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SECURITIES AND EXCHANGE COMMISSION  FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     Commission File Number 0-02555 Veridien Corporation 
  Delaware
    
    59-3020382(State or other jurisdiction
    
    (I.R.S. Employerof incorporation)
    
    Identification No.)
 2875 MCI Drive, Suite B, Pinellas Park, Florida
    
    33782-6105(Address of principal executive offices)
    
    (Zip code)
 Issuers telephone number (727) 576-1600 Securities registered under Section 12(b) of the Exchange Act: Title of each class
    
    Name of each exchange on whichRegistered
 Securities registered under Section 12(g) of the Exchange Act: Common Stock      Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [  ] Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. (  ) State issuers revenues for its most recent fiscal year. $1,661,911. State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. At the average bid and asked prices of stock as of March 24,
2004 of $0.075,
the aggregate market value of voting stock held by non-affiliates is
$12,993,629.




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TABLE OF CONTENTS PAGEPART IItem 1.
    
    Description of Business
    
    
    3Item 2.
    
    Description of Property
    
    
    12Item 3.
    
    Legal Proceedings
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14PART IIItem 5.
    
    Market for Registrants Common Equity and Related
Stockholder Matters
    
    
    14Item 6.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    18Item 7.
    
    Financial Statements
    
    
    23Item 8.
    
    Changes in and Disagreements with Accountants on
Accounting Financial Disclosure
    
    
    39Item 8A.
    
    Controls and Procedures
    
    
    39PART IIIItem 9.
    
    Directors and Executive Officers of the Registrant
    
    
    40Item 10.
    
    Executive Compensation
    
    
    43Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    46Item 12.
    
    Certain Relationships and Related Transactions
    
    
    47Item 13.
    
    Exhibits and Reports on Form 8-K
    
    
    49Item 14.
    
    Principal Accountant Fees and Services
    
    
    52Ex-10.35 Russel Van Zandt Consulting AgreementEx-21.5 SubsidiariesEx-31.1 Section 302 CEO CertificationEx-31.2 Section 302 CFO CertificationEx-32.1 Section 906 CEO CertificationEx-32.2 Section 906 CFO Certification
  2




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ITEM 1. DESCRIPTION OF BUSINESS ORGANIZATION/HISTORICAL BACKGROUND Following our incorporation in Delaware on June 4, 1991 as VCT Acquisitions
II, Inc., we acquired all of the assets of another Delaware corporation called
Viral Control Technology, Inc. On November 8, 1991, we changed our name to
Veridien Corporation. We were founded primarily to develop, manufacture, distribute and sell
disinfectants, antiseptics, and sterilants which are inherently non-toxic, and
which are environmentally friendly, decomposing into harmless naturally
occurring organic molecules. To this end, we developed and patented a hard
surface disinfectant, VIRAHOL®, which has been registered with the
Environmental Protection Agency (EPA), and an antiseptic hand gel sanitizer
which is drug listed with the Food and Drug Administration (FDA), containing
the patented VIRAHOL® composition. Prior to the year 2000, our primary
emphasis was on the development, marketing and sale of such products, primarily
to the medical and dental markets, which included: VIRAHOL® (now marketed under the brand name of VIRAGUARD®)  A
ready-to-use, hard surface disinfectant/cleaner that is a tuberculocide,
bactericide, virucide, and fungicide. VIRAGEL® (now marketed under the brand name of VIRAGUARD®)  A
waterless, antiseptic hand sanitizer to supplement routine hand washing for
the family or for the person on the job when no water is available, to
sanitize hands or for antiseptic cleansing of hands. ORIGINAL BUSINESS PLAN Our original business plan was focused on the sale and distribution of the
VIRAHOL®/VIRAGUARD® formulation to the medical and dental markets. Initially
the claims which had been approved by the EPA (1990) related to two viruses:
HIV-1 (AIDS virus) and Herpes simplex type 2, and three bacteria:
Staphylococcus aureus, Salmonella choleraesuis, and Pseudomonus aeruginosa. The three bacteria listed were those the Company believed were required to
secure hospital sales. However, the hospitals also wanted a tuberculocidal
claim. Accordingly, we performed the necessary research and testing and
secured approval for claims related to Mycobacterium tuberculosis and
Trichophyton mentagrophytes (fungus) in 1993. REVISED BUSINESS PLAN In 2001 we began the development of an evolving expansion of our business plan.
The essence of the plan was to expand our product base and our marketing
approach beyond our historical focus on the medical and dental markets. A
plan, structured by Management, was implemented and included division of the
Companys business into two areas of focus. The first area, the Infection Control Division, was essentially the Companys
line of infection control products with the liquid and gel product lines
enhanced with the addition of new product delivery configurations such as
canisters, towelettes and private labeling. The second area, the Healthy Lifestyles Division, was focused on new products
for which we had obtained distribution/sales rights, including: 1. the
SunSwipe product line (sunscreen impregnated towelettes in 3




