Summary of COMMODORE APPLIED TECHNOLOGIES INC

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION

OVERVIEW

The Company is engaged in providing a range of environmental remediation and technical services to the public and private sectors related to (i) providing goods and services related to environmental management for on-site and off-site identification, investigation remediation and management of hazardous, mixed and radioactive waste; and (ii) remediating contamination in soils, liquids and other materials and disposing of or reusing certain waste by-products.

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 the Company's revenues, and such a reduction would materially affect operations. Management believes the Company's experience and existing client relationships will provide an opportunity to obtain new contracts in the future.
The Company is aggressively pursuing the commercialization of technologies related to the separation and destruction of mixed waste, polychlorinated biphenyls ("PCBs") and chlorofluorocarbons ("CFCs").

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 environmental sampling, analysis and data management services and consumables to government agencies on a lump sum and fixed cost basis; and Commodore Solutions, Inc., which is commercializing technologies to treat mixed and hazardous waste through the Company's Solvated Electron Technology ("SET"), as described more fully in the Company's filing of Form 10-KSB for the year ended December 31, 2007. While Commodore Solutions does not have any revenue or expense activities for the quarter ended June 30, 2008, the Company has multiple proposals currently under consideration by departments of the U.S. government which may re-invigorate this segment in late 2008. The Company continues to actively market the SET technology to new customers and market segments.

LIQUIDITY AND CAPITAL RESOURCES

The Company currently requires additional cash to sustain existing operations and to meet current cash obligations and ongoing capital requirements. The Company's current monthly operating expenses exceed cash revenues by approximately $74 thousand at June 30, 2008. 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 thousand in loans that are currently due or are payable on demand as of June 30, 2008. The Company is currently in negotiations with the holders of this debt to settle this debt with partial payment in the form of common stock and extended terms on the balance. No agreement has been reached and the Company is currently in default on these loans.

The Company has experienced a decrease in total assets for the six months ended June 30, 2008. The decrease in total assets is attributable to depreciation and amortization recognized and a decrease in accounts receivable, which is due to the decreases in revenue contribution by Advanced Sciences from the EDAM contract in Oak Ridge, TN resulting from the renewal of that contract and a lower total revenue amount in the first quarter of 2008.

The report of the Company's independent registered public accounting firms on its fiscal 2007 and 2006 consolidated financial statements contains a "going concern" qualification in which they express substantial doubt about the Company's ability to continue in business. The Company currently requires additional cash to sustain existing operations and to meet current obligations and ongoing capital requirements.

As shown in the Consolidated Statement of Cash Flows for each of the six months ended June 30, 2008 and 2007, the Company incurred losses of $578 thousand and $1.1 million, respectively. The Company has experienced net cash outflows from operating activities of $442 thousand for the six months ended June 30, 2008 compared to $872 thousand for the six months ended June 30, 2007, due to an increase in non-cash expenses for accrued interest on the Shaar note and deferred wages.

The Company had net cash inflows from financing activities of $428 thousand for the six months ended June 30, 2008 compared to $850 thousand for the six months ended June 30, 2007. Cash inflows from borrowings of $555 thousand during the period ended June 30, 2008 were reduced by $127 thousand of payments on debt and notes payable. For the six months ended June 30, 2007, cash inflows from long-term debt and borrowings on the Company's line of credit of $941 thousand were reduced by $91 thousand of payments on long term debt and other obligations. In the first half of 2008 the monthly funding received under the terms of the Shaar note to fund operating capital needs was reduced from $125 to $80 thousand per month.

At June 30, 2008 and December 31, 2007, the Company had stockholders' deficit of $15.8 million and $14.5 million, respectively. The Company's net increase in stockholders' deficit from December 31, 2007 to June 30, 2008 is due to the losses incurred for the first six months of 2008 and the accrual of preferred dividends. At June 30, 2008 and December 31, 2007 the Company had working capital deficit of $7.4 million and $6.7 million, respectively. The increase in the working capital deficit is mainly due to a decrease in accounts receivable and increases in accrued interest on long term borrowings, preferred dividends payable, current portion of long term debt and deferred wages, which were offset by decreases in accounts payable and other accrued liabilities.

The Company has significant interest, dividend and principal payments due within the 12 months following the quarter ended June 30, 2008, most of which is due to the Shaar Fund, either as interest or dividend payments. To date, the Shaar Fund has been willing to extend the due dates of the payments on these instruments. Should the Shaar Fund change its position or call the interest, dividend and principal payments, the Company would be in default on these obligations and subject to possible collection or enforcement actions.

The current principal balance of the New Shaar Note is $8.6 million as of June 30, 2008 and remains unpaid as of July 31, 2008. Both the Note and associated accrued and unpaid interest are convertible into shares of the Company's common stock, subject to 5% maximum ownership limitations by the holder of the convertible note.

Cumulative unpaid dividends on all series of preferred stock as of June 30, 2008 are $1.4 million. Both the dividend payable and the preferred stock are convertible into shares of the Company's common stock, subject to 5% maximum ownership limitations by the holder of the preferred shares.

