UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

 (Mark One)

  X               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 ---              SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 2006
                                            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 office)          (Zip Code)

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

         Indicate  by check  mark if the  registrant  is a  well-known  seasoned
issuer, as defined in Rule 405 of the Securities Act.
                                          Yes [   ]           No  [ X ]

         Indicate  by  check  mark if the  registrant  is not  required  to file
reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
                                          Yes [   ]           No  [ X ]

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

         Indicate by check mark whether the  registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer.  See definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act.
 Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [ X ]

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act).
                                          Yes [   ]           No  [ X ]

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

              Class                             Outstanding at August 21, 2006
------------------------------------         -----------------------------------
  Common Stock, $0.001 par value                       7,948,217 shares


<PAGE>
                      COMMODORE APPLIED TECHNOLOGIES, INC.

                                    FORM 10-Q

                                      INDEX

                                                                            Page


Item 1.  Condensed Consolidated Financial Statements (unaudited)..............2
   Condensed Consolidated Balance Sheets at June 30, 2006 and
     December 31, 2005........................................................2
   Condensed Consolidated Statements of Operations for the Three
    and Six Month Periods Ended June 30, 2006 and 2005........................4
   Condensed Consolidated Statements of Cash Flows for the Three
    and Six Month Periods Ended June 30, 2006 and 2005........................5
   Notes to Condensed Consolidated Financial Statements.......................6

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.................................16

Item 3.  Quantitative and Qualitative Disclosures About Market Risk..........25

Item 4.  Controls and Procedures.............................................25


PART II.  OTHER INFORMATION..................................................26

Item 1A.  Risk Factors.......................................................26

Item 6.  Exhibits and Reports on Form 8-K....................................27


SIGNATURES...................................................................28



                                       1
<PAGE>


                         PART I - FINANCIAL INFORMATION


ITEM 1:   Condensed Consolidated Financial Statements (unaudited)
          ------------------------------------------------------



              COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

            (Unaudited - Dollars in Thousands, except per share data)


                                                       June 30,     December 31,
                               ASSETS                    2006          2005

Current Assets:
         Cash and cash equivalents                    $        -    $        65
         Accounts receivable, net                          1,515          2,065
         Prepaid assets and other
           current assets                                    136            139
                                                      ----------    ------------
                  Total Current Assets                     1,651          2,269

Property and equipment, net                                  140            148
                                                      ----------    -----------

                    Total Assets                      $    1,791    $     2,417
                                                      ==========    ============








           See notes to condensed consolidated financial statements.

                                       2
<PAGE>


              COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
            (Unaudited - Dollars in Thousands, except per share data)


                                                       June 30,     December 31,
                          LIABILITIES AND                2006            2005
                       STOCKHOLDERS' DEFICIT          ----------    ------------

Current Liabilities:
         Checks written in excess of cash             $       25    $         -
         Accounts payable                                  1,059          1,376
         Related party payable                               252            253
         Line of credit                                        -            141
         Notes payable, net                                  472            635
         Other accrued liabilities                         4,757          4,450
                                                      ----------    ------------

                  Total Current Liabilities                6,565          6,855

Long term debt, net of current portion                     5,926          5,426
                                                      ----------    ------------

                   Total Liabilities                      12,491         12,281

Commitments and contingencies

Stockholders' Deficit
         Convertible preferred stock, Series H & J
           Par value $0.001 per share,
           liquidation value of $6,353 as
           of June 30, 2006 and December 31, 2005,
            3% cumulative dividends for Series
            H, 10% cumulative dividend for Series
            J, 1,550,000 shares authorized,
            1,188,302 shares issued and
            outstanding as of June 30, 2006 and
            December 31, 2005.                                 1              1

         Common stock, par value $0.001 per
           share, 300,000,000 shares authorized,
           7,948,217 shares issued and
           outstanding.                                        8              8
         Additional paid-in capital                       69,474         69,680
         Accumulated deficit                             (79,920)       (79,290)
                                                      ----------    ------------
                                                         (10,437)        (9,601)
         Treasury stock, 171,875 shares
                                                            (263)          (263)
                                                      ----------    ------------
                     Total Stockholders' Deficit         (10,700)        (9,864)
                                                      ----------    ------------
         Total Liabilities and Stockholders'
           Deficit                                    $    1,791    $     2,417
                                                      ==========    ============



            See notes to condensed consolidated financial statements.


                                       3
<PAGE>

<TABLE>
<CAPTION>

                             COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES

                                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                           (Unaudited - Dollars in Thousands, except per share data)




                                                          Three months ended           Six months ended
                                                       June 30,        June 30,      June 30,       June 30,
                                                         2006            2005          2006          2005
                                                      ----------    ------------    -----------   ------------
                                                                     (restated)                    (restated)
<S>                                                   <C>           <C>             <C>           <C>
Contract revenues                                     $    1,826    $      2,733    $     4,062   $     4,359
Costs and expenses:
         Cost of sales                                     1,732           2,631          3,759         4,038
         General and administrative                          421             401            766          943
         Depreciation and amortization                         8               6              8           12
                                                      ----------    ------------    -----------   ------------
                  Total costs and expenses                 2,161           3,038          4,533         4,993
                                                      ----------    ------------    -----------   ------------
Loss from operations                                        (335)           (305)          (471)         (634)
                                                      ----------    ------------    -----------   ------------
Other income (expense):
         Gain on settlement of note payable
            and accrued interest                              --              --            151            --
         Interest expense                                   (159)           (429)          (310)         (577)
         Net loss on embedded derivative liability            --          (587)             --           (587)
                                                      ----------    ------------    -----------   ------------
                  Net other expense                         (159)         (1,016)          (159)       (1,164)
                                                      ----------    ------------    -----------   ------------
Loss before income taxes                                    (494)         (1,321)          (630)       (1,798)

         Income taxes                                         --              --             --            --
                                                      ----------    ------------    -----------   ------------
         Net loss                                           (494)         (1,321)          (630)       (1,798)

         Deemed dividends and dividends accrued to
         preferred stockholders                             (103)         (3,774)          (206)       (3,859)
                                                      ----------    ------------    -----------   ------------

         Net loss applicable to common shareholders   $     (597)   $     (5,095)   $      (836)  $    (5,657)
                                                      ==========    ============    ===========   ============

         Loss per share - basic and diluted           $    (0.08)   $      (0.68)   $     (0.11)  $     (0.81)
                                                      ==========    ============    ===========   ============

Number of weighted average shares outstanding (000's)      7,776           7,442          7,776          7,021
                                                      ==========    ============    ===========   ============

                           See notes to condensed consolidated financial statements.

