance...................................51
    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...............................................61
    ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES...........................62

PART IV.......................................................................62
-------
    ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
             REPORTS ON FORM 10-K.............................................62

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

SUPPLEMENTAL INFORMATION......................................................74
------------------------


<PAGE>
     Preliminary Note Regarding Certain Risks and Forward-Looking Statements

         This Annual Report on Form 10-K contains "forward-looking  statements."
These forward-looking statements can generally be identified as such because the
context of the  statement  will  include  words such as the Company  "believes,"
"anticipates," "expects" or words of similar import. Similarly,  statements that
describe the Company's  projected  future results,  future plans,  objectives or
goals or future conditions or events are also forward-looking statements. Actual
results are inherently difficult to predict. Any such forward-looking statements
are subject to the risks and  uncertainties  that could cause actual  results of
operations,   financial   condition,   acquisitions,   financing   transactions,
operations,  expenditures,  expansion and other events to differ materially from
those  expressed  or  implied  in  such  forward-looking  statements.  Any  such
forward-looking   statements  would  be  subject  to  a  number  of  assumptions
regarding,   among  other  things,  future  economic,   competitive  and  market
conditions generally. Such assumptions would be based on facts and conditions as
they exist at the time such  statements  are made as well as  predictions  as to
future facts and conditions,  the accurate  prediction of which may be difficult
and involve the assessment of events beyond the Company's control.

         Further,  the  Company's  business  is subject to a number of risks and
uncertainties that would affect any such forward-looking statements. These risks
and uncertainties include, but are not limited to:

         o    the  Company's  critical  need  for  additional  cash  to  sustain
              existing  operations  and meet  existing  obligations  and capital
              requirements;  (the Company's auditor's opinion on our fiscal 2002
              and  2003  financial   statements   contains  a  "going   concern"
              qualification  in which they  express  doubt  about the  Company's
              ability to continue in business, absent additional financing)
         o    the ability to generate  profitable  operations from a large scale
              remediation project;
         o    the ability of the Company to renew its nationwide permit to treat
              PCBs;
         o    the  ability of the  Company  to  implement  its waste  processing
              operations,   including  obtaining   commercial  waste  processing
              contracts and  processing  waste under such  contracts in a timely
              and cost  effective  manner;
         o    the timing and award of contracts by the U.S. Department of Energy
              for the cleanup of waste sites administered by it;
         o    the Company's ability to integrate acquired companies;
         o    the acceptance and implementation of the Company's waste treatment
              technologies in the government and commercial sectors;
         o    the  Company's  ability to obtain and  perform  under  other large
              technical support services projects; developments in environmental
              legislation and regulation;
         o    the ability of the Company to obtain future financing on favorable
              terms;
         o    other circumstances affecting anticipated revenues and costs;
         o    the expiration of the Company's nationwide EPA permit in September
              2001 (the permit may be renewed  subject to  providing  additional
              information. The Company has not resubmitted information for a new
              permit) and
         o    the  ability  of  the  Company  to  replicate  on a  large  scale,
              economically  viable  basis,  the results of its  technology  test
              results.

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



<PAGE>
                                     PART I
                                     ------

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

GENERAL

         Commodore   Applied   Technologies,   Inc.   (the   "Company")   is  an
environmental  solutions  company  offering a range of engineering and technical
services  to  the  public  and  private   sectors  related  to  (i)  remediating
contamination in soils,  liquids and other materials and disposing of or reusing
certain  waste  by-products  by  utilizing  our  Solvated  Electron   Technology
("SET(TM)"),  and (ii) providing services related to,  environmental  management
for  on-site  and  off-site   identification,   investigation   remediation  and
management of hazardous, mixed and radioactive waste.

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

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

         Demand  for our  environmental  technologies  is  anticipated  to arise
principally from the following sources:

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

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

         Our  business  strategy  is to expand  our  environmental  technologies
businesses by:

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

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

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

                                       1
<PAGE>

         The Company  currently  requires  additional  cash to sustain  existing
operations and to meet current obligations and ongoing capital requirements. The
Company's   current   monthly   operating   expenses  exceed  cash  revenues  by
approximately $100,000 at December 31, 2003.

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

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

         The Company was incorporated in Delaware in March 1996. As used in this
Annual Report, and except as the context otherwise requires, the "Company" means
Commodore Applied Technologies,  Inc. and its subsidiaries,  including Commodore
Solutions,  Inc., Commodore  Government  Environmental  Technologies,  Inc., and
Commodore Advanced Sciences,  Inc. The Company's principal executive offices are
located at 150 East 58th Street,  Suite 3238, New York, New York 10155,  and its
telephone number at that address is (212) 308-5800.

SOIL DECONTAMINATION--COMMODORE SOLUTION TECHNOLOGIES, INC.

         The Company,  through  Commodore  Solutions,  Inc.  ("Solutions"),  has
developed and has commercialized its patented process known as SET. Based on the
results of its  extensive  testing and  commercial  processing  activities,  the
Company believes that SET is capable of effectively treating and decontaminating
soils  and  other  materials,  including  sludges,  sediments,  oils  and  other
hydrocarbon liquids,  metals,  clothing and porous and non-porous structures and
surfaces, by destroying PCBs,  pesticides,  dioxins,  chlorinated substances and
other toxic  contaminants  to an extent  sufficient to satisfy  current  federal
environmental  guidelines.  The Company also believes that, based on the results
of additional  tests,  SET is capable of  neutralizing  substantially  all known
chemical  weapons  materials and warfare  agents,  explosives and  concentrating
certain radioactive wastes for more effective disposal.

         The SET process was  commercialized  during the calendar  year 2000. In
May 2000, the Company  mobilized its S-10 system to Harrisburg,  Pennsylvania to
begin processing PCB contaminated soils at the Pennsylvania Air National Guard's
base located at the Harrisburg  International  Airport (the "Initial  Harrisburg
Contract").  The  Company  completed  the  contract  in July  2001,  remediating
approximately  340 tons of  excavated  soils to levels  deemed  unregulated  for
disposal by the U.S.  Environmental  Protection Agency (the "EPA").  The Company
believes   this  is  the  first  time  a   non-thermal   process   has   treated
PCB-contaminated  soils to levels  allowing  them to be replaced in the original
excavation.

         Additionally,  the Company performed several  treatability  studies for
third party  customers  during 2000, as well as continued  internal  testing and
process  development.  At  Envirocare  of Utah  ("Envirocare"),  the SET process
successfully  treated water treatment sludge from a waste stream provided by the
Brookhaven  National  Laboratory  (the  "Envirocare   Study").   Under  current,
non-Commodore technology treatment processes at Envirocare, this waste could not
be treated to meet land disposal regulation requirements. The waste stream was a
laboratory mixed waste  (radioactive)  sludge,  contaminated  with lead and high
levels of RCRA organic  compounds.  The  Envirocare  Study waste  contained  the
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

                                       2
<PAGE>

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

         In January 2001 the Company  entered into a contract with Waste Control
Specialists, LLC ("WCS") for the treatment of various mixed waste streams stored
at the WCS facility near Andrews,  Texas.  This work employed the Company's SL-2
SET system and was completed in August 2001. No large scale waste  treatment was
performed at this site.

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

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

         In October 2003 the Company  entered into a contract with ToxCo Metals,
("ToxCo"), Oak Ridge. Advanced Sciences, teamed with ToxCo, is performing sodium
disposition  for the  Department  of Energy at  ToxCo's  facility  in Oak Ridge,
Tennessee. This contract commenced late in 2003, and is expected to be completed
late in 2004.

         In December 2003 the Company entered into a contract with Envirocare of
Utah  ("Envirocare"),  Clive, Utah for the treatment of mixed wastes, as well as
consultation  regarding the  regulatory  requirements  for the  treatment.  Work
commenced in March 2004, employing the Company's SL-2 SET system. The Company is
hopeful this may result in the first  multi-year  installation  and contract for
the SET technology.

         The Company has generated  aggregate  revenues of less than  $1,100,000
from the implementation of the SET technology since 1999.


                                       3
<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;

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;

                                       4
<PAGE>

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

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

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

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

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

         The  Nationwide  Permit  expired in September  2001, and may be renewed
subject to providing any requested additional information to the EPA at the time
of renewal. The Company is in the process of obtaining a permit revision for its
commercial  SET  processing  system,  the S-10.  The S-10  system is  capable of
processing up to 10 tons of contaminated  material daily.  The Company  believes
that various revisions to the equipment and process parameters are being made to
the existing  permit.  The revised  permit will be issued pending the final site
selection  for the  full  or  part-time  operation  of any  SET  system  for the
treatment  of PCB wastes.  The revised  permit will  require the Company to fund
closure  costs  associated  with the  implementation  of any SET  system for the
treatment of PCB wastes.  The closure  costs are  calculated  on a  site-by-site
basis and are funded accordingly by the Company.

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

                                       5
<PAGE>

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


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

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


                                       6
<PAGE>

ENVIRONMENTAL MANAGEMENT--COMMODORE ADVANCED SCIENCES, INC.

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

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

Services

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

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

         Technical  Services.  New technologies play a critical role in both the
remediation of existing  waste sites and in the reduction of waste  generated by
ongoing production processes. Advanced Sciences has access to the SET technology
and all its  derivatives.  Additionally,  Advanced  Sciences  has  access to the
Supported Liquid Membrane  ("SLiM(TM)")  technology held by Commodore Separation
Technologies,   Inc.   ("Separation").   This  technology  has  the  ability  to
selectively  extract  heavy  metals and  radioactive  nuclides  from liquids and
gasses.  The SLiM  technology  is held in an 85% owned  subsidiary  of Commodore
Environmental Services,  which owns 6.82% of the Company.  Advanced Sciences has
at its  disposal,  on a per project  basis,  what it believes are among the most
qualified  professionals  in the  environmental  consulting  business.  Advanced
Sciences'  scientists  have  participated on national boards for risk assessment
and quality  assurance,  were  instrumental in the development of  environmental
regulations for the DOE and the DOD, and have served as expert  witnesses before
the U.S.  Congress  and the  Nuclear  Regulatory  Commission.  To  maintain  its
competitive  position,  Advanced  Sciences intends to continue to develop viable
remediation technologies and attract and retain qualified personnel.

                                       7
<PAGE>

Contracts

         UT Battelle:  Advanced  Sciences  provides one engineering  person on a
time and material basis to UT Battelle, supporting the site closure at Oak Ridge
National Laboratories (ORNL). The Advanced Sciences personnel provide structural
engineering  assessment  services  under this  contract.  The time and  material
contract remains on-going through 2004.

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

         Tetra Tech Contract:  Advanced  Sciences provides  engineering  support
under Tetra Tech's general  engineering support contract with Bechtel Jacobs Co,
LLC. Bechtel Jacobs is responsible for environmental oversight of the U.S. DOE's
Oak Ridge, TN site. Advanced Sciences provides 1 to 3 engineering personnel on a
time and material  basis to Tetra Tech on a contract  basis which is expected to
continue through September 2004.

         ToxCo Metals, Oak Ridge:  Advanced Sciences,  teamed with ToxCo Metals,
is  performing  sodium  disposition  for the  Department  of Energy  at  ToxCo's
facility in Oak Ridge,  Tennessee.  This contract commenced late in 2003, and is
expected to be completed late in 2004.

         Envirocare  of  Utah:  Advanced  Sciences  is  performing  mixed  waste
treatment  operations for specific waste streams at the Envirocare of Utah Clive
facility  northwest of Salt Lake City, using its SL-2 solvated  electron system.
The contract  commenced in December 2003,  and is based on unit treatment  costs
for wastes designated for treatment by the client.

Joint Ventures

         Nuvotec,  Inc.,  Joint  Venture.  In April 2002,  Commodore  Government
Environmental  Technologies,  Inc. ("Government  Technologies"),  a wholly-owned
subsidiary of the Company, entered into a LLC agreement with Technical Resources
International,  Inc., ("TRI"), a wholly owned subsidiary of Nuvotec,  Inc., as a
non-exclusive  means by which each party (and their affiliates) may pursue mixed
waste treatment  contracts on a limited,  domestic  basis.  TRI is a provider of
contract services to the DOE and to the public utilities market.  The purpose of
the joint venture, known as Nuvoset, LLC (the "Nuvoset LLC"), a Delaware limited
liability  company,  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.  There was no
activity  in the  Nuvoset,  LLC  during  the year  2003.  The  Nuvoset,  LLC was
dissolved in 2003 as per agreement between the parties.

                                       8
<PAGE>

MARKETS AND CUSTOMERS

General

         The Company markets its services and  technologies to governmental  and
industrial  customers  throughout the United  States.  The Company also plans to
target  customers  in markets  abroad,  particularly  in Eastern  Europe and the
Middle  East.  A majority of the  Company's  sales are  technical  in nature and
involve  senior  technical  and  management  professionals,   supported  by  the
Company's  marketing  groups.  During the year ended December 31, 2003, sales of
approximately  14% of the Company's  environmental  management  services were to
private  sector  customers  and sales of  approximately  86% 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 2003, Advanced Sciences' Rocky Flats
Contracts, Oak Ridge Contracts,  Toxco Contracts and the AERC Contract accounted
for approximately  33%, 53%, 11% and 3%,  respectively of the Advanced Sciences'
sales. The Company has benefited from its long-term  relationships  with many of
its customers that result in repeat business.

Soil Decontamination

         The  Company   anticipates  that  the  initial  market  for  commercial
applications  of SET  will be the  hazardous  and  mixed  waste  and  industrial
by-products treatment and disposal market. Mixed waste is material that contains
both a hazardous and radioactive component. The most common methods of treatment
and disposal of hazardous wastes and industrial by-products include landfilling,
chemical  and  biological  treatment  and  incineration.  Most  of  the  current
treatment and disposal methods entail air pollution and transportation risks. In
a mixed waste,  both hazardous and nuclear  regulations  apply,  making disposal
difficult,  if not  impossible.  Currently,  there exists very limited  disposal
options  and  these may not  provide  a  permanent  solution.  Certain  of these
treatment and disposal methods result in large volumes of residual waste,  which
may require further treatment prior to disposal.  As a result, a number of these
methods  are  encountering  increased  public  resistance  and added  regulatory
oversight.

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

                                       9
<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,  2003,  total  potential  backlog for the Company was
approximately $524,000 as compared with approximately  $1,200,000 as of December
31, 2002.  The total backlog  represents  work for which the Company has entered
into a signed  agreement or purchase order with respect  thereto or has received
an order to proceed  with work up to a  specified  dollar  amount.  The  Company
estimates that all of the total backlog  represents  work that will be completed
in the next 12 months.  Backlog amounts have historically  resulted in revenues;
however,  no  assurance  can be given that all amounts  included in backlog will
ultimately be realized, even if covered by written contracts or work orders.

RESEARCH AND DEVELOPMENT

         Research and  development  activities are ongoing and utilize  internal
technical staff, as well as independent  consultants retained by the Company and
its  subsidiaries.  All such  activities  are  company-sponsored.  Research  and
development  expenditures  for the Company and its  subsidiaries  were  $70,000,
$297,000,  and  $423,000 for the years ended  December  31, 2003,  2002 and 2001
respectively.

                                       10
<PAGE>

INTELLECTUAL PROPERTY

         The Company  currently has twelve (12) issued U.S. and foreign patents.
Additionally,  the Company has seventeen (17) patent  applications  currently on
file  and  pending  in the U.S.  and in  foreign  countries.  The  average  life
expectancy  for the  currently  issued  patents is 12.87  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,  compete
with the Company in this market. The Company primarily competes in the hazardous
waste  treatment  market in the U.S.,  a market  valued at over $3.7 billion for
2004. 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 2003  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  (currently  expired) for destroying PCBs, any one or more of
the Company's  competitors or other  enterprises not presently known may develop
technologies which are superior to the technologies  utilized by the Company. To
the extent that the Company's  competitors are able to offer comparable services
at  lower  prices  or of  higher  quality,  or more  cost-effective  remediation
alternatives,  the Company's  ability to compete  effectively could be adversely
affected.