For the six months ended June 30, 2008, the Company deferred an additional $169 thousand of compensation, representing a portion of the total compensation for certain of its executive officers. At June 30, 2008, the Company had deferred a total of $2.2 million of compensation for three officers.

The Company has placed multiple quotes to perform services under contract with several U.S. Department of Energy installations. To achieve long-term stability, profitability and positive cash flows from operations, the Company will need to significantly increase contract revenues in the remainder of 2008 and beyond. Management is actively pursuing new markets and customers for our services.

RESULTS OF OPERATIONS

Quarter ended June 30, 2008 compared to Quarter ended June 30, 2007

Service Revenues

Service revenues for the three and six months ended June 30, 2008 were $576 thousand and $1.2 million compared to $485 thousand and $1.4 million for the three and six months ended June 30, 2007. Service revenues for the most recent quarter were primarily from environmental remediation and scientific services performed for the United States government under two contracts similar to those in place in 2007. The decrease in revenues for the six months ended June 30, 2008 is primarily the result of the revision of the Environmental Data Acquisition and Management contract ("EDAM"), in October 2007, by Bechtel Jacobs Company LLC of Oak Ridge, TN ("BJC") to a lower total amount, due to (1) BJC performing more self-assessment tasks and (2) the removal of management of subcontracted laboratory activities from the contract. The latter modification to the contract resulted in less pass-through revenues to subcontractors, which were performed at little or no margin to the Company. Additionally, the Company has seen a reduction of testing activities in recent quarters due to reduced government spending in these contracts as the Federal government has directed resources to address the war in Iraq and certain natural disasters within the United States.

Cost of service revenues for the three and six months ended June 30, 2008 were $609 thousand and $1.2 million compared to $662 thousand and $1.3 million for the three and six months ended June 30, 2007. The decrease in cost or revenues is attributable to a decrease in labor expense. Revenues and associated expenses related to the EDAM contract are expected to be flat for calendar year 2008 when compared to 2007 as a result of the reduced backlog at the beginning of 2008.

Product Revenues

In the second quarter of 2007, the Company acquired substantially all of the finished goods inventory from one of Advanced Sciences main suppliers. The supplier provided materials regularly used by the Company's environmental service personnel in the performance of their duties under environmental service contracts. Customers also included companies in the building construction industry. The creation of Commodore Sales Solution ("CSS") provided the Company with an additional source of revenue complementary to the Company's current service offering, provided for a reliable supply of resources used by Applied Sciences on a regular basis, and reduced material costs on service contracts.

CSS gross profit for the three and six months ended June 30, 2008, was approximately $8 thousand and $46 thousand on sales of $229 thousand and $416 thousand, respectively. For the three and six months ended June 30, 2007 CSS experienced gross deficit of approximately $4 thousand on sales of $234 thousand, respectively. The increase in gross profit is attributable to a full six months of activity for the period ended June 30, 2008 compared to three months activity for the period ended June 30, 2007 as CSS commenced operations in the second quarter of 2007. Product sales and the related of cost of goods sold have been presented separately on the Statement of Operations.

Management had previously determined that annual gross revenues of approximately $1 million would be required for profitable operation of this business unit.
During the first 6 months of 2008, management brought resources to bear on growth of this unit in an effort to enable cash self-sufficiency and eventual cash contribution to the overall operations of the Company. This effort came at the same time as a downturn in the construction industry. The targeted revenues did not materialize. In August 2008, subsequent to the close of the June 30, 2008 quarter, the Company closed its CSS operations and began orderly liquidation of its inventory to harvest the approximate $92 thousand of working capital invested in the unit.

General & Administrative

General and administrative expenses for the three and six months ended June 30, 2008 were $329 thousand and $671 thousand compared to $286 thousand and $769 thousand respectively for the three and six months ended June 30, 2007. General and administrative costs include executive salaries and other corporate operating costs of the Company which are fixed in nature. The decrease in general and administrative costs is due to a reduction in expenses for marketing and public relations along with decreased executive compensation and professional service related expenses.

Interest expense increased to $224 thousand and $443 thousand for the three and six months ended June 30, 2008 from $199 thousand and $387 thousand for the three and six months ended June 30, 2007 as a result of an increase in interest bearing debt, which includes $8.6 million in borrowings under the terms of the New Shaar Note.

For the three and six months ended June 30, 2008, the Company incurred a net loss of $578 thousand and $1.1 million compared to a net loss of $666 thousand and $1.1 million for the three and six months ended June 30, 2007. The decrease in cost of revenues could not be accompanied by a commensurate decrease in general and administrative expenses, which are fixed in nature, and interest expense associated with the increase in interest bearing debt. To attain profitability, the Company will be required to obtain significant new contracts, reduce expense levels or accomplish a combination of both.

OFF BALANCE SHEET ARRANGEMENTS

None.