                                                       4
</TABLE>
..
<PAGE>


              COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
            (Unaudited - Dollars in Thousands, except per share data)



                                                           Six months ended
                                                       June 30,        June 30,
                                                         2006            2005
                                                      ----------    ------------

Cash flows from operating activities:
     Net loss                                         $     (630)   $    (1,798)
     Adjustments to reconcile net loss to net cash
     used in operating activities:
         Depreciation and amortization                         8             12
         Amortization of debt discount                         -            227
         Derivative loss                                       -            587
         Gain on settlement of note payable and
         accrued interest                                   (151)             -
         Changes in assets and liabilities:
                Accounts receivable, net                     550         (2,872)
                Prepaid assets                                 3            (15)
                Checks written in excess of cash              25              -
                Accounts payable                            (317)           640
                Other liabilities                            198          2,408
                                                      ----------    ------------
                  Net cash used in operating
                  activities                                (314)          (811)
                                                      ----------    ------------

Cash flows from investing activities:
      Purchase of equipment                                    -            (72)
                                                      ----------    ------------

Cash flows from financing activities:
      Advances from (to) related parties, net                 (1)             -
      Increase in (repayment of) line of credit             (141)           116
      Payment of notes and loans payable                    (109)             -
      Proceeds from sale of common stock                       -            100
      Increase in notes and loans payable                    500            684
                                                      ----------    ------------
                  Net cash provided by financing
                  activities                                 249            900

Increase (decrease) in cash                                  (65)            17

Cash, beginning of period                                     65             15
                                                      ----------    ------------
Cash, end of period                                   $        -    $        32
                                                      ==========    ============


            See notes to condensed consolidated financial statements.

                                       5
<PAGE>


              COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Note A - Basis of Presentation

         The accompanying  unaudited condensed consolidated financial statements
for Commodore  Applied  Technologies,  Inc. and  subsidiaries  (the "Company" or
"Applied") have been prepared in accordance with generally  accepted  accounting
principles for interim  financial  information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. The financial  statement  information was
derived  from  unaudited  financial   statements  unless  indicated   otherwise.
Accordingly,  they do not include all of the information and footnotes  required
by  U.S.  generally  accepted  accounting   principles  for  complete  financial
statements.

         In the opinion of  management,  all  adjustments  (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included. Operating results for the six-month period ended June 30, 2006 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 2006.

         The accompanying  unaudited condensed consolidated financial statements
should be read in conjunction with the Company's  audited  financial  statements
included in the Company's annual report on Form 10-K for the year ended December
31, 2005.

         Certain  prior-year  amounts have been  reclassified  to conform to the
current year presentation.

         The  accompanying  financial  statements  have 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.  For the six months ended June 30, 2006,  and for
the years ended December 31, 2005,  2004, and 2003,  Applied  incurred losses of
$630,000, $2,714,000, $2,404,000, and $2,957,000,  respectively. The Company has
also  experienced net cash outflows from operating  activities of  ($1,337,000),
($1,532,000),  and  ($955,000),  for the years ended December 31, 2005, 2004 and
2003,  respectively.  These  factors  raise  substantial  doubt about  Applied's
ability to continue as a going concern.  The financial statements do not include
any adjustments  that might be necessary should Applied be unable to continue as
a going concern. Applied's continuation as a going concern is dependent upon its
ability to generate  sufficient  cash flow to meet its  obligations  on a timely
basis,  to obtain  additional  financing as may be required,  and  ultimately to
attain profitability.  Potential sources of cash include new contracts, external
debt,  the sale of new shares of Company  stock or  alternative  methods such as
mergers or sale transactions.  No assurances can be given, however, that Applied
will be able to obtain any of these potential sources of cash.


                                       6
<PAGE>

Note B - Restatement of financial statements

         The  Company's  previously  issued  condensed   consolidated  financial
statements as of and for the three and six months ended June 30, 2005, have been
restated to record the embedded  derivatives from the embedded conversion option
of the Convertible  Secured Note and the Series I Convertible  Preferred  Stock,
entered into on April 11,  2005,  as a deemed  dividend and as a debt  discount,
respectively,  instead of as an other loss. As a result of this  restatement the
Company  reduced net loss by $7,837,  recorded a deemed dividend of $3,701 and a
debt  discount  of $4,361,  and $227 of the debt  discount  was  amortized  into
interest expense during the three and six months ended June 30, 2005.

         The  following  table  summarizes  the  effect of the  restatement  and
reclassification adjustments on the financial statements as of and for the three
and six months ended June 30, 2005.

<TABLE>
<CAPTION>

                                              Three Months Ended               Six Months Ended
                                        -----------------------------       ------------------------
                                        June 30, 2005   June 30, 2005   June 30, 2005  June 30, 2005
                                        -------------   -------------   -------------  -------------
                                         (Restated)     (Previously      (Restated)     (Previously
                                                          Reported)                      Reported)
<S>                                      <C>            <C>             <C>            <C>
   Contract Revenues                     $    2,733     $    2,733      $     4,359    $      4,359


   Total cost and expenses               $    3,038     $    3,038      $     4,993    $      4,993
                                         ----------     ----------      ------------   ------------
   Loss From Operations                  $     (305)    $     (305)     $      (634)   $       (634)

   Other expense:

         Interest Expense                $     (429)    $     (202)     $      (577)   $       (350)
         Net loss on embedded
         derivative liability            $     (587)    $   (8,651)     $      (587)   $     (8,651)
                                         ----------     ----------      ------------   -------------
Net Loss                                 $   (1,321)    $   (9,158)     $    (1,798)   $     (9,635)
  Deemed dividends and dividends
  accrued to preferred stockholders      $   (3,774)    $      (91)     $    (3,859)   $       (158)
  Net loss applicable to common          ----------   ----------        -----------   -------------
  shareholders                           $   (5,095)    $   (9,249)     $    (5,657)   $     (9,793)


</TABLE>

                                       7
<PAGE>


Note C - Summary of Significant Accounting Policies

Allowance for Anticipated Losses on Contracts

         Anticipated  losses on contracts are provided for by a charge to income
during the period such losses are identified.  Changes in job  performance,  job
conditions,  estimated  profitability  (including  those  arising from  contract
penalty  provisions)  and final contract  settlements may result in revisions to
cost and income and are  recognized  in the  period in which the  revisions  are
determined.  Allowances for anticipated  losses totaled $376,000 and $376,000 at
June 30, 2006 and December 31, 2005, respectively. These allowances are included
in other accrued liabilities in the accompanying financial statements.