                                       11
<PAGE>

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

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

Environmental Management

         Advanced Sciences has been primarily engaged in providing environmental
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 $11 to $12 billion for 2004. 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, all of which have greater
financial  and other  resources  than the Company.  In  providing  environmental
impact assessment  services,  Advanced Sciences'  principal  competitors in this
market  sector  include  Tetra  Tech,  The  Earth  Technology   Corp.,  URS  and
Woodward-Clyde.  Primary factors affecting Advanced Sciences' competitiveness in
this  market  are its  ability to  continue  to  attract  and  retain  qualified
technical and professional staff with quality project performance records and to
control its costs of doing business.

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

                                       12
<PAGE>

ENVIRONMENTAL REGULATION

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

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

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

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

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

                                       13
<PAGE>

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

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

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

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

EMPLOYEES

         As of December 31, 2003,  the Company  (including all of its direct and
indirect subsidiaries) had a total of 10 full-time and 4 part-time employees, of
which   approximately   9  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.

OTHER INFORMATION

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

                                       14
<PAGE>

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

         The Company's  principal executive offices are located in New York, New
York. The Company leases  approximately 2,000 square feet of office space in New
York from an affiliate of Bentley J. Blum, a director and principal  stockholder
of Commodore Environmental  Services,  Inc.  ("Environmental") and a director of
the Company, Solution,  Commodore Separation Technologies,  Inc. ("Separation"),
Advanced Sciences and certain other  subsidiaries and affiliates of the Company.
Such space also serves as the principal  executive  offices of Environmental and
certain of its  affiliates.  Although the Company's  lease for the New York City
space expired in December  1998,  the Company has been  permitted to use the New
York City  office  space  during  1999,  2000,  2001,  2002,  2003 and 2004 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 $2000 per month.

         The Company leases approximately 400 square feet of laboratory,  office
and storage  space at  Kirtland  Air Force Base in  Albuquerque,  New Mexico for
rental  payments in the amount of $707 per month,  pursuant to a  month-to-month
lease arrangement.

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

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 14, 2004, no litigation has been filed against the Company,
or any of the Company's subsidiaries with respect to this indemnification issue.
The  Company  is  currently   investigating   all  of  the  relevant  facts  and
circumstances  in  connection  with  the  Surety's  potential  claim or cause of
action.  No amount has been recorded in the financial  statements as the Company
is unable to determine a loss amount, if any, on the issue of indemnification.

                                       15
<PAGE>

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

         As of April 14, 2004, 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  Company  held its 2002  Annual  Meeting at The  Fitzpatrick  Hotel
located at 687  Lexington  Avenue,  New York,  NY 10015 on September  12, 2003 -
11:00 a.m. EST. All  shareholders of record as of the announced record date were
notified of the meeting in a timely manner.  All shareholders of record received
the appropriate financial and proxy materials prior to the meeting.

         The results of the meeting were as follows:

         The stockholders owning a majority of the issued and outstanding shares
of the Company's Common Stock have voted:

         1.   to elect  Bentley J. Blum,  Shelby T.  Brewer,  Frank E.  Coffman,
              James M.  DeAngelis,  Paul E.  Hannesson,  Michael P. Kalleres and
              William A. Wilson as Directors;
         2.   to amend the Certificate of  Incorporation  to increase the number
              of authorized  shares of common stock from  125,000,000  shares to
              300,000,000 shares.
         3.   to approve the Company's Short Term Incentive Plan.
         4.   to ratify the Company's 1998 Stock Option Plan, as amended.
         5.   to approve options issued to the Chief  Executive  Officer outside
              the Company's 1998 Stock Option Plan, as amended.
         6.   to approve options issued to the Chief  Financial  Officer outside
              the Company's 1998 Stock Option Plan, as amended.
         7.   to ratify Tanner + Co. as the Company's  independent  auditors for
              the year ended December 31, 2003.


                                       16
<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 listed on the American
Stock Exchange ("AMEX") and began trading in the over-the-counter  market in the
so-called  "pink  sheets" of the  National  Quotation  Bureau,  Inc. and the OTC
Bulletin Board of the National Association of Securities Dealers, Inc. (the "OTC
Bulletin Board or OTCBB"),  where it is currently  traded under the symbol CXII.
As of April 14,  2004,  there were 275 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 (prior to March 6, 2003) and on the OTCBB
(after March 6, 2003).

                                     Common Stock                Warrants*
                                   High         Low          High         Low
                                   ----         ---          ----         ---
Fiscal 2003
      First Quarter.........       $0.180       $0.020        -            -
      Second Quarter........        0.032        0.019        -            -
      Third Quarter.........        0.035        0.016        -            -
      Fourth Quarter........        0.230        0.013        -            -

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         -            -

* Warrants expired on June 16, 2002

ISSUANCE OF COMMON STOCK SUBSEQUENT TO DECEMBER 31, 2003

         The  Company  issued a total of  9,070,937  shares of its common  stock
during the period from January 1, 2004 to April 14,  2004,  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").


                                       17
<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, 2003,  the Company had paid an aggregate
since the stock was issued of  $134,000  in cash  dividends  and the Company has
accrued an additional  $838,170 in unpaid dividends.  The Company has the option
to pay  the  dividends  accrued  in all  periods  after  April  30,  2000 in the
Company's  common stock rather than cash.  During 2003 the Company paid $141,929
in common  stock in payment of the  accrued  dividends  on all of the  converted
Series E  Preferred  Stock  shares to date.

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

         The holders of the Company's Series F Convertible  Preferred Stock, par
value  ($0.001)  per share (the "Series F Preferred  Stock"),  are entitled to a
variable rate dividend beginning at 12% and averaging 8.15% over the term of the
securities.  Through  December 31, 2003, the Company had paid an aggregate since
the stock was issued of $92,000 in cash dividends and the Company has accrued an
additional  $531,775 in unpaid 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 $39,387 in common
stock in payment  of the  accrued  dividends  on all of the  converted  Series F
shares to date.

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

         The holders of the Company's Series H Convertible  Preferred Stock, par
value  ($0.001)  per share (the "Series H Preferred  Stock"),  are entitled to a
dividend rate of 3% over the term of the securities.  Through December 31, 2003,
the Company had not paid cash  dividends and the Company has accrued  $32,745 in
unpaid dividends. The Company has the option to pay the dividends accrued in all
periods in additional  shares of Series H Preferred  Stock. See "Recent Sales of
Unregistered  Securities -- May 2002 Settlement  Agreement  Issuance of Series H
Preferred Stock."

         Common Stock
         ------------

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


                                       18
<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 continued to provide
cash  installments  in the form of a loan to the Company  through  February 2004
(the "Blum Demand  Note").  The Blum Demand Note bears  interest at 9% per annum
and has no due date at this  time.  The  current  principal  balance of the Blum
Demand Note is $272,032 as of December  31, 2003 and remains  unpaid as of April
14, 2004.

         On  November  19,  2004,  the  Company  issued a  warrant  to  purchase
27,355,800  shares of its common stock at an exercise price of $0.0285 per share
(the  closing  price of our common  stock on the OTCBB on such date) to the Blum
Asset Trust, a company controlled by Bentley Blum, a Director of the Company, in
consideration  for the loans made to the Company  and the usage of office  space
and  personnel  of the Blum Asset  Trust over the last five  years.  The Company
believes that this transaction is exempt from the  registration  requirements of
the Securities Act under Section 4(2) thereof as a transaction not involving any
public offering of securities.

         On June 13,  2001,  the  Company  issued  and sold to  Milford  Capital
Management, Inc. and the Shaar Fund, Ltd. (hereinafter known as "Milford/Shaar")
one-year,  15% Senior Secured Promissory Notes (the  "Milford/Shaar  Bridge Loan
Notes") in the aggregate principal amount of $1,000,000.  In connection with the
Milford/Shaar Bridge Loan Notes, the Company issued to Milford/Shaar a five-year
warrant for 333,334 shares of the Company's common stock at an exercise price of
$0.22 per share. The Company pledged its equipment and SET related  intellectual
property as collateral for the  Milford/Shaar  Bridge Loan Notes. The Company is
required to pay  Milford/Shaar  principal  and  interest  on a monthly  basis in
arrears.  The Milford/Shaar Bridge Loan Notes may be prepaid at any time without
penalty.  The  Company  believes  that  this  transaction  is  exempt  from  the
registration  requirements of the Securities Act under Section 4(2) thereof as a
transaction not involving any public offering of securities.

         The Company  made all payments on the  Milford/Shaar  Bridge Loan Notes
until  November 13, 2001.  The Company asked for and received a  forbearance  of
payments on the  Milford/Shaar  Bridge Loan Notes from  November  13, 2001 until
December 31, 2005. In connection with the  Milford/Shaar  Bridge Loan Notes, the
Company  issued to  Milford/Shaar  in February  2004,  a  five-year  warrant for
250,000  shares of the Company's  common stock at an exercise price of $0.03 per
share. The Shaar Fund, Ltd., through the Shaar Bridge Loan, continues to provide
cash installments on a periodic basis in the form of additional  principal.  The
current principal  balance of the Milford/Shaar  Bridge Loan Notes is $1,350,749
as of December 31, 2003 and remains  unpaid as of April 14, 2004.  Additionally,
as of April 14,  2003,  there is $119,073 in  accumulated  forbearance  fees and
$100,000 due in exit fees on the  Milford/Shaar  Bridge Loan Notes.  See "MD&A -
Liquidity and Capital Resources."

         On May 23, 2001, a private investor purchased $250,000 of the Company's
common  stock at the market  price.  The  Company  issued the  private  investor
1,973,077  shares  of common  stock of the  Company  as a result  of the  equity
purchase.  In connection with the purchase of the shares of the Company's common
stock,  the  Company  issued the private  investor a 2-year  warrant for 500,000
shares of the  Company's  common stock at an exercise  price of $0.22 per share.
The Company  re-priced this warrant in November 2003 to $0.0285 and extended the

                                       19
<PAGE>

expiration date of this warrant to November 19, 2005. The Company  believes that
this transaction is exempt from the registration  requirements of the Securities
Act under  Section  4(2)  thereof  as a  transaction  not  involving  any public
offering of securities. See "MD&A - 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.  The Company believes that this issuance of convertible debt
is exempt from the registration requirements of the Securities Act under Section
4(2) thereof as a transaction  not involving any public  offering of securities.
See "MD&A - Liquidity and Capital Resources."

         In November  2000, the Company  completed  $500,000 in financing in the
form of a loan (the "Weiss Group Note") from a group of four investors;  $75,000
of which was borrowed from the son of Paul E.  Hannesson,  our former  President
and Chief Executive  Officer,  and $25,000 of which was borrowed from Stephen A.
Weiss,  a  shareholder  of  Greenberg  Traurig,  LLP, our former  corporate  and
securities  counsel.  The Weiss Group Note bears interest at 12% per annum,  was
due and payable on February  12, 2001,  and is secured by the first  $500,000 of
loans or dividends that the Company may receive from DRM. As  consideration  for
such loan,  Environmental,  one of the Company's  principal  stockholders owning
approximately   16.58%  (in  November  2000)  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 to
the Company until January 15, 2005 in exchange for warrants for 2,500,000 shares
of the  Company's  common  stock at an exercise  price of  $0.0285.  The current
principal  balance of the Weiss Group Note is  $253,603 as of December  31, 2003
and  remains  unpaid as of April 14,  2004.  See "MD&A -  Liquidity  and Capital
Resources."


                                       20
<PAGE>

         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.

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

         Effective  February 15, 2004, the Company  issued  warrants to purchase
2,500,000  shares of its common stock at an exercise  price of $0.0285 per share
to all holders of the Weiss Group Note in  consideration of the extension of the
due date of such loans by such  persons  from May 31, 2002 to January 15,  2005.
The Company  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.

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").

                                       21
<PAGE>

         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 owned 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.

         As of December  31,  2003,  the Series H  Preferred  Stock has not been
converted and has unpaid accrued dividends of approximately $33,000.

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 or the OTCBB 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 or the OTCBB.  In May 2005,  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.

                                       22
<PAGE>

         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.

         The recipient of securities in each of the transactions described under
"Recent Sales of Unregistered  Securities"  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  securities  issued in this  transaction.  The Company made
available to each recipient 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,  each  recipient  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 each 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
or the  OTCBB  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
or the OTCBB. In May 2005, 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.

                                       23
<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.


                                       24
<PAGE>

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

         The following table presents selected financial data of the Company, as
of December 31, 2003,  2002,  2001, 2000, and 1999 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>

                                      1999           2000            2001           2002           2003
                                   ----------    -----------    ------------    -----------     ----------
<S>                                <C>           <C>            <C>             <C>             <C>
Revenue:
    Contract revenue.............  $   18,147    $    17,057    $      4,590    $     3,710     $      660
Cost of sales:
    Cost of sales................      16,127         14,452           3,369          2,108            811
    Research and development.....       1,145            993             423            297             70
    General and administrative...       4,037          5,228           2,420          1,792          1,700
    Depreciation and amortization         696            865             658            314            267
    Impairment of Machinery......          --             --             776             --             --
    Impairment of Patents........          --             --             627             --             --
    Impairment of Goodwill.......          --          6,586              --             --             --
    Minority interests...........          --             --              --             --             --
                                   ----------    -----------    ------------    -----------     ----------

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

    Interest income..............          39             57              38             --             --
    Interest expense.............        (166)          (586)           (226)          (104)          (769)
    Equity in net losses of
      subsidiary.................          --             --            (295)            --             --
                                   ----------    -----------    ------------    -----------     ----------


Loss before income taxes ........      (3,985)       (11,596)         (4,166)          (905)        (2,957)
    Income taxes.................          --             --              --             --             --
                                   ----------    -----------    ------------    -----------     ----------

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

Net loss ........................  $   (3,985)   $   (11,441)   $     (6,554)   $    (5,972)    $   (2,957)
                                   ==========    ===========    ============    ===========     ==========

Net loss per share - basic and
  diluted........................  $     (.16)   $      (.34)   $       (.13)   $      (.11)    $     (.04)
                                   ==========    ===========    ============    ===========     ==========


Weighted average number of shares      24,819         35,866          53,241         57,775         92,035
                                   ==========    ===========    ============    ===========     ==========

</TABLE>

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

                                       1999          2000           2001           2002            2003
                                   ----------    -----------    ------------    -----------     ----------
<S>                                <C>           <C>            <C>             <C>             <C>
Cash and cash equivalents........  $    1,797    $       579    $        170    $        59     $       --
Assets held for sale - DRM.......          --         29,687          29,407             --             --
Total assets.....................      16,047         37,473          31,200            736            246
Long term debt...................         716            221              --            431          1,575
Liabilities held for sale - DRM..          --         22,966          22,165             --             --
Total liabilities................       6,096         29,618          29,629          5,025          6,898
Minority interests...............          --             --              --             --             --
Stockholders' (deficit) equity...       9,951          7,855           1,571         (4,289)        (6,656)
</TABLE>


                                       25
<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 $100,000.

         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.

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

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

         Revenues were $660,125 for the year ended  December 31, 2003,  compared
to $3,710,000  for the year ended December 31, 2002. The decrease in revenues is
due to the  decreases in revenue  contribution  by Advanced  Sciences as certain
contracts were not renewed and other contracts were completed.

         In the case of Advanced  Sciences,  revenues were $568,000 for the year
ended  December  31,  2003,  compared  to  $3,448,000  for the year ended  2002.
Revenues  in 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 2002.  Advanced  Sciences had two major  customers in 2003,


                                       26
<PAGE>

each of which  represents more than 10% of annual revenue.  The combined revenue
for these  two  customers  was  $568,000  or 100% of the  Company's  total  2003
revenue. The decline in revenues at Advanced Sciences is primarily the result of
fewer contracts and overall,  less subcontract work being performed in 2003. The
government  decided to deal directly with the  subcontractor  rather than having
Advanced  Sciences  subcontract  this  work on  behalf  of the  government.  The
government took this action, as the subcontracts became too large. Cost of sales
decreased from  $1,854,000 for 2002 to $721,000 for 2003. A reduction in cost of
sales at Advanced Sciences resulted from fewer contracts and overall,  less work
performed resulting in decreased  revenues.  Anticipated losses on contracts are
provided  for by a charge to income  during  the  period  such  losses are first
identified.

         In the case of  Solution,  revenues  were  $92,000  for the year  ended
December  31, 2003 as compared  with  $262,000  for the year ended  December 31,
2002. The decrease is primarily due to the decrease in  feasibility  studies and
commercial processing. Revenues in 2003 were primarily from remediation services
performed for  engineering  and waste  treatment  companies in the U.S.  under a
variety of contracts. Solution has two major customers, each of which represents
more than 10% of annual  revenue.  The combined  revenue for these two customers
was  $92,000 or 100% of the  Solution's  total 2003  revenue.  The  increase  in
revenues at  Solution is  primarily  the result of more  subcontract  work being
performed  in 2003.  Cost of sales was $90,000 for the year ended  December  31,
2003 as compared to $254,000 for the year ended  December 31, 2002. The decrease
in cost of sales is attributable  to lower sales 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, 2003, the Company incurred research and
development  costs of  $70,000,  as  compared  to  $297,000  for the year  ended
December 31, 2002. 100% of the research and development  costs are  attributable
to the  operations  of Solution.  In 2003,  the Company  invested  more money in
capital  expenditures and less in laboratory work and consultants than it had in
2002.  Advanced  Sciences did not incur  research and  development  costs in the
years 2002 and 2003.

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

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

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

                                       27
<PAGE>

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

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.

         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.

                                       28
<PAGE>

         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
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.

LIQUIDITY AND CAPITAL RESOURCES

         At December  31, 2003 and  December  31, 2002  Advanced  Sciences had a
$64,000 and $0  outstanding  balance,  respectively,  on its revolving  lines of
credit.

         The Company  currently  requires  additional  cash to sustain  existing
operations and to meet current obligations and ongoing capital requirements. The
Company's   current   monthly   operating   expenses  exceed  cash  revenues  by
approximately $100,000 at December 31, 2002.

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

         For the year ended  December  31 2003,  the Company  converted  162,500
shares of Series E  Preferred  for  40,916,155  shares of the  Company's  common
stock. For the year ended December 31 2003, the Company  converted 17,500 shares
of Series F  Preferred  for  2,450,514  shares of the  Company's  common  stock.
Additionally, the Company issued 1,566,989 and 551,571, respectively,  shares of
the Company's common stock in satisfaction of all accrued  dividends  pertaining
to the Series E and Series F Preferred  conversions  through  February 20, 2003.
The  Company  issued no shares of the  Company's  common  stock with  respect to
accrued dividends pertaining to the Series E and Series F Preferred  conversions
from the period February 21, 2003 through December 31, 2003.

         For the year ended December 31 2003, the Company converted no shares of
Series H  Preferred  and  issued no stock  with  respect  to  accrued  dividends
pertaining to the Series H Preferred.

         In November  2000, the Company  completed  $500,000 in financing in the
form of a loan (the  "Weiss  Group  Note") from a group of four  investors.  The
Weiss  Group Note  bears  interest  at 12% per annum and was due and  payable on
February  12,  2001.  All holders of the Weiss Group Note have  granted  payment
extensions  to the Company  until  January 15, 2005 in exchange for warrants for

                                       29
<PAGE>


2,500,000  shares of the Company's common stock at an exercise price of $0.0285.
The current principal balance of the Weiss Group Note is $253,603 as of December
31, 2003 and remains unpaid as of April 14, 2004.

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

         Effective  February 15, 2004, the Company  issued  warrants to purchase
2,500,000  shares of its common stock at an exercise  price of $0.0285 per share
to all holders of the Weiss Group Note in  consideration of the extension of the
due date of such loans by such  persons  from May 31, 2002 to January 15,  2005.
The Company  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.

         On May 23, 2001, a private investor purchased $250,000 of the Company's
common  stock at the market  price.  The  Company  issued the  private  investor
1,973,077  shares  of common  stock of the  Company  as a result  of the  equity
purchase.  In connection with the purchase of the shares of the Company's common
stock,  the  Company  issued the private  investor a 2-year  warrant for 500,000
shares of the  Company's  common stock at an exercise  price of $0.22 per share.
The Company  re-priced this warrant in November 2003 to $0.0285 and extended the
expiration date of this warrant to November 19, 2005. The Company  believes that
this transaction is exempt from the registration  requirements of the Securities
Act under  Section  4(2)  thereof  as a  transaction  not  involving  any public
offering of securities. See "MD&A - 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  made all payments on the  Milford/Shaar  Bridge Loan Notes
until  November 13, 2001.  The Company asked for and received a  forbearance  of
payments on the  Milford/Shaar  Bridge Loan Notes from  November  13, 2001 until
December 31, 2005. In connection with the  Milford/Shaar  Bridge Loan Notes, the
Company  issued to  Milford/Shaar  in February  2004,  a  five-year  warrant for
250,000  shares of the Company's  common stock at an exercise price of $0.03 per
share. The Shaar Fund, Ltd., through the Shaar Bridge Loan, continues to provide
cash installments on a periodic basis in the form of additional  principal.  The
current principal  balance of the Milford/Shaar  Bridge Loan Notes is $1,350,749
as of December 31, 2003 and remains  unpaid as of April 14, 2004.  Additionally,
as of April 14,  2003,  there is $119,073 in  accumulated  forbearance  fees and
$100,000 due in exit fees on the  Milford/Shaar  Bridge Loan Notes.

                                       30
<PAGE>

         On October 2, 2002,  Mr.  Bentley Blum, a Director of the Company,  had
previously loaned the Company with $125,000 of cash installments over the period
of one year (the "Blum Loan").  The Company  elected to convert the Blum Loan to
the  Company's  common stock using the  conversion  feature of the 5-day average
closing price of the Company's common stock prior to October 2, 2002. On October
2, 2002,  Blum  issued a  conversion  notice  for  $125,000  of the  outstanding
principal of the Blum Loan into 2,500,000 shares.  Mr. Blum continued to provide
cash  installments  in the form of a loan to the Company  through  February 2004
(the "Blum Demand  Note").  The Blum Demand Note bears  interest at 9% per annum
and has no due date at this  time.  The  current  principal  balance of the Blum
Demand Note is $272,032 as of December  31, 2003 and remains  unpaid as of April
14, 2004. See "MD&A - Liquidity and Capital Resources."

         On  November  19,  2004,  the  Company  issued a  warrant  to  purchase
27,355,800  shares of its common stock at an exercise price of $0.0285 per share
(the  closing  price of our common  stock on the OTCBB on such date) to the Blum
Asset Trust, a company controlled by Bentley Blum, a Director of the Company, in
consideration  for the loans made to the Company  and the usage of office  space
and  personnel  of the Blum Asset  Trust over the last five  years.  The Company
believes that this transaction is exempt from the  registration  requirements of
the Securities Act under Section 4(2) thereof as a transaction not involving any
public offering of securities. See "MD&A - Liquidity and Capital Resources."

         The financial information included in the accompanying form 10K for the
period  ending  December  31,  2003  reflects  the  terms of the DRM  Settlement
Agreement.  For the year ended December 31, 2002 the Company  recorded a loss on
the disposal of DRM in the amount of $4,134,000.  The Company currently requires
additional cash to sustain existing  operations and to meet current  obligations
and ongoing  capital  requirements.  The  Company's  current  monthly  operating
expenses  exceed  cash  revenues  by  approximately  $100,000.  Because  of  the
dissolution  of  DRM,  its'  operations  have  been  reflected  as  discontinued
operations for the years ended December 31, 2002, and 2001.

         For the year ended December 31, 2003,  the Company  incurred a net loss
of  $2,957,000  as  compared  to a net loss of  $5,972,000  for the  year  ended
December 31, 2002.

         As shown in the financial  statements  for the years ended December 31,
2003, 2002, and 2001, the Company incurred losses of $2,957,000, $5,972,000, and
$6,554,000  respectively.  The Company  has also  experienced  net cash  inflows
(outflows) from operating activities of ($955,000), ($121,000), and $965,000 for
the years ended December 31, 2003, 2002 and 2001  respectively.  At December 31,
2003 and 2002 the Company had working  capital  (deficit)  of  ($6,814,000)  and
($4,276,000)  respectively.  The  increase in the working  capital  deficit from
December 31, 2002 to December 31, 2003 is mainly due to the Company's  loss from
operations  and dividends on preferred  stock during the year ended December 31,
2003.

         As shown in the financial  statements  for the years ended December 31,
2003 and 2002 the Company had stockholders' (deficit) equity of ($6,652,000) and
($4,289,000)  respectively.  The Company's net increase in stockholders' deficit
from December 31, 2002 to December 31, 2003 is primarily due to the loss for the
year ended December 31, 2003.

                                       31
<PAGE>

         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  $34,000,000,  which  expire in the years 2010 through  2023.  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 November  2002,  the EITF  reached a consensus  on Issue No.  00-21,
Revenue Arrangements with Multiple  Deliverables.  EITF Issue No. 00-21 provides
guidance on how to account for certain arrangements that involve the delivery or
performance  of multiple  products,  services  and/or rights to use assets.  The
provisions  of EITF Issue No. 00-21 will apply to revenue  arrangements  entered
into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue
No.  00-21 did not have a material  impact on  operating  results  or  financial
condition of the Company as the Company  followed the provisions of Statement of
Position ("SOP") 97-2,  Software revenue  Recognition,  as modified by SOP 98-9,
Modification  of SOP 97-2 with Respect to Certain  Transactions,  which  provide
guidance for revenue recognition of arrangements with multiple deliverables.

         In April 2003, FASB issued SFAS No. 149,  Amendment of Statement 133 on
Derivative  Instruments  and Hedging  Activities.  SFAS 149 amends and clarifies
accounting for derivative instruments,  including certain derivative instruments
embedded  in  other  contracts  and  for  hedging  activities  under  SFAS  133,
Accounting  for  Derivatives  and  Hedging  Activities.  SFAS  149 is  generally
effective for derivative instruments,  including derivative instruments embedded
in certain contracts, entered into or modified after June 30, 2003. The adoption
of SFAS 149 did not have a material impact on the operating results or financial
condition of the Company.

         In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments  with  Characteristics  of Both  Liabilities  and  Equity.  SFAS 150
clarifies the accounting for certain financial  instruments with characteristics
of both liabilities and equity and requires that those instruments be classified
as liabilities in statements of financial  position.  Previously,  many of those
financial  instruments  were  classified  as equity.  SFAS 150 is effective  for
financial  instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period  beginning  after June
15,  2003.  On November 7, 2003,  FASB Staff  Position  150-3 was issued,  which
indefinitely  deferred  the  effective  date of SFAS 150 for  certain  mandatory
redeemable  non-controlling interests. As the Company does not have any of these
financial  instruments,  the adoption of SFAS 150 did not have any impact on the
Company's consolidated financial statements.

                                       32
<PAGE>

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

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

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.

                                       33
<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  (the Company's  auditor's opinion on our fiscal 2002
              and  2003  financial   statements   contains  a  "going   concern"
              qualification  in which they  express  doubt  about the  Company's
              ability to continue in business, absent additional financing);
         o    the ability to generate  profitable  operations from a large scale
              remediation project;
         o    the ability of the Company to renew its nationwide permit to treat
              PCBs;
         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.


                                       34
<PAGE>

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

         a)   Evaluation of disclosure  controls and procedures.  As required by
              Rule 13a-15 under the Exchange  Act, as of December 31, 2003,  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  during  our most  recent
              fiscal  quarter that has  significantly  affected or is reasonably
              likely  to  significantly   affect  our  internal   controls  over
              financial reporting,  including any corrective actions with regard
              to significant deficiencies and material weaknesses.


                                       35
<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  14,  2004 are as
follows:

Name                       Age        Position
--------------------------------------------------------------------------------
Shelby T. Brewer, Ph.D.    67         Chairman of the Board, President and Chief
                                      Executive Officer

O. Mack Jones              63         President & Chief Operating Officer

James M. DeAngelis         43         Chief Financial and Administrative
                                      Officer, Treasurer

Bentley J. Blum            62         Director

Frank E. Coffman           62         Director

Paul E. Hannesson          63         Director

Michael P. Kalleres        64         Director

William A. Wilson          89         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
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.

                                       36
<PAGE>

         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.

         O. MACK JONES has served as a Director  of the  Company  since  October
2003. Mr. Jones was appointed President and C.O.O. of the Company in April 2003.
Mr.  Jones had been  serving as Acting  President  of  Advanced  Sciences  since
February 2001.  Mr. Jones also has served as Vice President of Field  Operations
since  April  1998,  managing  its field  treatability  studies  and  commercial
projects.  On February 28, 2001,  Mr. Jones was appointed  President of Advanced
Sciences.  Mr.  Jones  served as a  consultant  to the Company from June 1996 to
April  1998,  assisting  in  the  commercialization  of  the  solvated  electron
technology.  From  September  1994 to May 1996,  he served  as a  consultant  to
Environmental  assisting in the development of the solvated electron technology.
From 1991 to May 1996,  Mr. Jones served as the founder and principal  executive
officer of an environmental  consulting company,  Florida Vector Services, which
provided  both  consulting  and  hands-on   remediation  services  primarily  in
TSCA-related  areas. From 1986 to 1991, Mr. Jones was Vice  President-Operations

                                       37
<PAGE>

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.

         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
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

        None.


                                       38
<PAGE>

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, 2003,  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, as amended,
( the "1998 Plan"),  and  determining  the  recipients,  amounts and other terms
(subject to the  requirements  of the 1998 Plan) of options which may be granted
under the 1998 Plan and outside the 1998 Plan,  from time to time and  providing
guidance to management in connection with establishing additional benefit plans.

         As of December 31, 2003, 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.

AUDIT COMMITTEE AND FINANCIAL EXPERT

         Michael  P.  Kalleres  currently  serves as the  Chairman  of the Audit
Committee  but is not  deemed  to be an  independent  financial  expert  for the
Company.  Mr. DeAngelis  qualifies as an audit committee financial expert but is
not  independent  of  management.  We believe  the cost  related to  retaining a
financial  expert at this time is prohibitive.  Further,  because of our limited
operations, we believe the services of a financial expert are not warranted.

COMPENSATION OF DIRECTORS

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

COMPLIANCE WITH SECTION 16(a) of the exchange act

         Section 16(a) of the Exchange Act requires the Company's  directors and
executive officers,  and persons who own more than 10% of the outstanding shares
of the Company's  common stock, to file initial reports of beneficial  ownership
and reports of changes in  beneficial  ownership  of shares of common stock with
the Commission.  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.


                                       39
<PAGE>

         Based  solely  upon a review  of Forms 3 and 4 and  amendments  thereto
furnished to the Company  during the year ended  December  31, 2003,  and upon a
review of Forms 5 and amendments  thereto  furnished to the Company with respect
to the year ended December 31, 2003, 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, 2003.

         CODE OF ETHICS

         A code of ethics  relates  to  written  standards  that are  reasonably
designed to deter wrongdoing and to promote:

         1.   Honest and ethical  conduct,  including  the  ethical  handling of
              actual or apparent  conflicts  of interest  between  personal  and
              professional relationships.
         2.   Full,  fair,  accurate,  timely and  understandable  disclosure in
              reports and  documents  that are filed with,  or  submitted to the
              Securities   and   Exchange   Commission   and  in  other   public
              communications made by the Company.
         3.   Compliance with applicable government laws, rules and regulations.
         4.   The prompt  internal  reporting  of  violations  of the code to an
              appropriate person or persons identified in the code; and
         5.   Accountability for adherence to the code.

         We have not adopted a corporate code of ethics.  Our board of directors
is considering over the next year, establishing such a code of ethics.