Consolidation

         The condensed consolidated financial statements include the accounts of
the Company and its majority-owned  subsidiaries.  All significant  intercompany
balances and transactions have been eliminated.  The preparation of consolidated
financial  statements  in conformity  with U.S.  generally  accepted  accounting
principles requires management to make estimates and assumptions that affect the
reported  amounts of assets and  liabilities  and the  disclosure  of contingent
assets and liabilities at the date of the financial  statements and the reported
amounts of revenues and expenses  during the reporting  period.  Actual  results
could differ from those estimates.

Stock Based Compensation

         The Company has established the 1998 Stock Option Plan, as amended (the
"1998 Plan"),  and performance based stock options to executives  outside of the
1998 Plan granted in 2003,  for the award of stock  options and stock bonuses to
employees,  executive  officers,  members of the Board of Directors  and outside
consultants.  The  Compensation  Committee  of the  Board of  Directors  has the
ability to determine the terms of the option,  the exercise price, the number of
shares subject to each option, and the exercisability of the options.

         Under the terms of the 1998  Plan,  options  generally  expire 10 years
from the date of grant or within 90 days of  termination.  Options granted under
these plans  generally  vest at 25 percent  after the  completion of one year of
service and then 1/36 per month for the remaining three years and would be fully
vested  at the  end  of  four  years.  Pursuant  to the  terms  of  their  grant
agreements,  certain of the options  granted under these plans may be subject to
accelerated vesting upon a change in control of the Company.

         Under the terms of the  performance  based stock  options to executives
outside of the 1998 Plan granted in 2003,  options generally expire 5 years from
the date of grant or within 90 days of termination.  Options granted under these
plans generally vest at grant date.

         Prior to December 31, 2005, as permitted  under  Statement of Financial
Accounting  Standards  ("SFAS")  No. 123,  the Company  accounted  for its stock
option plans following the recognition and measurement  principles of Accounting
Principles  Board  ("APB")  Opinion  No.  25,  "Accounting  for Stock  issued to
Employees,"   and   related   interpretations.   Accordingly,   no   stock-based

                                       8
<PAGE>

compensation   expense  had  been  reflected  in  the  Company's  statements  of
operations as all options granted had an exercise price equal to or greater than
the market  value of the  underlying  common  stock on the date of grant and the
related number of shares granted was fixed at that point in time.

         In December 2004,  the Financial  Accounting  Standards  Board ("FASB")
issued SFAS No. 123(R),  "Share Based Payment." This statement  revised SFAS No.
123 by  eliminating  the option to account for employee  stock options under APB
No.  25 and  requires  companies  to  recognize  the cost of  employee  services
received in exchange  for awards of equity  instruments  based on the grant date
fair value of those awards.

         Effective   January  1,  2006,  the  Company  adopted  the  fair  value
recognition  provisions  of SFAS  No.  123(R)  using  the  modified  prospective
application  method.  Under  this  transition  method,  the  Company  would have
recorded  compensation  expense on a  straight-line  basis for the three  months
ended March 31, 2006,  for: (a) the vesting of options  granted prior to January
1, 2006 (based on the grant date fair value  estimated  in  accordance  with the
original  provisions of SFAS No. 123, and previously  presented in the pro-forma
footnote disclosures),  and (b) stock-based awards granted subsequent to January
1, 2006 (based on the grant date fair value  estimated  in  accordance  with the
provisions  of SFAS No.  123(R)).  In accordance  with the modified  prospective
application  method,  results  for the three and six months  ended June 30, 2005
have not been restated.

         There were no options  granted in the three and six month periods ended
June 30,  2006,  and all  options  granted  prior to  January 1, 2006 were fully
vested  prior to January 1, 2006.  As such,  there was no  compensation  expense
recorded for options during the three and six month periods ended June 30, 2006.
Also,  there were no options  granted  to  employees  in the three and six month
periods ended June 30, 2005.


 Note D - Supplemental cash flow information

         During the three and six month  periods  ended June 30, 2006, no shares
of Series J Preferred  Stock were converted into shares of the Company's  common
stock.  During the three and six month periods ended June 30, 2006,  the Company
paid no dividends on the Series J Preferred Stock. The Company accrued dividends
on Preferred  Stock Series J for the three and six-month  periods ended June 30,
2006, of $97,075 and $194,151  respectively,  which is included in Other Accrued
Liabilities.

         During the three and six month  periods  ended June 30, 2006, no shares
of Preferred  Stock Series H were converted into shares of the Company's  common
stock.  The Company accrued  dividends on Preferred Stock Series H for the three
and six-month periods ended June 30, 2006, of $6,000 and $12,000,  respectively,
which is included in Other Accrued Liabilities.

         During the three and six month  periods ended June 30, 2006 the Company
paid no accrued  dividends  on the  accrued  balance  on the Series I  Preferred
Stock.  The balance of dividends  accrued on the Series I Preferred  Stock as of
December  31,  2005 and June 30,  2006 is  $183,697,  which is included in Other
Accrued Liabilities.


                                       9
<PAGE>

Note E - Other Accrued Liabilities

Other accrued liabilities consist of the following:

                                                June 30, 2006  December 31, 2005
                                                -------------  -----------------
                                                 (unaudited)      (audited)
           Compensation and employee benefits    $  2,040       $       1,987
           Accrued Interest                           907                 694
           Dividends Payable                          567                 361
           Subcontractors                             551                 724
           Loss Reserve                               376                 376
           Related parties advances                   185                 185
           Other                                      131                 123
                                                ----------      -------------
                                                $   4,757       $       4,450
                                                ==========      =============

Note F - Segment Information

         The  Company  has  identified  two  reportable  segments  in  which  it
operates,  based on the guidelines set forth in SFAS No. 131. These two segments
are as follows: (i) Commodore Advanced Sciences,  Inc., which primarily provides
various  engineering,   legal,   sampling,  and  public  relations  services  to
Government  agencies on a cost plus basis; and (ii) Commodore  Solutions,  Inc.,
which is commercializing technologies to treat mixed and hazardous waste.

                                       10
<PAGE>

         Applied evaluates segment performance based on the segment's net income
(loss).  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.