                                       40
<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 2003, 2002 and 2001 to all persons serving as
the Company's Chief Executive Officer during 2003, 2002, and 2001 to each of the
Company's four most highly  compensated  executive officers other than the Chief
Executive  Officer whose total salary and bonus  compensation  exceeded $100,000
during any such year.
<TABLE>
<CAPTION>
                                             Summary Compensation Table

                                                 Annual Compensation                                    Long-Term Compensation
                                   -----------------------------------------   -----------------------------------------------------
                                                                      Other                   Securities
                                                                     Annual    Restricted      Under-                   All Other
                                                                     Compen-     Stock         Lying          LTIP       Compen-
    Name and Principal                        Salary        Bonus     sation     Award(s)      Options       Payouts     sation
        Position                   Year         ($)          ($)       ($)        ($)           (#)           ($)        (4)
          (a)                       (b)         (c)          (d)       (e)        (g)           (g)           (h)        (i)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>      <C>             <C>      <C>         <C>     <C>                  <C>      <C>
Shelby T. Brewer, Ph.D.(1)          2003         -0-(2)      -0-      -0-         -0-      39,450,846(3)       -0-      30,000(4)
Chief Executive Officer             2002      69,677(2)      -0-      -0-         -0-       2,865,200(3)       -0-      30,000(4)
                                    2001      90,137(2)      -0-      -0-         -0-         200,000(3)       -0-         -0-

Paul E. Hannesson                   2003         -0-         -0-      -0-         -0-      4,818,075(6)        -0-         -0-
Former Chief Executive Officer      2002         -0-         -0-      -0-         -0-      1,181,925(6)        -0-         -0-
                                    2001      77,242(5)      -0-      -0-         -0-             -0-          -0-         -0-

James M. DeAngelis(7)               2003      12,480(8)      -0-      -0-         -0-      20,641,812(9)       -0-         -0-
Senior Vice President & Chief       2002     114,175(8)      -0-      -0-         -0-       1,841,688(9)       -0-         -0-
Financial Officer                   2001     164,368(8)      -0-      -0-         -0-             -0-          -0-         -0-

William E. Ingram                   2003         -0-         -0-      -0-         -0-             -0-          -0-         -0-
Former Vice President &             2002         -0-         -0-      -0-         -0-             -0-          -0-         -0-
Controller                          2001      20,645(10)     -0-      -0-         -0-             -0-          -0-         -0-

O. Mack Jones(11)                   2003     103,938(12)     -0-      -0-         -0-      10,240,625(13)      -0-         -0-
President &                         2002     110,019(12)     -0-      -0-         -0-       1,759,375(13)      -0-         -0-
Chief Operating Officer             2001     134,805(12)     -0-      -0-         -0-         100,000(13)      -0-         -0-

Peter E Harrod                      2003         -0-         -0-      -0-         -0-             -0-          -0-         -0-
Former President                    2002         -0-         -0-      -0-         -0-             -0-          -0-         -0-
Advanced Sciences                   2001      49,460(14)     -0-      -0-         -0-         200,000(15)      -0-         -0-
</TABLE>

         (1)  Mr.  Brewer  served as Chief  Executive  Officer and  President of
              Solutions  and a director  of the Company  since  April 2000.  Mr.
              Brewer assumed the positions of Chairman,  Chief Executive Officer
              and  President of the Company  from  January 2001 through  October
              2003 and  continues  to serves as Chief  Executive  Officer  and a
              director since October 2003 to present.

         (2)  Represents  the amount of Mr.  Brewer's  base  salary  paid by the
              Company.  Mr.  Brewer's base salary for 2003 from January  through
              April was $250,000,  and from May through December was $285,000 of



                                       41
<PAGE>

              which  $271,000 was  originally  deferred until December 31, 2003,
              and remains unpaid as of April 14, 2004. 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 14, 2004.
              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 14, 2004. 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.  Mr. DeAngelis has served
              as a director of the Company since June 2002.

         (8)  Represents  the amount of Mr.  DeAngelis'  base salary paid by the
              Company.  Mr.  DeAngelis'  total base salary for 2003 from January
              through  April was  $165,000,  and from May through  December  was
              $225,000 of which $194,520 was originally  deferred until December
              31, 2003, and remains unpaid as of April 14, 2004. 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 14, 2004. 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 14, 2004. 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) Mr. Jones served as Vice President and Field Operations Manager of
              Solutions  from  April 1998 to January  2001 and as  President  of
              Advanced Sciences from February 2001 to present, and President and
              Chief Operating Officer from April 2003 to present.  Mr. Jones has
              served as a director of the Company since October 2003.

         (12) Represents  the  amount  of Mr.  Jones'  base  salary  paid by the
              Company.  Mr.  Jones'  total  base  salary  for 2003 from  January
              through  April was  $165,000,  and from May through  December  was
              $250,000 of which $115,485  originally deferred until December 31,
              2003,  and remains  unpaid as of April 14, 2004.  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
              14,  2004.  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 April 14, 2004.  Mr.  Jones' base salary for
              2000 and 1999 was $150,000.

         (13) 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.

         (14) 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.

         (15) 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.


                                       42
<PAGE>

 STOCK OPTIONS

         The following table sets forth certain  information  concerning options
granted during the year ended December 31, 2003 to the individuals listed in the
Summary  Compensation Table pursuant to the Company's 1998 Stock Option Plan, as
amended,  (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, 2003.
<TABLE>
<CAPTION>

                        Option Grants in Last Fiscal Year

                                                   Individual Grants
                            ------------------------------------------------------------------


                                                                                                   Potential Realizable Value
                              Number of           Percent of                                      at Assumed Annual Rates of
                             Securities        Total Options       Exercise of                    Stock Price Appreciation for
                             Underlying          Granted to           Base                                Option Term(6)
                              Options           Employees in          Price        Expiration     ----------------------------
              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..........  39,450,846(1)           51.18%           0.0285         12/14/08             -0-           -0-

James M. DeAngelis........  20,641,812(2)           26.78%           0.0285         12/14/08             -0-           -0-

O. Mack Jones.............  10,240,625(3)           13.29%           0.0285         12/14/08             -0-           -0-

Paul E. Hannesson.........   4,818,075(4)            6.25%           0.0285         12/14/08             -0-           -0-
</TABLE>

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


         (1)  Options to purchase  39,450,846 shares of common stock were issued
              on November 19, 2003 outside of the 1998 Plan of which 100% vested
              upon issuance.

         (2)  Options to purchase  20,641,812 shares of common stock were issued
              on November 19, 2003 outside of the 1998 Plan of which 100% vested
              upon issuance.

         (3)  Options to purchase  10,240,625 shares of common stock were issued
              on November 19, 2003 outside of the 1998 Plan of which 100% vested
              upon issuance.

         (4)  Options to purchase  4,818,075  shares of common stock were issued
              on November 19, 2003 outside of the 1998 Plan of which 100% vested
              upon issuance.

         (5)  Percentages  based on 77,081,358  stock options granted (under the
              1998  Plan  and  outside  the 1998  Plan)  during  the year  ended
              December 31, 2003.

         (6)  The closing price for the  Company's  common stock on December 31,
              2003 was $0.013.  The closing price is used for all the subsequent
              stock appreciation calculations.


                                       43
<PAGE>

         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, 2003 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-         40,316,046 / 40,316,046                -0- /-0-

Paul E. Hannesson...........         -0-                -0-          6,000,000 / 6,000,000                 -0- /-0-

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

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

         (1)  Represents the difference  between the last reported sale price of
              the Common Stock on December 31, 2003  ($0.013),  and the exercise
              prices of the options  (ranging from $0.0285 to $0.07)  multiplied
              by the applicable number of options exercised.

         (2)  Represents  the  difference  between  the  exercise  price and the
              closing price on December 31, 2003,  multiplied by the  applicable
              number of securities.


                                       44

<PAGE>

EMPLOYMENT AGREEMENTS

         The Company has no employment contracts.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The individuals who served as members of the Compensation, Stock Option
and Benefits  Committee  (the  "Compensation  Committee")  during the year ended
December 31, 2003 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, 2003,  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, 2003,  addressing  the  Company's
compensation  policies  for  2003  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;

                                       45
<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
2003  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 2003, total compensation was paid to executives primarily based upon
individual  performance  and the  extent to which the  business  plans for their
areas of responsibility were achieved or exceeded. On balance, performance goals
were  substantially  met  or  exceeded  and  therefore   compensation  was  paid
accordingly.

         Mr. Brewer,  the Chairman of the Board, and Chief Executive  Officer of
the  Company  received  annual  compensation  based upon,  among  other  things,
individual  performance and the extent to which the business plans for his areas
of responsibility  were achieved or exceeded.  Mr. Brewer received a base salary
at an annual rate of $250,000 from January  through April 2003 and then received
a base salary at an annual rate of $285,000 from May through  December  2003, of
which $271,000 annually was deferred until December 31, 2003, and remains unpaid
as of April 14, 2004, for services rendered to the Company.  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
14, 2004, for services rendered to the Company.

         The members of the Compensation Committee establish the amount actually
received by Mr.  Brewer each year as base  salary for  services  rendered to the
Company and its affiliates.  In establishing  Mr. Brewer's base salary for 2003,
the  Compensation  Committee  took into account the salaries of chief  executive


                                       46
<PAGE>

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 2002
goals and his individual  contributions  to the Company and its affiliates.  The
Compensation  Committee  concluded  that he had  achieved his 2002 goals and had
provided a  leadership  role in  achieving  the  Company's  and its  affiliates'
strategic  priorities for 2002. The  Compensation  Committee also considered Mr.
Brewer's decisive  management of operational and strategic issues,  his drive to
reinforce a culture of innovation  and his ability and dedication to enhance the
long-term  value  of  the  Company  and  its  affiliates  for  their  respective
stockholders.  In making its salary  decisions with respect to Mr.  Brewer,  the
Compensation  Committee exercised its discretion and judgment based on the above
factors,  and no specific  formula was applied to  determine  the weight of each
factor.

         Mr.  Brewer's  base  salary was  increased  from  $250,000  for 2002 to
$285,000  in April 2003,  representing  an  increase  of  approximately  14%. On
January 1, 2003,  Mr. Brewer  agreed to defer  $271,000 of his base salary until
December 31, 2002, which remains unpaid as of April 14, 2004.

         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 2003, 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  77,081,358,  9,847,218,  and  920,000  stock  options  were
granted  pursuant to the 1998 Plan and  outside the 1998 Plan in 2003,  2002 and
2001  respectively.  39,450,846,  2,865,000,  and 200,000 of such  options  were
granted  to Mr.  Brewer in 2003,  2002 and 2001  respectively,  and  35,700,512,
4,634,238,  and 400,000 of such options were granted (in the aggregate) to other
individuals  named in the  Summary  Compensation  Table  in 2003,  2002 and 2001
respectively.  The number of stock options  granted in 2003,  2002 and 2001 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.


                                       47
<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 2003 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 2003,  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.



                                       48
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

         The following  table  reflects the number of shares of our common stock
that, as of April 14, 2004,  were  outstanding  and available for issuance under
compensation  plans that have  previously  been approved by our  stockholders as
well as  compensation  plans  that  have not  previously  been  approved  by our
stockholders.
<TABLE>
<CAPTION>


                                                                                                       Number of Securities
                                                                                                      Remaining Available for
                                      Number of Securities to be        Weighted-Average               Future Issuance Under
                                        Issued Upon Exercise of         Exercise Price of               Equity Compensation
                                         Outstanding Options,         Outstanding Options,               Plans (Excluding
                                          Warrants and Rights        Warrants and Rights ($)    Securities Reflected in Column (a))

Plan Category                                     (a)                          (b)                              (c)
<S>                                           <C>                             <C>                            <C>
Equity Compensation Plans
Approved by Security
Holders  (1)                                  13,461,458                      0.06                           4,538,542

Equity Compensation Plans not
Approved by Security
Holders (2)                                   75,151,358                      0.03                              -0-

Total                                         88,612,816                      0.05                           4,538,542

</TABLE>
___________________________

         Consists  of options  issuable  under the 1998 Stock  Option  Plan,  as
amended.

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

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

         On December 14, 1998,  our Board of Directors  approved the adoption of
the 1998 Stock Option Plan,  as amended.  The purpose of this plan is to advance
the interests of our  stockholders  by enhancing our ability to attract,  retain
and  motivate  persons  who  make  important  contributions  to the  Company  by
providing  them  with  equity  ownership   opportunities  and  performance-based
incentives that better align their interests with those of our  stockholders.  A
total of  15,000,000  shares of our common  stock,  subject to adjustment in the
event  of a stock  split or  similar  event,  is  issuable  to our  consultants,
advisors and employees,  officers and directors. A total of 10,000,000 shares of
our common stock have been duly registered under the Company's S-8 filings under
the Plan. The remaining 5,000,000 shares have been approved by the directors for
issuance under the Plan but have yet to be registered  under an S-8 filing.  The
plan  provides  for the  granting  of  non-qualified  options.  Ten Year  Option
Repricings

                                       49
<PAGE>

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

<TABLE>
<CAPTION>

                                Number of                                                          Length of
                               Securities                            Exercise Price                 Original
                               Underlying                             of Option at                Option Term
                                 Options    Market Price of Stock       Time of       New          At Date of
                               Repriced or   at Time of Repricing     Repricing or Exercise        Repricing
                      Date     Amended (#)   or Amendment ($)(1)     Amendment ($) Price ($)      or Amendment
<S>                 <C>        <C>                  <C>               <C>            <C>           <C>
Shelby T. Brewer    10/02/02     200,000            $0.07             $0.288         (2)           12/14/08
                    10/02/02     500,000            $0.07             $1.00          (2)           12/14/08
                    10/02/02     140,000            $0.07             $1.06          (2)           12/14/08

James M. DeAngelis  10/02/02     181,250            $0.07             $0.4375        (3)           12/14/08
                    10/02/02     300,000            $0.07             $0.288         (3)           12/14/08
                    10/02/02     200,000            $0.07             $0.688         (3)           12/14/08

O. Mack Jones       10/02/02     187,500            $0.07             $0.4375        (4)           12/14/08
                    10/02/02     100,000            $0.07             $0.288         (4)           12/14/08
                    10/02/02     150,000            $0.07             $0.688         (4)           12/14/08

Paul E. Hannesson   10/02/02     147,500            $0.07             $0.4375        (5)           12/14/08
                    10/02/02   1,000,000            $0.07             $0.50          (5)           12/14/08

Bentley J. Blum     10/02/02      70,000            $0.07             $0.4375        (6)           12/14/08
                    10/02/02      70,000            $0.07             $1.00          (6)           12/14/08
</TABLE>

 _________________________

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

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

                                       50
<PAGE>

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

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

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

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

                                       51
<PAGE>

SHAREHOLDER RETURN PERFORMANCE

         This graph  compares our total  stockholder  returns,  the Standard and
Poor's 500  Composite  Stock Index,  the Standard and Poor's Small Cap Composite
Environmental  Services  Stock  Index,  the  Standard  and Poor's 500  Composite
Environmental  Services  Stock  Index,  and the  Standard  and  Poor's 500 Super
Composite Environmental Services Stock Index. The graph assumes $100 invested at
the  per  share  closing  price  of  the  common  stock  of  Commodore   Applied
Technologies,  Inc. on the American Stock  Exchange,  from June 28, 1996 through
March 6, 2003,  and then on the Over the Counter  Bulletin Board from that point
forward.
<TABLE>
<CAPTION>

                     06/28/1996    12/26/1997    12/25/1998     12/31/1999    12/29/2000    12/28/2001    12/27/2002    12/31/2003

<S>                  <C>           <C>           <C>            <C>             <C>           <C>           <C>           <C>
CXII                 100.00         53.93          5.62          14.61            4.49          2.34          1.26          0.27

S&P 500              100.00        139.64        182.85         219.09          196.87        173.12        130.53        163.51

S&P Small Cap
Environmental        100.00         87.25         64.24          62.00          102.29         87.92         70.85         79.51
Services

S&P 500 Environmental
Services             100.00        100.82        107.49          49.05           79.42         90.87         63.69         83.03

S&P Super
Composite
Environmental        100.00        102.84        106.11          52.62           85.52         95.02         70.92         90.25
Services
</TABLE>


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


                                       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,
2003,  with respect to the  beneficial  ownership of common stock by each person
known  to  the  Company  to be the  beneficial  owner  of  more  than  5% of the
outstanding shares of common stock of the Company.  Unless otherwise  indicated,
the  owners  have  sole  voting  and  investment  power  with  respect  to their
respective shares.