Six Months Ended June 30, 2006
(Dollars in Thousands)
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------
                                                                                     Corporate
                                                                                     Overhead
                                           Total           ASI        Solution       and Other
<S>                                      <C>           <C>           <C>           <C>
Contract revenues                        $    4,062    $     4,062   $        --   $         --

Costs and expenses
     Cost of sales                            3,759          3,759            --             --
     General and administrative                 766            205             4            557
     Depreciation and amortization                8              8            --             --
                                         ----------    -----------   -----------   -------------
              Total costs and expenses        4,533          3,972             4            557
                                         ----------    -----------   -----------   -------------
Income (loss) from operations                  (471)            90            (4)          (557)

Gain on settlement of
note payable and accrued
interest                                        151             54            --             97
Interest expense                               (310)            --            --           (310)
                                         ----------    -----------   -----------   -------------
Income (Loss) before income taxes              (630)           144            (4)          (770)
Income taxes                                     --             --            --
                                         ----------    -----------   -----------   -------------
Net Income (Loss)                        $     (630)   $       144   $        (4)  $       (770)
                                         ==========    ===========   ===========   =============

Total assets                             $    1,791    $     1,791   $        --   $          --

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

</TABLE>


                                       11
<PAGE>


Three Months Ended June 30, 2006
(Dollars in Thousands)
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------
                                                                                     Corporate
                                                                                     Overhead
                                           Total           ASI        Solution       and Other
<S>                                      <C>           <C>           <C>           <C>
Contract revenues                        $    1,826    $     1,826   $        --   $         --

Costs and expenses
     Cost of sales                            1,732          1,732            --             --
     General and administrative                 421            127            --            294
     Depreciation and amortization                8              8            --             --
                                         ----------    -----------   -----------   -------------
              Total costs and expenses        2,161          1,867            --            294
                                         ----------    -----------   -----------   -------------
Income (Loss) from operations                  (335)           (41)           --           (294)

Gain on settlement of note
payable and accrued interest                     --             --            --             --
Interest expense                               (159)            --            --           (159)
                                         ----------    -----------   -----------   -------------
Income (Loss) before income taxes              (494)           (41)           --           (453)
Income taxes                                     --             --            --             --
                                         ----------    -----------   -----------   -------------
Net Income (Loss)                        $     (494)   $       (41)  $        --   $       (453)
                                         ==========    ===========   ===========   =============

Total assets                             $    1,791    $     1,791   $        --   $         --

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

</TABLE>

                                       12
<PAGE>


Six Months Ended June 30, 2005
(Dollars in Thousands)
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------
                                                                                     Corporate
                                                                                     Overhead
                                           Total           ASI        Solution       and Other
<S>                                      <C>           <C>           <C>           <C>
Contract revenues                        $    4,359    $     4,273   $        86   $         --

Costs and expenses
     Cost of sales                            4,038          3,984            54             --
     General and administrative                 943            230            16            697
     Depreciation and amortization               12             12            --             --
                                         ----------    -----------   -----------   -------------
              Total costs and expenses        4,993          4,226            70            697
                                         ----------    -----------   -----------   -------------
Loss from operations                           (634)            47            16           (697)

     Derivative loss                           (587)            --            --           (587)
     Interest expense                          (577)            --            --           (577)
                                         ----------    -----------   -----------   -------------
Income (Loss) before taxes               $   (1,798)   $        47   $        16   $     (1,861)
                                         ----------    -----------   -----------   -------------
     Income taxes                                --             --            --             --

Net Income (loss)                        $   (1,798)   $        47   $        16   $     (1,861)
                                         ==========    ===========   ===========   =============

Total assets                             $    2,574    $     2,466   $        86   $         22

Expenditures for long-lived assets       $       72    $        70   $        --   $          2

</TABLE>

                                       13
<PAGE>



Three Months Ended June 30, 2005
(Dollars in Thousands)
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------
                                                                                     Corporate
                                                                                     Overhead
                                           Total           ASI        Solution       and Other
<S>                                      <C>           <C>           <C>           <C>
Contract revenues                        $    2,733    $     2,664   $        69   $         --

Costs and expenses
     Cost of sales                            2,631          2,578            53             --

     General and administrative                 401             67            --            334
     Depreciation and amortization                6              6            --             --
                                         ----------    -----------   -----------   -------------
              Total costs and expenses        3,038          2,651            53            334
                                         ----------    -----------   -----------   -------------
Income (Loss) from operations                  (305)            13            16           (334)

     Derivative loss                           (587)            --            --           (587)
     Interest expense                          (429)            --            --           (429)
                                         ----------    -----------   -----------   -------------
Income (loss) before income taxes        $   (1,321)   $        13   $        16   $     (1,350)
                                         ----------    -----------   -----------   -------------
     Income taxes                                --             --            --             --

Net income (loss)                        $   (1,321)   $        13   $        16   $     (1,350)
                                         ==========    ===========   ===========   =============

Total assets                             $    2,574    $     2,466   $        86   $         22

Expenditures for long-lived assets       $       22    $        20   $        --   $          2
</TABLE>


                                       14
<PAGE>


Note G - Net loss per common share

         Basic net loss per common share ("Basic EPS") excludes  dilution and is
computed by dividing net loss available to common  shareholders  by the weighted
average number of common shares outstanding during the period.  Diluted net loss
per common share  ("Diluted  EPS")  reflects the  potential  dilution that could
occur if stock options or other  contracts to issue common stock were  exercised
or converted into common stock.  The  computation of Diluted EPS does not assume
exercise or conversion of securities that would have an anti-dilutive  effect on
net loss per common share.

         Options and  warrants to purchase  5,971,130  and  6,079,463  shares of
common stock and preferred  stock  convertible  into  30,386,243  and 25,031,211
shares of common  stock as of June 30,  2006 and  2005,  respectively,  were not
included in the  computation  of Diluted  EPS.  The  inclusion  of the  options,
warrants and convertible preferred stock would have been anti-dilutive,  thereby
decreasing net loss per common share.


Note H - Contingencies

         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.


                                       15
<PAGE>


ITEM 2.  Management's Discussion and Analysis of Financial Condition
         -----------------------------------------------------------
         and Results of Operations
         -------------------------

Overview

         The Company is engaged in providing a range of  environmental  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  Solvated  Electron  Technology  ("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 cut-backs, and such a reduction
would materially affect the operations.  However,  management  believes Advanced
Sciences'  existing  client  relationships  will allow the Company to obtain new
contracts in the future.

         The  Company  has  identified  two  reportable  segments  in  which  it
operates,  based  on  the  guidelines  set  forth  in the  Financial  Accounting
Standards Board's Statement of Financial Accounting Standards No. 131. These two
segments are as follows:  Commodore  Advanced  Sciences,  Inc.,  which primarily
provides various engineering,  legal, sampling, and public relations services to
government agencies on a cost plus basis; and Commodore  Solutions,  Inc., which
is commercializing technologies to treat mixed and hazardous waste.

         The Company  currently  requires  additional  cash to sustain  existing
operations and to meet current obligations and ongoing capital requirements. The
Company's   current   monthly   operating   expenses  exceed  cash  revenues  by
approximately  $80,000 at June 30, 2006.  Currently,  the Company is  addressing
this cash shortfall through loans from The Shaar Fund, Ltd., but The Shaar Fund,
Ltd. is under no obligation to continue to make such advances to the Company. If
this lender  decided to discontinue  advances,  the Company would not be able to
meet its current  obligations.  In addition,  the Company owes $564,429 in loans
that are currently due or are payable on demand as of August 21, 2006.  Although
the lenders on these loans have not yet called the loans,  the Company  does not
currently have the ability to pay these loans absent additional financing.

         The Company's report of independent  registered  public accounting firm
on its  fiscal  2003,  2004  and 2005  financial  statements  contains  a "going
concern"  qualification  in which  they  express  substantial  doubt  about  the
Company's ability to continue in business.



                                       16
<PAGE>

CRITICAL ACCOUNTING POLICIES

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

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

Reserves for Doubtful Accounts

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

Valuation of stock and options

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

Revenue Recognition

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

         Most of the Company's  historical  contracts provided for reimbursement
of costs plus fixed  fees.  Direct  and  indirect  contract  costs  incurred  in
reimbursement  plus cost contracts are subject to audit by the Defense  Contract
Audit Agency  ("DCAA").  Management  does not expect these audits to  materially
affect the financial  statements and has established  appropriate  allowances to
cover potential  audit  disallowances.  Contract  revenues have been recorded in
amounts  which are expected to be realized upon final  settlement.  The DCAA has
audited the Company's contracts through 1999. 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.


                                       17
<PAGE>

RESULTS OF OPERATIONS

Three and Six Months Ended June 30, 2006  Compared to Three and Six Months Ended
June 30, 2005

         Revenues were  $1,826,000  and  $4,062,000 for the three and six months
ended June 30, 2006 compared to $2,733,000  and $4,359,000 for the three and six
months ended June 30, 2005.  Such  revenues  were  primarily  from the Company's
subsidiary ASI.

         In  the  case  of  ASI,   revenues  were   $1,826,000  and  $4,062,000,
respectively,  for the three and six months ended June 30, 2006 as compared with
$2,664,000 and $4,273,000, respectively, for the three and six months ended June
30,  2005.  The  decrease in revenues  can be  attributed  to a reduction in the
overall  value of the  current  accruals of open eDAM  contract  work orders and
overall,  less work being performed by Advanced Sciences during this period. The
revenues from Advanced Sciences consisted of engineering and scientific services
performed for the United States government under a variety of contracts, most of
which provide for  reimbursement  on a fixed rate and a lump sum basis.  Revenue
under  these  contracts  is  recorded  as tasks  under  various  work orders are
completed and the client  approved  invoice is submitted  for payment.  Advanced
Sciences has three major  customers,  each of which  represents more than 10% of
total revenue. The combined revenue for these three customers was $1,826,000 and
$4,062,000  respectively,  (100% of total revenues) for the three and six months
ended June 30, 2006. Cost of sales was $1,732,000 and $3,759,000,  respectively,
for the three and six months  ended June 30,  2006  compared to  $2,578,000  and
$3,984,000,  respectively, for the three and six months ended June 30, 2005. The
decrease in cost of sales can be  attributed  to a decrease  in  variable  costs
caused by the  reduction  in the overall  value of the current  accruals of open
eDAM  contract  work orders and overall,  less work being  performed by Advanced
Sciences during this period.

         In the case of Commodore Solution, Inc. ("Solution"),  revenues were $0
and $0,  respectively,  for the  three and six  months  ended  June 30,  2006 as
compared with $69,000 and $86,000,  respectively, for three and six months ended
June 30, 2005.  Solution had no customers during the three and six-month periods
ended June 30, 2006. Revenues,  when recognized,  are primarily from remediation
services  performed for engineering  and waste  treatment  companies in the U.S.
under a variety of contracts. Cost of sales was $0 and $0, respectively, for the
three and six months  ended June 30, 2006 as  compared  to $53,000 and  $54,000,
respectively,  for the three and six  months  ended June 30,  2005.  The cost of
sales,  when incurred,  is attributable to 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.

         General and administrative  expenses for continuing  operations for the
three  and  six  months  ended  June  30,  2006  were   $421,000  and  $766,000,
respectively, as compared to $401,000 and $943,000,  respectively, for the three
and six months  ended June 30,  2005.  The  overall  decrease  for the six month
period is derived  primarily from less travel and expense  account related items
at the corporate level in addition to less use of consultants  and  professional
services at the corporate level.

         In the case of Advanced Sciences,  general and administrative costs for
the three and six-month  periods ended June 30, 2006 were $127,000 and $205,000,
respectively,  compared to $67,000 and $230,000, respectively, for the three and
six months ended June 30, 2005.  This overall slight  decrease for the six month
period is primarily due to marginally less administrative  costs associated with
the eDAM contract in Oak Ridge, TN. Solution incurred general and administrative

                                       18
<PAGE>

costs of $0 and $4,000, respectively,  for the three and six-month periods ended
June 30,  2006 as compared to $0 and  $16,000,  respectively,  for the three and
six-month  periods  ended June 30, 2005.  This decrease was primarily due to the
completion  of the Toxco  contract in 2005 and the  reduction of the general and
administrative costs associated with the Toxco contract.

         Interest  expense for the three and six months  ended June 30, 2006 was
$159,000  and  $310,000,  respectively,  as compared to $429,000  and  $577,000,
respectively,  for the three and six month  periods  ended  June 30,  2005.  The
decrease in interest  expense of $270,000 and  $267,000,  respectively,  for the
three and six month  periods ended June 30, 2006 as compared to the same periods
in the prior year is primarily  related to the interest  expense  related to the
embedded  derivative  recognized  in 2005,  and a lower  line of credit  balance
compared to the prior year.