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

Shelby T. Brewer, PhD (1).....    62,366,468(5)                  37.54%

Bentley J. Blum(2)............    35,155,692(6)                  22.90%

James M. DeAngelis (2)........    22,583,584(7)                  15.53%

O. Mack Jones (3).............    12,000,000(8)                   8.90%

Commodore Environmental
Services, Inc. (2)............     8,382,302(9)                   6.82%

Paul E. Hannesson (2).........     7,509,981(10)                  5.80%


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

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

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

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

         (5)  Consists of: (i) 3,428 shares of common stock (ii) 490,695  shares
              of our common  stock  representing  the balance held of the common
              stock  issued  pursuant to the Restated  Brewer Note,  dated as of
              March 15,  2001,  between  the Company  and SB  Enterprises  and a
              subsequent  conversion notice for 50% of the outstanding principal
              dated as of April 9, 2001;  (iii)  865,200  shares of the  Company
              common stock underlying  currently  exercisable options granted to
              Mr.  Brewer by the  Company  under the 1998 Plan;  (iv)  2,000,000
              shares  of  the  Company   common   stock   underlying   currently
              exercisable  options  granted to Mr. Brewer by the Company outside
              of the Company's  1998 Plan;  (v)  1,000,000  shares of our common
              stock  underlying a currently  exercisable  two year warrant at an
              exercise  price of $0.05 per share granted to S.B.  Enterprises in
              connection  with the extension of the Brewer Note until January 1,
              2004; and (vi) 39,450,846  shares of our common stock underlying a
              currently  exercisable  five year warrant at an exercise  price of
              $0.0285 per share granted to Mr.  Brewer  outside of the Company's
              1998 Plan.

                                       53
<PAGE>

         (6)  Consists  of: (i)  2,500,000  shares of our common stock issued to
              Bentley J. Blum in exchange  for $125,000 of debt owed to Mr. Blum
              from the Company;  (ii) 144,200 shares of the Company common stock
              underlying  currently  exercisable  options granted to Mr. Blum by
              the Company under the Company's 1998 Plan; (iii) 27,355,800 shares
              of our common stock  underlying a currently  exercisable five year
              warrant at an exercise  price of $0.0285 per share  granted to the
              Blum Asset Trust by the Company in  connection  with the Blum Loan
              and  services  provided by the Blum Asset Trust over the last five
              years; and (iv) Mr. Blum's indirect beneficial ownership of common
              stock based upon his beneficial ownership of 28,479,737 shares and
              his spouse's ownership of 2,000,000 shares of Environmental common
              stock,  representing  together 37.74% of the outstanding shares of
              Environmental common stock at April 14, 2004, and 4,500,000 shares
              of  Environmental  common stock underlying  currently  exercisable
              stock options,  representing  together  41.02% of the  outstanding
              shares  of  Environmental.  Does not  include  450,400  shares  of
              Environmental common stock owned by Simone Blum, the mother of Mr.
              Blum,  and 385,000 shares of  Environmental  common stock owned by
              Samuel  Blum,  the father of Mr.  Blum.  Mr.  Blum  disclaims  any
              beneficial  interest in the shares of  Environmental  common stock
              owned by his spouse, mother and father.

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

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

         (9)  Excludes  warrants to purchase an aggregate of 2,104,248 shares of
              common stock at an exercise price of $1.60 per share.  See "Market
              for   Registrant's   Common   Equity   and   Related   Stockholder
              Matters--Recent  Sales of  Unregistered  Securities"  and "Certain
              Relationships and Related Transactions."

         (10) Consists  of:  (i)  1,181,925  shares of common  stock  underlying
              currently  exercisable  stock  options  granted  to  Mr.  Paul  E.
              Hannesson  by the  Company  under the 1998  Plan;  (ii)  4,818,075
              shares of our common stock underlying a currently exercisable five
              year warrant at an exercise  price of $0.0285 per share granted to
              Mr.  Jones  outside  of the  Company's  1998  Plan;  and (iii) Mr.
              Hannesson's  indirect  beneficial  ownership of common stock based
              upon his  ownership  of an aggregate  of (a)  2,650,000  shares of
              Environmental common stock owned by Suzanne Hannesson,  the spouse
              of Mr.  Hannesson,  (b) 2,650,000 shares of  Environmental  common
              stock owned by the Hannesson  Family Trust (Suzanne  Hannesson and
              John D.  Hannesson,  trustees) for the benefit of Mr.  Hannesson's
              spouse and (c) 500,000  shares of  Environmental  common  stock in
              exchange for options to purchase  950,000 shares of  Environmental
              common  stock,  issued to  Hannesson  Family  Trust,  representing
              together 7.18% of the outstanding  shares of Environmental  common
              stock as of April 14, 2004, 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.


                                       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 14,  2004 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
 Name and Address of             Number of Shares       Shares of Common Stock
 Beneficial Owner(1)          Beneficially Owned(4)       Beneficially Owned
------------------------------------- ----------------------- ------------------

Shelby T. Brewer, PhD (1)......   62,366,468(5)                  37.54%

Bentley J. Blum................   35,155,692(6)                  22.90%

James M. DeAngelis.............   22,583,584(7)                  15.53%

O. Mack Jones (3)..............   12,000,000(8)                   8.90%

Commodore Environmental
Services, Inc..................    8,382,302(9)                   6.82%

Paul E. Hannesson..............    7,509,981(10)                  5.80%

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

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

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

All executive officers and
Directors as a
group (8 persons)..............  140,965,724                     59.01%

* Percentage ownership is less than 1%.

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

         (2)  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.

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

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

         (5)  Consists of: (i) 3,428 shares of common stock (ii) 490,695  shares
              of our common  stock  representing  the balance held of the common
              stock  issued  pursuant to the Restated  Brewer Note,  dated as of
              March 15,  2001,  between  the Company  and SB  Enterprises  and a
              subsequent  conversion notice for 50% of the outstanding principal
              dated as of April 9, 2001;  (iii)  865,200  shares of the  Company
              common stock underlying  currently  exercisable options granted to
              Mr.  Brewer by the  Company  under the 1998 Plan;  (iv)  2,000,000
              shares  of  the  Company   common   stock   underlying   currently
              exercisable  options  granted to Mr. Brewer by the Company outside
              of the Company's  1998 Plan;  (v)  1,000,000  shares of our common
              stock  underlying a currently  exercisable  two year warrant at an
              exercise  price of $0.05 per share granted to S.B.  Enterprises in
              connection  with the extension of the Brewer Note until January 1,
              2004; and (vi) 39,450,846  shares of our common stock underlying a
              currently  exercisable  five year warrant at an exercise  price of
              $0.0285 per share granted to Mr.  Brewer  outside of the Company's
              1998 Plan.

                                       55
<PAGE>

         (6)  Consists  of: (i)  2,500,000  shares of our common stock issued to
              Bentley J. Blum in exchange  for $125,000 of debt owed to Mr. Blum
              from the Company;  (ii) 144,200 shares of the Company common stock
              underlying  currently  exercisable  options granted to Mr. Blum by
              the Company under the Plan; (iii) 27,355,800  shares of our common
              stock  underlying a currently  exercisable five year warrant at an
              exercise  price of  $0.0285  per share  granted  to the Blum Asset
              Trust by the Company in connection with the Blum Loan and services
              provided  by the Blum Asset  Trust over the last five  years;  and
              (iv) Mr.  Blum's  indirect  beneficial  ownership  of common stock
              based upon his beneficial  ownership of 28,479,737  shares and his
              spouse's  ownership of 2,000,000  shares of  Environmental  common
              stock,  representing  together 37.74% of the outstanding shares of
              Environmental common stock at April 14, 2004, and 4,500,000 shares
              of  Environmental  common stock underlying  currently  exercisable
              stock options,  representing  together  41.02% of the  outstanding
              shares  of  Environmental.  Does not  include  450,400  shares  of
              Environmental common stock owned by Simone Blum, the mother of Mr.
              Blum,  and 385,000 shares of  Environmental  common stock owned by
              Samuel  Blum,  the father of Mr.  Blum.  Mr.  Blum  disclaims  any
              beneficial  interest in the shares of  Environmental  common stock
              owned by his spouse, mother and father.

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

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

         (9)  Excludes  warrants to purchase an aggregate of 2,104,248 shares of
              common stock at an exercise price of $1.60 per share.  See "Market
              for   Registrant's   Common   Equity   and   Related   Stockholder
              Matters--Recent  Sales of  Unregistered  Securities"  and "Certain
              Relationships and Related Transactions."

         (10) Consists  of:  (i)  1,181,925  shares of common  stock  underlying
              currently  exercisable  stock  options  granted  to  Mr.  Paul  E.
              Hannesson  by the  Company  under the 1998  Plan;  (ii)  4,818,075
              shares of our common stock underlying a currently exercisable five
              year warrant at an exercise  price of $0.0285 per share granted to
              Mr.  Hannesson  outside of the Company's  1998 Plan; and (iii) Mr.
              Hannesson's  indirect  beneficial  ownership of common stock based
              upon his  ownership  of an aggregate  of (a)  2,650,000  shares of
              Environmental common stock owned by Suzanne Hannesson,  the spouse
              of Mr.  Hannesson,  (b) 2,650,000 shares of  Environmental  common
              stock owned by the Hannesson  Family Trust (Suzanne  Hannesson and
              John D.  Hannesson,  trustees) for the benefit of Mr.  Hannesson's
              spouse and (c) 500,000  shares of  Environmental  common  stock in
              exchange for options to purchase  950,000 shares of  Environmental
              common  stock,  issued to  Hannesson  Family  Trust,  representing
              together 7.18% of the outstanding  shares of Environmental  common
              stock as of April 14, 2004, 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.

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

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

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

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


                                       56
<PAGE>

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.

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

         In 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."

                                       57
<PAGE>

         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.

         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:

         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,  2003  reflects  the  terms of the DRM  Settlement
Agreement.  For the year ended December 31, 2002 the Company  recorded a loss on

                                       58
<PAGE>

the disposal of DRM in the amount of $4,134,000.  The Company currently requires
additional cash to sustain existing  operations and to meet current  obligations
and ongoing  capital  requirements.  The  Company's  current  monthly  operating
expenses  exceed  cash  revenues  by  approximately  $100,000.  Because  of  the
dissolution  of DRM, 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 and 2001.

         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  made all payments on the  Milford/Shaar  Bridge Loan Notes
until  November 13, 2001.  The Company asked for and received a  forbearance  of
payments on the  Milford/Shaar  Bridge Loan Notes from  November  13, 2001 until
December 31, 2005. In connection with the  Milford/Shaar  Bridge Loan Notes, the
Company  issued to  Milford/Shaar  in February  2004,  a  five-year  warrant for
250,000  shares of the Company's  common stock at an exercise price of $0.03 per
share. The Shaar Fund, Ltd., through the Shaar Bridge Loan, continues to provide
cash installments on a periodic basis in the form of additional  principal.  The
current principal  balance of the Milford/Shaar  Bridge Loan Notes is $1,350,749
as of December 31, 2003 and remains  unpaid as of April 14, 2004.  Additionally,
as of April 14,  2003,  there is $119,073 in  accumulated  forbearance  fees and
$100,000 due in exit fees on the  Milford/Shaar  Bridge Loan Notes.  See "MD&A -
Liquidity and Capital Resources."

         On October 2, 2002,  Mr.  Bentley Blum, a Director of the Company,  had
previously loaned the Company with $125,000 of cash installments over the period
of one year (the "Blum Loan").  The Company  elected to convert the Blum Loan to
the  Company's  common stock using the  conversion  feature of the 5-day average
closing price of the Company's common stock prior to October 2, 2002. On October
2, 2002,  Blum  issued a  conversion  notice  for  $125,000  of the  outstanding
principal of the Blum Loan into 2,500,000 shares.  Mr. Blum continued to provide
cash  installments  in the form of a loan to the Company  through  February 2004
(the "Blum Demand  Note").  The Blum Demand Note bears  interest at 9% per annum
and has no due date at this  time.  The  current  principal  balance of the Blum
Demand Note is $272,032 as of December  31, 2003 and remains  unpaid as of April
14, 2004. See "MD&A - Liquidity and Capital Resources."

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


                                       59
<PAGE>

         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 Brewer 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. See "MD&A - Liquidity and Capital Resources."

         In November  2000, the Company  completed  $500,000 in financing in the
form of a loan (the "Weiss Group Note") from a group of four investors;  $75,000
of which was borrowed from the son of Paul E.  Hannesson,  our former  President
and Chief Executive  Officer,  and $25,000 of which was borrowed from Stephen A.
Weiss,  a  shareholder  of  Greenberg  Traurig,  LLP, our former  corporate  and
securities  counsel.  The Weiss Group Note bears interest at 12% per annum,  was
due and payable on February  12, 2001,  and is secured by the first  $500,000 of
loans or dividends that the Company may receive from DRM. As  consideration  for
such loan,  Environmental,  one of the Company's  principal  stockholders owning
approximately   16.58%  (in  November  2000)  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 to
the Company until January 15, 2005 in exchange for warrants for 2,500,000 shares
of the  Company's  common  stock at an exercise  price of  $0.0285.  The current
principal  balance of the Weiss Group Note is  $253,603 as of December  31, 2003
and  remains  unpaid as of April 14,  2004.  See "MD&A -  Liquidity  and Capital
Resources."

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

         Effective  February 15, 2004, the Company  issued  warrants to purchase
2,500,000  shares of its common stock at an exercise  price of $0.0285 per share
to all holders of the Weiss Group Note in  consideration of the extension of the
due date of such loans by such  persons  from May 31, 2002 to January 15,  2005.
The Company  believes  that this  transaction  is exempt  from the  registration
requirements  of the  Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.

         On May 23, 2001, a private investor purchased $250,000 of the Company's
common  stock at the market  price.  The  Company  issued the  private  investor
1,973,077  shares  of common  stock of the  Company  as a result  of the  equity
purchase.  In connection with the purchase of the shares of the Company's common
stock,  the  Company  issued the private  investor a 2-year  warrant for 500,000
shares of the  Company's  common stock at an exercise  price of $0.22 per share.
The Company  re-priced this warrant in November 2003 to $0.0285 and extended the
expiration date of this warrant to November 19, 2005. The Company  believes that
this transaction is exempt from the registration  requirements of the Securities
Act under  Section  4(2)  thereof  as a  transaction  not  involving  any public
offering of securities. See "MD&A - Liquidity and Capital Resources."



                                       60
<PAGE>

         On October 2, 2002,  Mr.  Bentley Blum, a Director of the Company,  had
previously loaned the Company with $125,000 of cash installments over the period
of one year (the "Blum Loan").  The Company  elected to convert the Blum Loan to
the  Company's  common stock using the  conversion  feature of the 5-day average
closing price of the Company's common stock prior to October 2, 2002. On October
2, 2002,  Blum  issued a  conversion  notice  for  $125,000  of the  outstanding
principal of the Blum Loan into 2,500,000 shares.  Mr. Blum continued to provide
cash  installments  in the form of a loan to the Company  through  February 2004
(the "Blum Demand  Note").  The Blum Demand Note bears  interest at 9% per annum
and has no due date at this  time.  The  current  principal  balance of the Blum
Demand Note is $272,032 as of December  31, 2003 and remains  unpaid as of April
14, 2004. See "MD&A - Liquidity and Capital Resources."

         On  November  19,  2004,  the  Company  issued a  warrant  to  purchase
27,355,800  shares of its common stock at an exercise price of $0.0285 per share
(the  closing  price of our common  stock on the OTCBB on such date) to the Blum
Asset Trust, a company controlled by Bentley Blum, a Director of the Company, in
consideration  for the loans made to the Company  and the usage of office  space
and  personnel  of the Blum Asset  Trust over the last five  years.  The Company
believes that this transaction is exempt from the  registration  requirements of
the Securities Act under Section 4(2) thereof as a transaction not involving any
public offering of securities. See "MD&A - 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,  2002 and 2003,  although,
insurance costs were allocated between Affiliated Parties when it was beneficial
to insure the family of companies under one policy.

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

Audit Fees

         For the fiscal years ended  December  31, 2003 and 2002,  the fees were
$27,530 and $46,653,  respectively,  for professional  services rendered for the
audit of our financial statements.

Audit Related Services

         We have  also been  billed  $13,743  and  $10,917  for the years  ended
December 31, 2003 and 2002, respectively, for the review of financial statements
included  in our  periodic  and other  reports  filed  with the  Securities  and
Exchange Commission for the year then ended.

Tax Fees

         The  Company  was also  billed  $11,100 and $11,600 for the years ended
December 31, 2003 and 2002, respectively,  for various income tax returns.