OFF-BALANCE SHEET ARRANGEMENTS

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

LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 2006 and December 31, 2005  Advanced  Sciences had a $0 and
$141,000 outstanding balance, respectively, on its revolving line 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  $80,000 at June 30, 2006.  Currently,  the Company is  addressing
this cash shortfall  though loans from The Shaar Fund, Ltd., but The Shaar Fund,
Ltd. is under no obligation to continue to make such advances to the Company. If
this lender  decided to discontinue  advances,  the Company would not be able to
meet its current  obligations.  In addition,  the Company owes $564,429 in loans
that are currently due or are payable on demand as of August 21, 2006.  Although
the lenders on these loans have not yet called the loans,  the Company  does not
currently have the ability to pay these loans absent additional financing.

         The report of our independent  registered public accounting firm on our
fiscal 2003, 2004 and 2005 consolidated  financial  statements contains a "going
concern" qualification in which they express substantial doubt about our ability
to continue in  business.  The Company  currently  requires  additional  cash to
sustain existing  operations and to meet current obligations and ongoing capital
requirements.

         For the three and six month  periods  ended June 30, 2006,  the Company
incurred a net loss of $494,000 and $630,000, respectively, as compared to a net
loss of $1,321,000 and  $1,798,000,  respectively,  for the  three-month  period
ended June 30, 2005.  For the six months ended June 30, 2006,  and for the years
ended December 31, 2005,  2004, and 2003,  Applied  incurred losses of $630,000;
$2,714,000,  $2,404,000;  and  $2,957,000,  respectively.  The  Company has also
experienced   net  cash  inflows   (outflows)   from  operating   activities  of
($1,337,000),  ($1,532,000),  and  ($955,000),  for the years ended December 31,
2005, 2004 and 2003, respectively.

                                       19
<PAGE>

         For the three and six month  periods  ended June 30, 2006,  the Company
issued no stock with  respect to accrued  dividends  pertaining  to the Series I
Preferred.  For the three and six month periods ended June 30, 2006, the Company
converted no shares of Series J Preferred  into shares of the  Company's  common
stock and issued no stock with respect to accrued  dividends  pertaining  to the
Series J Preferred. For the three and six month periods ended June 30, 2006, the
Company  converted  no shares of Series H  Preferred  and  issued no stock  with
respect to accrued dividends pertaining to the Series H Preferred.

         The Company has experienced a decrease in accounts receivable,  net, of
$550,000,  as of June 30,  2006  compared  to the year ended  December  31, 2005
amount.  Accounts  receivable,  net, as of December 31, 2005 was  $2,065,000  as
compared to $1,515,000 as of June 30, 2006. The decrease in accounts receivable,
net, is due to (i) the collection of appreciable amounts of historical retainage
on the eDAM contract in Oak Ridge;  and (iii) general timing  differences in the
collection  of  the  Company's  accounts  receivable.  Approximately  90% of the
accounts receivable,  net, figure will be collected within 45 days of the period
ended June 30, 2006. The remaining  approximate 10% of the accounts  receivable,
net, amounts are deemed retainage by the Company's main client,  Bechtel Jacobs,
and is released to the  Company on a periodic  basis when the Company  completes
certain work orders that the retainage has been applied to.

         The Company recently settled a note payable that was due and payable in
the  principal  amount of $254,000  to a vendor for  services  provided  from an
earlier  period in the three month period ended March 31, 2006.  The  settlement
resulted in the  recording of a short term note  payable,  0%  interest,  in the
principal  amount of $200,000  to the  vendor.  The Company has made two of four
payments of $50,000 each on this short term Note  payable at June 30, 2006.  The
settlement of this note payable to the vendor had the effect of recognizing  the
reduction of a historical  recorded  note  payable by $54,000  (other  income to
Advanced  Sciences) and the reduction of historical  accrued interest payable by
$97,000  (other income to Applied)  which was recognized in the six month period
ended June 30, 2006.  These income amounts are included in Other Income and have
not arisen from the Company's normal base of operations.

         Certain  prior-year  amounts have been  reclassified  to conform to the
current year presentation.

         For the three and six month period  ended June 30,  2006,  no shares of
the Company's  Series J Preferred  were  converted  into shares of the Company's
common  stock.  For the three and six month  period  ended  June 30,  2006,  the
Company accrued all dividends payable on the Series J Preferred Stock.

         On April 12, 2005, the Company entered into an exchange  agreement with
The Shaar Fund, LTD (the "Shaar Exchange  Agreement").  Under terms of the Shaar
Exchange  Agreement,  the  Company  agreed that Shaar will  exchange  all of its
right,  title and  interest in and to the  remaining  outstanding  shares of the
Series E  Preferred  and Series F  Preferred  (including  all other  accrued and
unpaid  dividends  thereon)  for  395,302  shares  of  the  Company's  Series  I
Preferred.  Effective October 1, 2005, 388,302 shares of Series I Preferred were
exchanged for 388,302 shares of Series J Preferred

                                       20
<PAGE>

         For the Year ended December 31, 2005, the Company issued 439,206 shares
of the  Company's  common  stock  upon  conversion  of 7,000  shares of Series I
Preferred by the holders  thereof.  For the year ended  December  31, 2005,  the
Company paid no dividends on the Series I Preferred  Stock.  The Company accrued
dividends  on the Series I  Preferred  for the year ended  December  31, 2005 of
$183,696, which is included in Other Accrued Liabilities.

         Effective  October  1,  2005,  the  Company  entered  into an  exchange
agreement with The Shaar Fund, LTD (the "New Shaar Exchange  Agreement").  Under
terms of the Shaar  Exchange  Agreement,  the  Company  agreed  that  Shaar will
exchange all of its right,  title and  interest in and to 388,302  shares of the
Series I Preferred  (excluding all other accrued and unpaid  dividends  thereon)
for 388,302 shares of the Company's Series J Preferred.

         For the year ended December 31 2005, the Company converted no shares of
Series H  Preferred  and  issued no stock  with  respect  to  accrued  dividends
pertaining to the Series H Preferred.  For the year ended December 31, 2005, the
Company paid no dividends on the Series H Preferred  Stock.  The Company accrued
dividends  on Series H Preferred  for the three and six month  period ended June
30, 2006 of $6,000 and $12,000, which is included in Other Accrued Liabilities.

         For the three and six month  period  ended June 30,  2006,  the Company
converted  no shares of Series J Preferred  and issued no stock with  respect to
accrued  dividends  pertaining to the Series J Preferred.  For the three and six
month period ended June 30, 2006,  the Company paid no dividends on the Series J
Preferred. The Company accrued dividends on Series J Preferred for the three and
six month period ended June 30, 2006 of $97,076 and $194,151,  which is included
in Other Accrued Liabilities.