All Other Fees

         The  Company  was also  billed  $8,731 and  $12,689 for the years ended
December 31, 2003 and 2002,  respectively,  in other fees relating  primarily to
the audit of the Company's Employee Benefit Plan.


                                       61
<PAGE>

PART IV
-------

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

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

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

         Consolidated Balance Sheets as of December 31, 2003 and 2002......  F-2

         Consolidated  Statements of Operations for the years ended
         December 31, 2003, 2002 and 2001..................................  F-3

         Consolidated Statements of Stockholders' (Deficit) Equity
         for the years ended December 31, 2003, 2002 and 2001..............  F-4

         Consolidated Statements of Cash Flows for the years ended
         December 31, 2003, 2002 and 2001..................................  F-7

         Notes to Consolidated Financial Statements........................ F-11

         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.



                                       62
<PAGE>

Exhibits.
---------

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

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

     3.1          Certificate of Incorporation of the Company. (1)

     3.2          By-Laws of the Company. (1)

     4.1          Specimen common stock Certificate. (3)

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

     4.3          Specimen Warrant Certificate. (1)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       63
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

     10.8         Executive Bonus Plan of the Company. (1)

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

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

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

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

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

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

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

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

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

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

                                       64
<PAGE>

     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)

     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)

                                       65
<PAGE>

     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)

     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)

                                       66
<PAGE>

     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 Danna.
                  (23)

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

     10.85        Warrant  to  purchase  500,000  shares of common  stock of the
                  Company issued to Dr. Marion Danna. (23)

     10.86        Secured  Promissory  Note,  dated  June 13,  2001,  issued  to
                  Milford  Capital  &  Management  in the  principal  amount  of
                  $500,000. (23)

     10.87        Secured  Promissory Note,  dated June 13, 2001,  issued to the
                  Shaar Fund, Ltd. in the principal amount of $500,000. (23)

     10.88        Registration  Rights  Agreement  dated June 13, 2001,  between
                  Commodore  Applied  Technologies,  Inc., and Milford Capital &
                  Management. (23)

     10.89        Registration  Rights  Agreement  dated June 13, 2001,  between
                  Commodore Applied Technologies, Inc., and the Shaar Fund, Ltd.
                  (23)

     10.90        Warrant  to  purchase  166,667  shares of common  stock of the
                  Company issued to Milford Capital & Management. (23)

     10.91        Warrant  to  purchase  166,667  shares of common  stock of the
                  Company issued to the Shaar Fund, Ltd. (23)

     10.92        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)

                                       67
<PAGE>

     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. (24)

     10.102       Forbearance  Agreement dated April 1, 2002,  between Commodore
                  Applied Technologies,  Inc., and Milford Capital & Management.
                  (24)

     10.103       Memorandum  of  Understanding  for  Amendment  of $500,000 CXI
                  Bridge Loan Documents,  dated April 29, 2002, by and among the
                  Company,   Commodore  Environmental  Services,  Inc.,  Mathers
                  Associates,  Klass Partners, Jon Paul Hannesson and Stephen A.
                  Weiss. (24)

     10.104       Forbearance  Agreement dated May 13, 2002,  between  Commodore
                  Applied Technologies, Inc., and the Shaar Fund, Ltd. (24)

     10.105       Forbearance  Agreement dated May 13, 2002,  between  Commodore
                  Applied Technologies,  Inc., and Milford Capital & Management.
                  (24)

     10.106       Forbearance  Agreement dated June 13, 2002,  between Commodore
                  Applied Technologies, Inc., and the Shaar Fund, Ltd. (24)

     10.107       Forbearance  Agreement dated June 13, 2002,  between Commodore
                  Applied Technologies,  Inc., and Milford Capital & Management.
                  (24)

     10.108       Settlement  Agreement  dated  August  19,  2002  by and  among
                  Commodore  Applied  Technologies,   Inc.,  Dispute  Resolution
                  Management,  Inc.,  William J. Russell and Tamie P.  Speciale.
                  (24)

     10.109       Liability  Release  Agreement dated August 19, 2002 by Dispute
                  Resolution  Management,  Inc., William J. Russell and Tamie P.
                  Speciale to Commodore Applied Technologies, Inc. (24)

     10.110       Liability Release Agreement dated August 19, 2002 by Commodore
                  Applied Technologies,  Inc. to Dispute Resolution  Management,
                  Inc., William J. Russell and Tamie P. Speciale. (24)

     10.111       Amended and Restated  Promissory  Note, dated October 2, 2002,
                  issued  to  Shelby  T.  Brewer  in  the  principal  amount  of
                  $250,000. (24)

     10.112       Warrant  to  purchase  1,000,000  shares  of  common  stock of
                  Commodore  Applied  Technologies,  Inc.  issued  to  Shelby T.
                  Brewer. (24)

     10.113       Registration Rights Agreement, dated October 2, 2002 issued to
                  Shelby T. Brewer. (24)

     10.114       Memorandum  of  Understanding  for  Amendment  of $500,000 CXI
                  Bridge Loan  Documents,  dated November 18, 2002, by and among
                  the Company,  Commodore Environmental Services,  Inc., Mathers
                  Associates,  Klass Partners, Jon Paul Hannesson and Stephen A.
                  Weiss. (24)

     10.115       Warrant  to  purchase  222,222  shares of common  stock of the
                  Company issued to Klass Partners. (24)

     10.116       Warrant  to  purchase  166,667  shares of common  stock of the
                  Company issued to Mathers Associates. (24)

     10.117       Warrant  to  purchase  41,667  shares of  common  stock of the
                  Company issued to Jon Paul Hannesson. (24)

                                       68
<PAGE>

     10.118       Warrant  to  purchase  41,666  shares of  common  stock of the
                  Company issued to Krista S. Hannesson. (24)

     10.119       Warrant  to  purchase  27,778  shares of  common  stock of the
                  Company issued to Stephen A. Weiss. (24)

     10.120       Warrant  to  purchase  500,000  shares of common  stock of the
                  Company issued to Klass Partners. (24)

     10.121       Warrant  to  purchase  300,000  shares of common  stock of the
                  Company issued to Mathers Associates. (24)

     10.122       Warrant  to  purchase  75,000  shares of  common  stock of the
                  Company issued to Jon Paul Hannesson. (24)

     10.123       Warrant  to  purchase  75,000  shares of  common  stock of the
                  Company issued to Krista S. Hannesson. (24)

     10.124       Warrant  to  purchase  50,000  shares of  common  stock of the
                  Company issued to Stephen A. Weiss. (24)

     10.125       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. (24)

     *10.126      Warrant  to  purchase  500,000  shares of common  stock of the
                  Company issued to Dr. Marion Danna.

     *10.127      Warrant to purchase  27,355,800  shares of common stock issued
                  to Blum Asset Trust.

     *10.128      Forbearance   Agreement   dated  February  1,  2004,   between
                  Commodore  Applied  Technologies,  Inc., and Milford Capital &
                  Management.

     *10.129      Warrant  to  purchase  250,000  shares of common  stock of the
                  Company issued to Milford Capital & Management.

     *10.130      Memorandum  of  Understanding  for  Amendment  of $500,000 CXI
                  Bridge Loan  Documents,  dated February 15, 2004, by and among
                  the Company,  Mathers  Associates,  Klass  Partners,  Jon Paul
                  Hannesson and Stephen A. Weiss.

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

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

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

     *10.134      Warrant  to  purchase  41,667  shares of  common  stock of the
                  Company issued to Krista S. Hannesson.

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

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

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

     *10.138      Warrant  to  purchase  75,000  shares of  common  stock of the
                  Company issued to Jon Paul Hannesson.

     *10.139      Warrant  to  purchase  75,000  shares of  common  stock of the
                  Company issued to Krista S. Hannesson.

     *10.140      Warrant  to  purchase  50,000  shares of  common  stock of the
                  Company issued to Stephen A. Weiss.

                                       69
<PAGE>

     *10.141      Warrant  to  purchase  444,444  shares of common  stock of the
                  Company issued to Klass Partners.

     *10.142      Warrant  to  purchase  333,334  shares of common  stock of the
                  Company issued to Mathers Associates.

     *10.143      Warrant  to  purchase  83,332  shares of  common  stock of the
                  Company issued to Jon Paul Hannesson.

     *10.144      Warrant  to  purchase  83,332  shares of  common  stock of the
                  Company issued to Krista S. Hannesson.

     *10.145      Warrant  to  purchase  55,556  shares of  common  stock of the
                  Company issued to Stephen A. Weiss.

     *10.146      Series  E  Convertible  Preferred  automatic  conversion  date
                  extension  dated March 10,  2004,  between the Company and The
                  Shaar Fund, Ltd.

     *10.147      Series  F  Convertible  Preferred  automatic  conversion  date
                  extension  dated  April 9, 2004,  between  the Company and The
                  Shaar Fund, Ltd.

     *10.148      Dividend  Forgiveness  letter dated April 9, 2004, between the
                  Company and The Shaar Fund, Ltd.

     16.1         Letter regarding change in certifying accountant. (12)

     16.2         Letter regarding change in certifying accountant. (17)

     *21.1        Subsidiaries of the Company.

     *31.1        Certification  Pursuant to Section  302 of the  Sarbanes-Oxley
                  Act of 2002

     *31.2        Certification  Pursuant to Section  302 of the  Sarbanes-Oxley
                  Act of 2002

     *32.1        Certification  Pursuant to 18 U.S.C.  Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     *32.2        Certification  Pursuant to 18 U.S.C.  Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

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

* Filed herewith.

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

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

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

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

                                       70
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     (21) Incorporated  by  reference  and filed as an Exhibit  to  Registrant's
          Current  Report on Form 8-K filed  with the  Securities  and  Exchange
          Commission on September 26, 2001 (File No. 1-11871).

     (22) Incorporated  by  reference  and filed as an Exhibit  to  Registrant's
          Current  Report on Form 8-K filed  with the  Securities  and  Exchange
          Commission on October 31, 2001 (File No. 1-11871).

     (23) Incorporated  by  reference  and filed as an Exhibit  to  Registrant's
          Annual Report on Form 10-K for the fiscal year ended December 31, 2001
          filed with the  Securities  and Exchange  Commission on April 15, 2002
          (File No. 1-11871).

     (24) Incorporated  by  reference  and filed as an Exhibit  to  Registrant's
          Annual Report on Form 10-K for the fiscal year ended December 31, 2002
          filed with the  Securities  and Exchange  Commission on April 15, 2003
          (File No. 1-11871).

                                       71
<PAGE>

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

     1.   The Company filed a Current Report on Form 10-K, dated April 22, 2003,
          regarding a press release  issued by the Company  announcing  its 2002
          year end earnings.

     2.   The Company  filed a Current  Report on Form 8-K,  dated May 19, 2003,
          regarding a press release  issued by the Company  announcing  its 2003
          1st quarter earnings.

     3.   The Company filed a Current Report on Form 8-K, dated August 13, 2003,
          regarding a press release  issued by the Company  announcing  its 2003
          2nd quarter earnings.

     4.   The Company  filed a Current  Report on Form 8-K,  dated  November 17,
          2003,  regarding a press release issued by the Company  announcing its
          2003 3rd quarter earnings.



                                       72
<PAGE>

SIGNATURES

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

Date:  April 14, 2004               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 14, 2004
------------------------     Executive Officer (principal
Shelby T. Brewer             executive officer)


/s/ James M. DeAngelis       Senior Vice President and Chief      April 14, 2004
------------------------     Financial Officer (principal
James M. DeAngelis           financial officer)


/s/ Bentley J. Blum          Director                             April 14, 2004
------------------------
Bentley J. Blum


/s/ Frank E. Coffman         Director                             April 14, 2004
------------------------
Frank E. Coffman


/s/ Paul E. Hannesson        Director                             April 14, 2004
------------------------
Paul E. Hannesson


/s/ O. Mack Jones            Director                             April 14, 2004
------------------------
O. Mack Jones


/s/ Michael P. Kalleres      Director                             April 14, 2004
------------------------
Michael P. Kalleres


/s/ William A. Wilson        Director                             April 14, 2004
------------------------
William A. Wilson


                                       73
<PAGE>


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

         The Company  sent to its  security  holders an annual  report and proxy
material during the 2003 fiscal year.


                                       73
<PAGE>
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2003 and 2002



<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, 2003 and 2002           F-2


     Consolidated Statements of Operations for the years ended
       December 31, 2003, 2002 and 2001                                    F-3


     Consolidated Statements of Stockholders' (Deficit) Equity for
       the years ended December 31, 2003, 2002 and 2001                    F-4


     Consolidated Statements of Cash Flows for the years
       ended December 31, 2003, 2002 and 2001                              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, 2003 and 2002 and the
related consolidated  statements of operations,  stockholders'  (deficit) equity
and cash flows for the years ended  December 31,  2003,  2002,  and 2001.  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, 2003 and 2002, and the
results of their  operations  and their cash flows for the years ended  December
31, 2003,  2002, and 2001, 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.






Salt Lake City, Utah
January 29, 2004, except for Notes 9 and 19,
which are dated April 14, 2004

                                                                             F-1
<PAGE>
                           Commodore Applied Technologies, Inc.and Subsidiaries
                                                     Consolidated Balance Sheet

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

        Assets                                        2003           2002
        ------                                     -----------------------------

Current assets:
  Cash and cash equivalents                        $           -   $         59
  Accounts receivable, net                                    71             96
  Prepaid assets and other current assets                     13            163
                                                   -----------------------------
        Total current assets                                  84            318

Property and equipment, net                                  142            358

Intangible assets:
  Patents and completed technology, net of
    accumulated amortization of $80 and $40,
    respectively                                              20             60
                                                   -----------------------------
        Total intangible assets                               20             60
                                                   -----------------------------
        Total assets                               $         246   $        736
                                                   -----------------------------

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

        Liabilities and Stockholders' Deficit
        -------------------------------------

Current liabilities:
  Checks written in excess of cash                 $          13   $          -
  Accounts payable                                         1,031          1,077
  Related party payable                                      278             80
  Line of credit                                              64              -
  Notes payable, net                                           -            714
  Other accrued liabilities                                3,937          2,723
                                                   -----------------------------
        Total current liabilities                          5,323          4,594

Long-term debt                                             1,575            431
                                                   -----------------------------
        Total liabilities                                  6,898          5,025
                                                   -----------------------------

Commitments and contingencies

Stockholders' deficit:
  Convertible Preferred Stock, Series E, F
   and H, par value $.001 per share,
   aggregate liquidation value of $4,142
   and $6,716 at December 31, 2003 and 2002,
   respectively, 5% to 12% cumulative
   dividends for Series E and F, 3%
   dividends for Series H, 1,561,700 shares
   authorized, 1,033,700 shares and
   1,213,700 shares issued and outstanding
   at December 31, 2003 and 2002,
   respectively                                                1              1
  Common Stock, par value $.001 per share,
   300,000,000 shares authorized,
   117,702,133 shares and 59,027,062 shares
   issued and outstanding, at December 31,
   2003 and 2002, respectively                               118             59
  Additional paid in capital                              67,664         67,129
  Accumulated deficit                                    (74,172)       (71,215)
                                                   -----------------------------
                                                          (6,389)        (4,026)

Treasury stock, 3,437,500 shares                            (263)          (263)
                                                   -----------------------------
        Total stockholders' deficit                       (6,652)        (4,289)
                                                   -----------------------------
                                                   $         246   $        736
                                                   -----------------------------

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

<TABLE>
<CAPTION>
<PAGE>

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

                                                            Years Ended December 31, 2003, 2002 and 2001
                                                            (Amounts in thousands except per share data)
--------------------------------------------------------------------------------------------------------

                                                               2003            2002           2001
                                                          ----------------------------------------------
<S>                                                       <C>              <C>            <C>
Revenue                                                   $          660   $      3,710   $       4,590

Costs and expenses:
  Cost of revenues                                                   811          2,108           3,369
  Research and development                                            70            297             423
  General and administrative                                       1,700          1,792           2,420
  Depreciation and amortization                                      267            314             658
  Impairment of machinery                                              -              -             776
  Impairment of patents                                                -              -             627
                                                          ----------------------------------------------

        Total operating expenses                                   2,848          4,511           8,273
                                                          ----------------------------------------------

        Loss from operations                                      (2,188)          (801)         (3,683)