         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.  The current  principal  balance of the Weiss Group Note is
$252,397  and is due and payable as of June 30,  2006 and  remains  unpaid as of
August 21, 2006.

         Mr. Blum, a director of the Company,  provided cash installments in the
form of a loan to the Company  through  February 2004 (the "Blum Demand  Note").
The Blum  Demand  Note bears  interest at 9% per annum and is payable on demand.
The current principal balance of the Blum Demand Note is $312,032 as of June 30,
2006 and remains unpaid as of August 21, 2006.

         On April  27,  2005,  a  private  investor  purchased  $100,000  of the
Company's  unregistered common stock at the market price. The Company issued the
private investor 500,000 shares of unregistered 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 3-year
warrant for 200,000 shares of the Company's common stock at an exercise price of
$0.20 per share.  The Company  believes that this transaction is exempt from the
registration  requirements of the Securities Act under Section 4(2) thereof as a
transaction not involving any public offering of securities.

                                       21
<PAGE>

         Effective as of October 1, 2005, the Company authorized the issuance of
550,000 shares of Series J Convertible  Preferred  Stock ("Series J Preferred"),
par value  $0.001 per  share,  each such  share of Series I  Preferred  having a
stated value of $10.00 per share.

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

         a)   The conversion feature shall be exercisable immediately.
         b)   The conversion price of the Series J Preferred shall be determined
              by the average  closing  price of  Company's  common  stock in the
              previous 10 trading  days,  but in no event  shall the  conversion
              price be more than $0.50 per share or less than $0.05 per share.
         c)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.
         d)   The Series J Preferred shall have a non-cumulative annual dividend
              of 10%, payable in cash or shares of the Company's common stock at
              the Company's election.
         e)   Dividend will be paid quarterly  commencing March 31, 2006, to the
              Holders of record of shares of the Series J Preferred Stock.
         f)   The Company has reserved 40,000,000 shares of its common stock for
              the conversion of the Series J Preferred and the Amended New Shaar
              Convertible Note.

         Effective as of October 1, 2005,  the Company  entered into an exchange
agreement with The Shaar Fund, LTD (the "New Shaar Exchange  Agreement").  Under
terms of the New Shaar  Exchange  Agreement,  the Company agreed that Shaar will
exchange  all  of its  right,  title  and  interest  in  and  to  the  remaining
outstanding  shares of the Series I Preferred  (excluding  all other accrued and
unpaid  dividends  thereon)  for  388,302  shares  of  the  Company's  Series  J
Preferred.

         Effective  as of October 1, 2005,  Shaar and the Company have agreed to
amend the New Shaar Convertible Note (the "Amended New Shaar Convertible Note").

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

         a)   The Amended New Shaar  Convertible  Note bears an interest rate of
              10% per annum, which is payable in cash or shares of the Company's
              common stock at the Company's election.
         b)   Interest  shall  accrue  on the  principal  amount  for a one year
              period  ("Deferral  Period").  On March 22, 2006, the Company will
              make a single lump sum payment to the holder in an amount equal to
              all interest that accrued during the Deferral Period
         c)   Beginning  April 15, 2006, and monthly  thereafter on the 15th day
              of each month until March 22, 2009 ("Maturity  Date"), the Company
              shall pay to Shaar all  accrued  and  unpaid  interest  ("Interest
              Payments")on the principal balance of the note accruing during the
              prior month.
         d)   On the  Maturity  Date,  the Company  shall make a single lump sum
              payment to Shaar equal to the outstanding principal balance of the
              Amended New Shaar Convertible Note ("Principal Balance"), together
              with all accrued and unpaid interest.

                                       22
<PAGE>

         e)   At the option of Shaar, the outstanding  Principal  Balance may be
              converted,  either  in  whole  or in  part,  into  shares  of  the
              Company's common stock.
         f)   The conversion price of the payment of the Principal Balance,  the
              Deferral Period,  and the Interest Payments shall be determined by
              the average  closing  price of  Company's  common  stock in the 10
              trading days preceding the conversion  date, but in no event shall
              the  conversion  price be more  than  $0.50 per share or less than
              $0.05 per share ("Conversion Price").
         g)   If the Company's  common stock is not listed on an exchange at the
              time of the conversion,  then the conversion  price will be 50% of
              the market price at that time.
         h)   The Amended New Shaar  Convertible  Note may not be prepaid by the
              Company prior to the Maturity Date.
         i)   The Company has reserved 40,000,000 shares of its common stock for
              the conversion of the Amended New Shaar  Convertible  Note and the
              Series J Preferred.

         The current principal balance of the New Shaar Note is $5,926,233 as of
June 30, 2006 and remains unpaid as of August 21, 2006.

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

         The  Company  hopes  to  meet  its  short-term   capital   requirements
(including its $80,000 monthly cash shortfall)  through continued loans from The
Shaar Fund,  Ltd.,  although  this lender is under no  obligation to continue to
make  advances to the Company.  The Company  intends to negotiate a  forbearance
arrangement with other lenders on loans that are currently due. Ultimately,  the
Company  intends to reduce its cash  shortfall and intends to meet its long term
capital needs through  obtaining  additional  contracts that will generate funds
from operations and obtaining  additional debt or equity  financing as necessary
or engaging in merger or sale transactions.  There can be no assurance that such
sources of funds  will be  available  to the  Company or that it will be able to
meet its short or long term capital requirements.

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<PAGE>

NET OPERATING LOSS CARRYFORWARDS

         The  Company  has net  operating  loss  carryforwards  (the  "NOLs") of
approximately  $39,000,000  as of December 31,  2005,  which expire in the years
2010 through  2025.  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.

FORWARD-LOOKING STATEMENTS

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

         Such  statements may address  future events and conditions  concerning,
among other things, the Company's results of operations and financial condition;
the  consummation  of  acquisition  and  financing  transactions  and the effect
thereof on the Company's business; capital expenditures;  litigation; regulatory
matters;  and the  Company's  plans and  objectives  for future  operations  and
expansion. Any such forward-looking statements would be subject to the risks and
uncertainties   that  could  cause  actual  results  of  operations,   financial
condition,  acquisitions,  financing  transactions,   operations,  expenditures,
expansion and other events to differ  materially from those expressed or implied
in such forward-looking statements. Any such forward-looking statements would be
subject  to a number  of  assumptions  regarding,  among  other  things,  future
economic, competitive and market conditions generally. Such assumptions would be
based on facts and conditions as they exist at the time such statements are made
as  well  as  predictions  as to  future  facts  and  conditions,  the  accurate
prediction of which may be difficult and involve the assessment of events beyond
the Company's control.

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

         o    the  Company's  critical  need  for  additional  cash  to  sustain
              existing  operations  and meet  existing  obligations  and capital
              requirements (the Company's  auditor's opinion on our fiscal 2003,
              2004 and 2005  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;

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<PAGE>

         o    the  ability of the  Company  to  implement  its waste  processing
              operations,   including  obtaining   commercial  waste  processing
              contracts and  processing  waste under such  contracts in a timely
              and cost  effective  manner;  the timing and award of contracts by
              the U.S.  Department  of Energy  for the  cleanup  of waste  sites
              administered by it;
         o    the timing and award of contracts by the U.S. Department of Energy
              for the cleanup of waste sites administered by it;
         o    the acceptance and implementation of the Company's waste treatment
              technologies in the government and commercial sectors;
         o    the  Company's  ability to obtain and  perform  under  other large
              technical support services projects; developments in environmental
              legislation and regulation;
         o    the ability of the Company to obtain future financing on favorable
              terms; and
         o    other circumstances affecting anticipated revenues and costs.

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

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.

ITEM 4.  Controls and Procedures

(a)      Evaluation of disclosure controls and procedures

         We maintain  disclosure controls and procedures designed to ensure that
information  required to be disclosed in our reports filed under the  Securities
Exchange Act of 1934, as amended (the "Exchange  Act"), is recorded,  processed,
summarized,  and  reported  within  the  required  time  periods,  and that such
information is accumulated and  communicated  to our  management,  including our
Chief Executive Officer and Chief Financial  Officer,  as appropriate,  to allow
for timely decisions regarding required disclosure.

         As required by Rule  13a-15(b)  under the Exchange Act, we conducted an
evaluation,  under the  supervision  of our Chief  Executive  Officer  and Chief
Financial  Officer,   of  the  effectiveness  of  our  disclosure  controls  and
procedures as of June 30, 2006. Based on their  evaluations as of June 30, 2006,
the chief  executive  officer and chief  financial  officer of the Company  have
concluded that the Company's  disclosure  controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e)  under the Securities  Exchange Act) are effective
to ensure that  information  required to be  disclosed by the Company in reports
that it  files  or  submits  under  the  Securities  Exchange  Act is  recorded,
processed,  summarized  and reported  within the time  periods  specified in the
rules and forms of the SEC.

                                       25
<PAGE>

         Management has taken steps to correct any material weaknesses that were
identified  in  Company's  fiscal  2005 10K report  filed  April 18, 2006 ("2005
Annual  Report") on form 10K for the period ended December 31, 2005 with respect
to  analyzing  debt  and  equity  instruments  to  identify  potential  embedded
derivatives and any required  accounting  entries and disclosures  pertaining to
embedded derivatives.


                           PART II - OTHER INFORMATION


ITEM 1.    Legal Proceedings

         There have been no material legal proceedings to which the Company is a
party which have not been disclosed in previous  filings with the Securities and
Exchange  Commission.  There are no material  developments to be reported in any
previously reported legal proceedings.

ITEM 1A.   Risk Factors

         Investing in our securities  involves a material degree of risk. Before
making an investment  decision,  you should carefully  consider the risk factors
set forth  below as well as other  information  we  include  or  incorporate  by
reference  in this annual  report and the  additional  information  in the other
reports we file with the U.S. Securities and Exchange Commission ("SEC").

         For a complete list of the risk factors concerning an investment in our
Company,  please see the Risk Factors  section in the Company's  fiscal 2005 10K
report filed April 18, 2006 ("2005 Annual Report").  There have been no material
changes in the risk factors  listed in the annual report nor have there been any
additional risk factors  recognized or deleted from this list in the 2005 Annual
Report.


ITEM 2.    Change in Securities

                  Not applicable

ITEM 3.    Defaults among Senior Securities

                  Not applicable.

ITEM 4.    Submission of  Matters to a Vote of Security Holders

                  Not applicable.

ITEM 5.    Other Events

                  Not applicable.

                                       26
<PAGE>


ITEM 6.    Exhibits and Reports on Form 8 - K



         (a)  Exhibits.

              1.     31.1  -  Certification  Pursuant  to  Section  302  of  the
                     Sarbanes-Oxley Act of 2002

              2.     31.2  -  Certification  Pursuant  to  Section  302  of  the
                     Sarbanes-Oxley Act of 2002

              3.     32.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
                     Adopted Pursuant to Section 906 of the  Sarbanes-Oxley  Act
                     of 2002

              4.     32.2 - Certification Pursuant to 18 U.S.C. Section 1350, as
                     Adopted Pursuant to Section 906 of the  Sarbanes-Oxley  Act
                     of 2002

         (b)  Reports on Form 8-K.

              1.     The Company filed a Current  Report on Form 8-K,  dated May
                     24, 2006,  regarding a press release  issued by the Company
                     announcing its first quarter 2006 earnings.

              2.     The Company filed a Current  Report on Form 8-K, dated July
                     10, 2006,  regarding a press release  issued by the Company
                     announcing  that its  wholly  owned  subsidiary,  Commodore
                     Advanced  Sciences,  Inc.,  had  initiated  field work on a
                     project  named Core Hole 8 located  in Oak  Ridge,  TN. The
                     estimated value of the Core Hole 8 project is $800,000.

              3.     The Company filed a Current  Report on Form 8-K, dated July
                     26, 2006,  regarding a press release  issued by the Company
                     announcing  that a director of the Company,  Mr.  Robert A.
                     Maczewski  resigned  as of  July  21,  2006,  for  personal
                     reasons.

              4.     The  Company  filed a Current  Report  on Form  8-K,  dated
                     August 16, 2006,  regarding a press  release  issued by the
                     Company   announcing  that  its  wholly  owned  subsidiary,
                     Commodore Advanced  Sciences,  Inc., had received a Phase 1
                     contract  award from the  Department of Energy's  Office of
                     Environmental  Management to demonstrate  the separation of
                     radioactive  (surrogate) and RCRA heavy metals from sludges
                     and other matrices.



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<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  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: August 21, 2006               COMMODORE APPLIED TECHNOLOGIES, INC.
                                            (Registrant)


                                    By    /s/ James M. DeAngelis
                                        ---------------------------------------
                                          James M. DeAngelis - Senior Vice
                                          President and Chief Financial Officer
                                          (as both a duly authorized officer of
                                          the registrant and the principal
                                          financial officer of the registrant)



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