Other income (expense):
  Interest income                                                      -              -              38
  Interest expense                                                  (769)          (104)           (226)
  Equity in losses of unconsolidated subsidiary                        -              -            (295)
                                                          ----------------------------------------------

        Loss from continuing operations
        before provision for income taxes                         (2,957)          (905)         (4,166)

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

        Loss from continuing operations                           (2,957)          (905)         (4,166)

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

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

        Net loss                                          $       (2,957)  $     (5,972)  $      (6,554)
                                                          ----------------------------------------------

Net loss per share from continuing operations -
  basic and diluted                                       $        (0.04)  $      (0.02)  $       (0.08)
Net (loss) gain per share from discontinued operations -
basic and diluted                                         $            -   $      (0.09)  $       (0.05)
                                                          ----------------------------------------------
Total net loss per share - basic and diluted              $        (0.04)  $      (0.11)  $       (0.13)
                                                          ----------------------------------------------

Number of weighted average shares outstanding                     92,035         57,775           53,241
                                                          ----------------------------------------------

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

<PAGE>
<TABLE>
<CAPTION>
                                                                                          Commodore Applied Technologies, Inc.
                                                                                                              and Subsidiaries
                                                                                Consolidated Statement of Stockholders' Equity

                                                                               Years Ended December 31, 2003 and 2002 and 2001
                                                                                          (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, 2001                  556,700   $  1    48,330,385   $   48   $   66,495   $  (58,689)   $    -   $ 7,855

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



------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements                                       F-4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                                          Commodore Applied Technologies, Inc.
                                                                                                              and Subsidiaries
                                                                                Consolidated Statement of Stockholders' Equity
                                                                                                                     Continued

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


                                         Preferred Stock       Common Stock      Additional
                                        ----------------------------------------  Paid-In      Accumulated    Treasury
                                         Shares    Amount    Shares     Amount    Capital      Deficit         Stock     Total
                                        --------------------------------------------------------------------------------------
<S>                                     <C>       <C>     <C>          <C>      <C>          <C>           <C>      <C>
Issuance of preferred H Stock pursuant
to disposition of DRM                     800,000      1             -        -          799            -         -       800

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

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

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

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

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

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

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

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

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


------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements                                       F-5
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Commodore Applied Technologies, Inc.
                                                                                                              and Subsidiaries
                                                                                Consolidated Statement of Stockholders' Equity
                                                                                                                     Continued

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


                                         Preferred Stock       Common Stock      Additional
                                        ----------------------------------------  Paid-In      Accumulated    Treasury
                                         Shares    Amount    Shares     Amount    Capital      Deficit         Stock     Total
                                        --------------------------------------------------------------------------------------
<S>                                     <C>       <C>     <C>          <C>      <C>          <C>           <C>      <C>
Issuance of warrants for:
Payment of accounts payable                     -      -             -        -            3            -         -         3
Services                                        -      -             -        -          198            -         -       198
Extension of debt                               -      -             -        -          301            -         -       301

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

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

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



------------------------------------------------------------------------------------------------------------------------------
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, 2003, 2002, and 2001
                                                (Amounts in thousands, except shares and per share data)
--------------------------------------------------------------------------------------------------------


                                                                2003            2002           2001
                                                          ----------------------------------------------
<S>                                                       <C>              <C>            <C>
 Cash flows from operating activities:
  Net loss                                                $       (2,957)  $     (5,972)  $      (6,554)
  Add: net loss (income) from discontinued operations                  -            933           2,388
  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                                   267            314             658
     (Gain) loss on disposition of property and equipment              -            (35)              -
     Imputed interest expense                                          -              -             167
     Impairment of machinery                                           -              -             776
     Impairment of patents                                             -              -             627
     Loss from unconsolidated subsidiary                               -              -             295
     Amortization of debt discount                                    35              6             187
     Issuance of warrants for services                               198              -               -
     Issuance of warrants for extension of debt                      301              -               -
     Changes in assets and liabilities:
        Accounts receivable, net                                      25            503           2,964
        Prepaid assets                                               150             24              97
        Net assets of component DRM                                    -            (83)         (1,559)
        Checks written in excess of cash                              13              -               -
        Accounts payable and accrued liabilities                   1,013             53             919
                                                          ----------------------------------------------
          Net cash provided by (used in)
          operating activities                                      (955)          (123)            965

Cash flows from investing activities:
  Equipment purchased or constructed                                 (11)             -             (51)
  Advances from (to) related parties, net                            198             45             (87)
                                                          ----------------------------------------------
          Net cash provided by (used in)
          investing activities                                       187             45            (138)


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

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


                                                                2003            2002           2001
                                                          ----------------------------------------------
<S>                                                       <C>              <C>            <C>
Cash flows from financing activities:
  Proceeds from sale of common stock and warrants                      -              -             253
  (Repayments)/borrowings under line of credit                        64           (108)         (1,351)
  Borrowings on debt and warrants                                    776            431           1,090
  Payments on long-term debt and notes payable                      (131)          (356)         (1,228)
                                                          ----------------------------------------------
          Net cash provided by (used in)
          financing activities                                       709            (33)         (1,236)
                                                          ----------------------------------------------

          Net change in cash and cash equivalents                    (59)          (111)           (409)

Cash and cash equivalents at beginning of year                        59            170             579
                                                          ----------------------------------------------

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



Supplemental disclosure of cash flow information:

     Cash paid during the year for:

              Interest                                    $           10   $        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:

2003
----

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

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

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

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

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

2002
----

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

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

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

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

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

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

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

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

2001
----

         o    A debt holder 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-10

<PAGE>

                                           Commodore Applied Technologies, Inc.
                                                                and Subsidiaries
                                      Notes to Consolidated Financial Statements

                                                      December 31, 2003 and 2002
                                  (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.

                        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.

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

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


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

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


1.   Summary of         Principles of Consolidation - Continued
     Significant        The investment in  Teledyne-Commodore,  LLC, a 50% owned
     Accounting         joint venture with  Teledyne  Environmental,  Inc.,  was
     Policies           accounted  for  under  the  lower of cost or  market  at
     Continued          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.

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

                                            Years Ended December 31,
                                   ------------- -------------- ---------------
                                       2003          2002            2001
                                   ------------- -------------- ---------------

                       Customer A     $       -  $       2,622  $        3,252
                       Customer B     $     350  $         784  $        1,148
                       Customer C     $     218  $           -  $            -
                       Customer D     $      75  $           -  $            -


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


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

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


1.   Summary of         Risk and Uncertainty
     Significant        Applied's   operations   involving  the  separation  and
     Accounting         destruction  of PCBs  requires  a  permit  from the EPA.
     Policies           Applied  had a valid  nationwide  permit  related to the
     Continued          treatment  of PCBs in  certain  substances.  The  permit
                        expired September 15, 2001.  Applied is currently in the
                        process of applying  for a renewal of the permit.  Until
                        the permit is  reviewed  and  allowed,  Applied,  or its
                        client,  must post a closure bond specific to the amount
                        of any  contracts  that  utilize  Applied's  destruction
                        technology related to the treatment of PCB's.

                        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
                        .5 year lives remaining at December 31, 2003.

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

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


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


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

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


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

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

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

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


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

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


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

                        Stock-Based Compensation
                        At  December  31,  2002,  Applied  has  one  stock-based
                        employee  compensation  plan,  which is  described  more
                        fully in Note 12.  Applied  accounts for its plans under
                        the  recognition  and  measurement  prin-ciples  of  APB
                        Opinion  No.  25,   Accounting   for  Stock   Issued  to
                        Employees, and related  interpretations.  No stock-based
                        employee  compensation cost is reflected in net loss, as
                        all  options  granted  under those plans had an exercise
                        price that  equaled or exceeded  the market value of the
                        underlying common stock on the date of grant. In as much
                        as Applied  rescinded  certain  options  during 2002 and
                        reissued new options to the option holders,  the options
                        are  considered  variable  op-tions 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,
                                                --------------------------------
                                                    2003       2002       2001
                                                --------------------------------

 Net loss, as reported                          $  (2,597) $  (5,972) $  (6,554)
 Deduct:  Total stock- based employee
 compen-sation expense determined under fair
 value based method for all awards, net of
 related
 tax effects                                       (1,544)      (500)      (256)
                                                --------------------------------

 Pro forma net loss                             $  (4,141) $  (6,472) $  (6,810)
                                                --------------------------------

 Loss per share:
    Basic and diluted - as reported             $    (.04) $    (.11) $    (.13)
                                                --------------------------------
    Basic and diluted - pro forma               $    (.04) $    (.12) $    (.14)
                                                --------------------------------

--------------------------------------------------------------------------------
                                                                            F-15
<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, 2003 and 2002.

                        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,  2003,  2002 and 2001.  Applied also has a
                        working  capital  deficit  at  December  31,  2003.  The
                        consolidated  financial  statements  do not  include any
                        adjustments  that might be necessary  should  Applied be
                        unable to continue as a going concern.

--------------------------------------------------------------------------------
                                                                            F-16
<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:

                                                       2003            2002
                                                --------------------------------

 Contract receivables                           $           143  $          272

 Less:  Allowance for doubtful accounts
   and potential disallowances                              (72)           (176)
                                                --------------------------------

          Total receivables, net                $            71  $           96
                                                --------------------------------

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

4.   Property           Property and equipment consist of the following:
     and
     Equipment                             Average          December 31
                                         Useful Life     2003        2002
                                        --------------------------------------

 Machinery and equipment                      3           $   573     $   615
 Furniture and fixtures                       5                58         223
 Computer equipment                           4               213         510
 Leasehold improvements                       5                 -          19
                                                      ------------------------

                                                              844       1,367
 Less:  accumulated depreciation
   and amortization                                          (702)     (1,009)
                                                      ------------------------

   Total property and equipment                           $   142     $   358
                                                      ------------------------


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


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

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



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

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.

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.

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


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

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


6.   Acquisition            c)       Five-year  warrants  to purchase  up  to an
     and                             aggregate  of 1.0 million shares of Applied
     Dissolution                     common stock at an exercise price of  $2.00
     of Dispute                      per share.
     Resolution
     Management             d)       Quarterly  earn-out distributions  equal to
     Continued                       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.

                        Applied had an absolute and  irrevocable  obligation  to
                        repurchase, by the end of the option period, that number
                        of 9.5 million shares of Applied common stock  necessary
                        to provide the  holders of those  shares with a total of
                        $14.5  million.  It was Applied's  intention to exercise
                        its option to reacquire  these shares  during the period
                        and sell these shares to generate the cash  necessary to
                        meet the $14.5 million  obligation.  The  obligation was
                        recorded as a note payable and interest 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
                                                             -----------------


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


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

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


6.   Acquisition        DRM's  equity  at the  date  of  acquisition  was  $414.
     and                Applied's 81% share of this equity was $336.
     Dissolution
     of Dispute         Applied    recorded   the    difference    between   the
     Resolution         consideration  given of $28,056 and its ownership in DRM
     Management         equity of $336 as follows:
     Continued
                        Covenants not to compete            $          2,625
                         Goodwill                                      25,095
                                                             -----------------

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

                        Covenants not to compete were being amortized over their
                        5 year life.  Prior to January  1,  2002,  goodwill  was
                        being amortized over 20 years.

                        On May 16, 2002, a Notice of Default and Right to Pursue
                        Remedies (the "Notice") was issued to Applied by William
                        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.


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


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

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



6.   Acquisition        Additionally,  Applied issued 800,000 shares of Series H
     and                Preferred  stock (the "Series H  Preferred"),  par value
     Dissolution        $0.001 per share,  each such share of Series H Preferred
     of Dispute         having a stated value of $1 per share,  to DRM,  Russell
     Resolution         and Speciale as part of the DRM Settlement  Agreement as
     Management         of September 30, 2002 for  satisfaction of the remaining
     Continued          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.  No  conversion  has been
                                   exercised as of December 31, 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  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.



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


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

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



7.   Other               Other accrued liabilities consist of the following:
     Accrued
     Liabilities
                                                    2003           2002
                                                ------------------------------

 Dividend payable                               $       1,405 $         1,210
 Compensation and employee benefits                     1,373             842
 Accrued interest                                         351             155
 Loss reserve                                             313             238
 Forbearance and exit fees                                219               -
 Related parties                                          185             185
 Other                                                     91              93
                                                ------------------------------

                                                $       3,937 $         2,723
                                                ------------------------------

8.   Line               At  December  31,  2003 and 2002,  CASI had a $64 and $0
     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 2004
                        with interest  payable monthly at prime plus 2.0 percent
                        (6%  at  December   31,   2003).   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  and   long-term   debt  consist  of  the
     Payable and        following at December 31:
     Long-Term
     Debt                                              2003           2002
                                                  ------------------------------

  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 in 2001
  issued warrants to purchase 333,334 shares of
  stock which were valued at $70,000 and
  recorded as a discount on the notes, which was
  fully amortized at 2003 and 2002.  250,000
  warrants valued at $4 were issued in February
  2004 to extend these notes through December
  31, 2005.                                       $        1,351 $          583




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


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

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



9.   Notes
     Payable and
     Long-Term
     Debt
     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 during 2002, and then until
 January 15, 2005 upon the re-pricing and
 extension of 1,500,000 related warrants and an
 additional 1,000,000 warrants.  A discount of
 $30 was recorded as of December 31, 2003 for
 the value of re-priced and additional
 warrants.  The note is secured by accounts
 receivable.                                                 254            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.  During
 2003 the officer converted the remaining
 $250,000 of the note for 13,189,842 shares of
 common stock.                                                 -            250

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

 Unamortized discount for warrants                           (30)           (35)
                                                  ------------------------------

                                                           1,575          1,145

 Less current maturities                                       -            714
                                                  ------------------------------

                                                  $        1,575 $          431
                                                  ------------------------------


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


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

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


10.  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:

                                          2003         2002          2001
                                      -----------------------------------------

 Expected tax benefit at federal
   statutory rate                     $     (1,005) $     (2,030) $     (2,228)
 State income tax benefit, net of
   federal income tax benefit                 (177)         (358)         (393)
 Interest accretion                              -            24           753
 Other                                         180           604           226
 Disposition of discontinued
   operations                                    -         1,654             -
 Change in valuation allowance               1,002           106         1,642
                                      -----------------------------------------
      Income tax benefit              $          -  $          -  $          -
                                      -----------------------------------------

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

                                                        2003          2002
                                                    ---------------------------

      Reserve for uncollectable
        receivables and potential
        disallowances                               $        160 $         153
      Net operating loss carryforward                     12,437        11,320
      Impairment charges                                   1,933         2,225
      Other                                                    -          (170)
                                                    ---------------------------

                                                          14,530        13,528

 Valuation allowance                                     (14,530)      (13,528)
                                                    ---------------------------

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


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


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

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


10.  Income             Applied conducts a periodic examination of its valuation
     Taxes              allowance.  Factors considered in the evaluation include
     Continued          recent  and  expected   future  earnings  and  Applied's
                        liquidity and equity positions.  As of December 31, 2003
                        and 2002, 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, 2003 of approximately  $34,000 which expire
                        in years 2010 through 2023.  The NOL  carryforwards  are
                        limited  to use  against  future  taxable  income due to
                        changes in ownership and control.

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

                        This stock has a dividend  rate of 12% per annum through
                        April  30,  2000  and   thereafter  5%  per  annum  paid
                        quarterly.  In addition the stock has a special dividend
                        at the rate of 7.5% per annum  which  began to accrue on
                        May 1, 2000 and continues to accrue until paid,  payable
                        on May 1, 2001. The Company  accrued $207, $341 and $178
                        of dividends in 2003, 2002 and 2001,  respectively,  and
                        issued  1,566,989  shares  common  stock  to pay $142 of
                        accrued dividends in 2003, respectively.

                        The  Series  E   Convertible   Preferred   Stock  has  a
                        liquidation  preference of $10 per share.  In connection
                        with the issuance of the Series E Convertible  Preferred
                        Stock,  Applied  issued  warrants  to  purchase  572,500
                        shares of common stock at a purchase price equal to 110%
                        of the  market  price  on the date of  closing  ($1.20).
                        These warrants were valued at $60 and expire on November
                        4, 2004.

                        The Series E Convertible  Preferred Stock is convertible
                        into common stock at any time on or after April 30, 2000
                        at a conversion  price equal to the  arithmetic  mean of
                        the  closing  prices of common  stock as reported in the
                        respective  stock  exchange  for  the ten  trading  days
                        immediately preceding the date of conversion.

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


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

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


11.  Stockholders'      Series E Convertible Preferred Stock - Continued
     Equity             During the years  ended  December  31, 2003 and 2002 and
     Continued          2001,  162,500  and 0 and  22,000  shares  of  Series  E
                        Convertible   Preferred   Stock  were   converted   into
                        40,916,155  and 0 and 1,256,713  shares of common stock,
                        respectively.  As of December 31, 2003 there are 115,500
                        shares  of   Series  E   Convertible   Preferred   Stock
                        outstanding.

                        Series F Convertible Preferred Stock
                        In March 2000, Applied issued 266,700 shares of Series F
                        Convertible  Preferred  Stock with a stated value of $10
                        per share.  Transaction  costs on the  issuance  totaled
                        $230 resulting in net proceeds to Applied of $1,771.

                        The stock has a dividend  rate of 12% per annum  through
                        September  30,  2000 and  thereafter  5% per annum  paid
                        quarterly.  In addition the stock has a special dividend
                        at the  rate of 7.5% per  annum  which  began to  accrue
                        October  1, 2000 and  continues  to accrue  until  paid,
                        payable on October 1, 2001.  The Company  accrued  $143,
                        $178  and $230 of  dividends  in  2003,  2002 and  2001,
                        respectively,  and issued  551,571  shares and 1,113,285
                        shares  of common  stock to pay $40 and $137 of  accrued
                        dividends in 2003 and 2002, respectively.

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

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


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


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

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


11.  Stockholders'      Series F Convertible Preferred Stock - Continued
     Equity             During the years  ended  December  31, 2003 and 2002 and
     Continued          2001,  17,500 shares and 28,000 shares and 93,000 shares
                        of Series F Convertible  Preferred  Stock were converted
                        to 2,450,514  shares and 2,496,423  shares and 2,815,512
                        shares  of  common  stock,  respectively.   Applied  has
                        118,200 shares of Series F convertible stock outstanding
                        at December 31, 2003.

                        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.

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

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

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


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

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


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

                        The holders of all series of convertible preferred stock
                        have  the  right,  voting  as a  class,  to  approve  or
                        disapprove  of the  issuance  of any  class or series of
                        stock  ranking  senior  to  or  on  a  parity  with  the
                        convertible  preferred stock with respect to declaration
                        and payment of dividends or the  distribution  of assets
                        on   liquidation,   dissolution  or   winding-up.   Upon
                        liquidation,  dissolution  or  winding  up  of  Applied,
                        holders of Series E and Series F  Convertible  Preferred
                        Stock are entitled to receive liquidation  distributions
                        equivalent  to $10.00 per share before any  distribution
                        to  holders  of the Common  Stock or any  capital  stock
                        ranking  junior to the  Series E  Convertible  Preferred
                        Stock.  There has been no  shares of Series H  Preferred
                        stock  converted  into common  shares as of December 31,
                        2003.

                        Cumulative unpaid dividends on Preferred Stock is $1,405
                        and $1,210 at December 31, 2003 and 2002.

12.  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.

                        FAS 123  requires  stock  options to be valued  using an
                        approach such as the Black-Scholes option pricing model.
                        The Black-Scholes model calculates the fair value of the
                        grant  based upon the  following  assumptions  about the
                        underlying  stock:  The expected  dividend  yield of the
                        stock is  zero,  the  assumed  volatility  is 218%,  the
                        expected  risk-free  rate  of  return  is  3.2  percent,
                        calculated  as  the  rate  offered  on  U.S.  Government
                        securities  with the same term as the  expected  life of
                        the  options,  and  the  expected  term  is the  maximum
                        possible term under the option.

                        Stock options issued during the years ended December 31,
                        2003,  2002 and 2001 had an average value of $.02,  $.07
                        and $.28, respectively.


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


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

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


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

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

                        A summary  of the status of  options  granted  under and
                        outside of the Plan as of December  31,  2003,  2002 and
                        2001  and  changes  during  the  periods  then  ended is
                        presented below:

                       2003                 2002                 2001
              -----------------------------------------------------------------
                Shares    Weighted    Shares   Weighted    Shares   Weighted
                           Average              verage               verage
                          Exercise             Axercise             Axercise
                            Price              E Price              E Price
              -----------------------------------------------------------------

 Options
 outstanding
 - beginning
 of year       10,204,593 $     0.24  7,266,908 $    0.84  7,529,056  $   0.86
   Granted     77,081,358       0.03  9,847,218      0.07    920,000      0.28
   Exercised            -          -          -         -          -         -
   Rescinded            -          - (3,744,373)     0.74          -         -
   Forfeited            -          - (3,165,160)     0.55 (1,182,148)     0.49
              -----------------------------------------------------------------

 Options
 outstanding
 - end of year 87,285,951 $     0.05 10,204,593 $    0.24  7,266,908  $   0.84
              -----------------------------------------------------------------


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


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

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


12.  Stock              The  following  table   summarizes   information   about
     Options            employee  stock  options  and all  other  stock  options
     and Stock          outstanding at December 31, 2003:
     Warrants
     Continued                   Options                         Options
                              Outstanding                     Exercisable
                 ---------------------------------------------------------------
                                Weighted
                                Average     Weighted                 Weighted
     Range of                  Remaining    Average                   Average
    Exercisable     Number    Contractual   Exercise     Number      Exercise
      Prices      Outstanding     Life       Price    Exercisable      Price
  ------------------------------------------------------------------------------

  $   0.03 - 0.03   77,081,358  4.96 years $       0.03  77,081,358 $       0.03
      0.07 - 0.07    9,847,218  4.96 years         0.07   9,847,218         0.07
      2.00 - 6.00      357,375  2.98 years         4.86     357,375         4.86
                 ---------------------------------------------------------------

                    87,285,951  4.95 years $       0.05  87,285,951 $       0.05
                 ---------------------------------------------------------------

                        Stock Warrants
                        A summary of the  warrants  granted as of  December  31,
                        2003,  2002 and 2001 and changes during the periods then
                        ended is presented below:

                      2003                  2002                 2001
             ------------------------------------------------------------------
                Shares    Weighted    Shares   Weighted    Shares   Weighted
                           Average              verage               verage
                          Exercise             Axercise             Axercise
                            Price              E Price              E Price
             ------------------------------------------------------------------

 Warrants
 outstanding
 - beginning
 of year       24,070,312 $     3.50 21,365,705 $   4.16  31,332,178  $   4.42
   Granted     30,655,800       0.03  5,537,716     2.19   1,333,334      0.22
   Exercised            -          -          -        -           -         -
   Repriced    (1,500,000)      0.05          -        -           -         -
   Rescinded     (113,025)      1.94 (1,000,000)    4.16           -         -
   Expired    (17,318,730)      3.50 (1,833,109)    4.16 (11,299,807)     4.42
             ------------------------------------------------------------------

 Warrants
 outstanding
 - end of
 year          35,794,357 $     0.18 24,070,312 $   3.50  21,365,705  $   4.16
             ------------------------------------------------------------------


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


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

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


12.  Stock             Outstanding warrants at December 31, 2003 are as follows:
     Options
     and Stock
     Warrants
     Continued

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

    1,815,881   26,679    261,688          -    2,104,248 $   1.24 February 2004
      312,500        -          -          -      312,500     1.20 November 2004
       25,000        -          -          -       25,000     1.94 March 2005
      250,000        -          -          -      250,000     1.94 March 2005
      113,475        -          -          -      113,475     1.94 March 2005
    1,000,000        -          -          -    1,000,000     2.00 August 2005
            -  333,334          -          -      333,334     0.22 June 2006
            -        -  1,000,000          -    1,000,000     0.05 October 2004
            -        -          -    250,000      250,000     0.03 February 2009
            -        -          -    500,000      500,000     0.03 October 2006
            -        -          -  1,000,000    1,000,000     0.03 February 2007
            -        -          -  1,000,000    1,000,000     0.03 April 2006
            -        -          - 27,355,800   27,355,800     0.03 November 2008
            -        -          -    550,000      550,000     0.03 November 2008
 ---------------------------------------------------------

    3,516,856  360,013  1,261,688 30,655,800   35,794,357
 ---------------------------------------------------------

                        In 2003,  1,500,000 warrants originally issued with debt
                        were repriced and extended,  and 1,000,000 warrants were
                        newly  issued,  both to extend  the  related  debt.  The
                        Company  recorded a debt discount of $30 at December 31,
                        2003.   As  of  December   31,  2003  all  warrants  are
                        exercisable.

13.  Earnings           All   earnings   per   share    amounts    reflect   the
     Per                implementation  of SFAS 128 "Earnings per Share".  Basic
     Share              earnings  per share are  computed by dividing net income
                        (loss) available to common  shareholders by the weighted
                        average number of shares  outstanding during the period.
                        Diluted  earnings  per  share  are  computed  using  the
                        weighted  average  number of shares  determined  for the
                        basic  computations plus the number of shares that would
                        be issued  assuming  all  contingently  issuable  shares
                        having a  dilutive  effect on  earnings  per share  were
                        outstanding for the period.

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


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

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


13.  Earnings Per
     Share
     Continued                                Years Ended December 31,
                                    --------------------------------------------
                                         2003          2002           2001
                                    --------------------------------------------

    Net loss                        $       (2,957) $     (5,972) $      (6,554)
    Preferred stock dividends                 (304)         (528)          (408)
                                    --------------------------------------------

    Net loss available to
      common shareholders           $       (3,261) $     (6,500) $      (6,962)
                                    --------------------------------------------
    Weighted average common
       shares outstanding (basic)       92,035,000    57,775,000     53,241,000
    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)     92,035,000    57,775,000     53,241,000
                                    --------------------------------------------
    Net loss per share - basic
       and diluted                  $         (.04) $      (.11) $         (.13)
                                    --------------------------------------------

                        (*) Due to Applied's loss from continuing  operations in
                        2003, 2002 and 2001, the incremental  shares issuable in
                        connection with these  instruments are anti-dilutive and
                        accordingly not considered in the calculation.

14.  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 $6 and $42 as of December
                        31, 2003 and 2002, respectively.

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


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

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


14.  Related Party      In addition,  Applied has payables to related parties of
     Transactions       $185 and $185 at December 31, 2003 and 2002  recorded in
     Continued          accrued liabilities.

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

                        Applied  has a note  payable to a member of the board of
                        directors that is due on demand and carries  interest at
                        9%. The  balance  due at  December  31, 2003 and 2002 is
                        $272  and  $38,  respectively,  and is  included  in the
                        related party payable.

                        Applied has long-term debt to  shareholders  of Applied.
                        See Note 9.

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

                                          2004                 $           116
                                          2005                              11
                                                               ---------------

                                                               $           127
                                                               ---------------

                        Rent expense  approximated $325, $204, and $429 in 2003,
                        2002  and  2001,  respectively.  Rent  expense  in  2003
                        includes  $198 from the issuance of warrants to a member
                        of the board of directors for office rent expense.

                        Executive Bonus Plan
                        Applied has a five-year Executive Bonus Plan (the "Bonus
                        Plan") under which a number of executives  and employees
                        of Applied are entitled to formula  bonuses.  No bonuses
                        are accrued at December 31, 2003 and 2002.

                        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-33
<PAGE>


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

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


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

16.  401(K)             Applied  has  adopted  a  401(K)  savings  plan  for all
     Savings Plan       employees   who   qualify   as  to  age   and   service.
                        Contributions by Applied are discretionary. Applied made
                        annual contributions to the plan of approximately $0, $0
                        and $35 during the years ended  December 31, 2003,  2002
                        and 2001, respectively.

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

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

    Revenues                                   $         718  $       5,961

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

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

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



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


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

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


18.  Segment            Using  the   guidelines  set  forth  in  SFAS  No.  131,
     Information        "Disclosures About Segments of an Enterprise and Related
                        Information,"  Applied  has  identified  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-35
<PAGE>


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

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


18.  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.

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

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

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

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

Interest income                                                    -             -           -           -
Interest expense                                                (769)           (1)          -        (768)
Income taxes                                                       -             -           -           -
                                                       ----------------------------------------------------

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

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

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

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

Expenditures for long-lived assets                      $         11  $          -  $        -  $       11
                                                       ----------------------------------------------------
</TABLE>


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


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

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


18.  Segment
     Information
     Continued


         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-37
<PAGE>


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

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


18.  Segment
     Information
     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-38
<PAGE>


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

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


19.  Subsequent         Applied issued a total of 9,070,937 shares of its common
     Events             stock from the period from  January 1, 2004 to April 14,
                        2004 in connection with various  conversion notices from
                        the  holders  of  Series E and F  Convertible  Preferred
                        Stock.

                        Effective  February 15, 2004, the Company  re-priced and
                        extended  warrants to purchase  1,500,000  shares of its
                        common  stock from an exercise  price of $.05 to $.0285,
                        and the Company  also issued an  additional  warrants to
                        purchase  1,000,000  shares  of its  common  stock at an
                        exercise  price of $.0285  per share to all  holders  of
                        notes payable  aggregating  $254 at December 31, 2003 to
                        obtain an extension on the notes payable through January
                        15, 2005.

                        Effective February 15, 2004, the Company issued warrants
                        to  purchase  250,000  shares of its common  stock at an
                        exercise price of $.03 per share to all holders of notes
                        payable  aggregating  $1,351  at  December  31,  2003 to
                        obtain  an  extension  on  the  notes  payable   through
                        December 31, 2005.

20.  Recent             In November  2002, the EITF reached a consensus on Issue
     Accounting         No.   00-21,    Revenue   Arrangements   with   Multiple
     Pronounce-         Deliverables.  EITF Issue No. 00-21 provides guidance on
     ments              how to account for certain arrangements that involve the
                        delivery or performance of multiple  products,  services
                        and/or  rights to use  assets.  The  provisions  of EITF
                        Issue  No.  00-21  will  apply to  revenue  arrangements
                        entered into in fiscal periods  beginning after June 15,
                        2003.  The adoption of EITF Issue No. 00-21 did not have
                        a material  impact on  operating  results  or  financial
                        condition of the Company.

                        In April 2003,  FASB issued SFAS No. 149,  Amendment  of
                        Statement  133 on  Derivative  Instruments  and  Hedging
                        Activities. SFAS 149 amends and clarifies accounting for
                        derivative  instruments,  including  certain  derivative
                        instruments  embedded in other contracts and for hedging
                        activities  under SFAS 133,  Accounting for  Derivatives
                        and Hedging Activities.  SFAS 149 is generally effective
                        for   derivative   instruments,   including   derivative
                        instruments embedded in certain contracts,  entered into
                        or modified  after June 30,  2003.  The adoption of SFAS
                        149 did not  have a  material  impact  on the  operating
                        results or financial condition of the Company.


--------------------------------------------------------------------------------
                                                                            F-39
<PAGE>


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

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


20.  Recent             In May 2003,  the FASB issued SFAS 150,  Accounting  for
     Accounting         Certain Financial  Instruments with  Characteristics  of
     Pronounce-         Both  Liabilities  and Equity.  SFAS 150  clarifies  the
     ments              accounting  for  certain   financial   instruments  with
     Continued          characteristics  of  both  liabilities  and  equity  and
                        requires   that   thoseinstruments   be   classified  as
                        liabilities   in  statements   of  financial   position.
                        Previously,  many of those  financial  instruments  were
                        classified   as  equity.   SFAS  150  is  effective  for
                        financial instruments entered into or modified after May
                        31, 2003 and  otherwise is effective at the beginning of
                        the first interim period  beginning after June 15, 2003.
                        On  November  7,  2003,  FASB Staff  Position  150-3 was
                        issued,  which indefinitely  deferred the effective date
                        of   SFAS   150   for   certain   mandatory   redeemable
                        non-controlling  interests. As the Company does not have
                        any of these financial instruments, the adoption of SFAS
                        150  did  not  have   any   impact   on  the   Company's
                        consolidated financial statements.

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



--------------------------------------------------------------------------------
                                                                            F-40
<PAGE>


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

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


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



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