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SPF 15, SPF 30, SPF 45, Baby 45 and after-tanning; all in a towelette product
delivery configuration) and 2. BugSwipe® (an insect repellant in the towelette
product delivery configuration). This Revised Business Plan was not intended to de-emphasize or abandon
VIRAHOL®/VIRAGUARD® or the disinfectant market. Rather, the Infection Control
Division was to actively enhance the marketing of those historic products plus
add new product introductions and expand beyond the medical and dental markets. During 2001, the Company applied to the EPA to expand its label claims. In
addition, the product delivery configurations were strengthened by being
broadened to include canisters and towelettes in two sizes each. The Company
expanded marketing to the janitorial and sanitation industries and to the
restaurant industry, rather than only the medical and dental market. At the
same time, the other new division gave the Company many new and profitable
products which could be offered to a wide variety of larger markets, including
especially the retail and specialty markets. FURTHER REVISIONS  2002 As the Companys Business Plan has evolved, the Company has experienced delays
due to the requirements of the regulatory process. For example, in order to
make a kill claim with respect to any specific pathogens for products under
the jurisdiction of the EPA, the Company must:  1.
    
    contact an approved testing laboratory and determine that an
EPA guideline exists for testing of a product against that pathogen;2.
    
    if no protocol exists (e.g., with respect to Hepatitis B and
Hepatitis C for the towelettes), the laboratory must work with the
EPA to secure a guideline;3.
    
    the guideline is customized by the laboratory as a protocol
for testing of the specific product;4.
    
    direct the laboratory to perform the necessary testing, which
normally takes several weeks, and to prepare the written report in
accordance with EPA guidelines, which typically takes several weeks
more;5.
    
    the report, with required documentation, is sent to the EPA,
where it undergoes preliminary review:  i)
    
    if the submission is deemed to be in
compliance, it is sent for scientific review, which takes 180
days; butii)
    
    if the submission is not deemed to be in
compliance it is returned to the Company for amendment;  6.
    
    if, during the scientific review, errors and/or omissions are
found in the submission, it is returned at the end of the 180-day
period, and upon refiling, the 180-day period begins again;7.
    
    if, at the end of the 180-day period the EPA approves the
kill claim, the EPA gives recommendations regarding label wording;
and8.
    
    the Company then amends its label to comply with EPA
requirements. 4




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As noted above with respect to hospital requirements, sales of our products are
directly affected by the kill claims. Thus, regardless of the specifics of
our Business Plan at any given time, implementation of certain programs may be
dependent upon timing of EPA approvals. Furthermore, securing EPA approvals
may have larger or smaller sales impact than anticipated, requiring
reevaluation. Since implementing the revised plan in 2001 we have received a number of
additional EPA approvals (NOTE: In addition to those listed previously above):  1.
    
    For the towelettes: Tuberculocidal: Mycobacterium bovis (BCG) Bactericidal: Streptococcus pyogenes, ATCC #19615Escherichia coli, ATCC #11229Vancomycin-resistant Enterococcus faecium (VRE), ATCC #51559Staphylococcus aureus (MRSA), ATCC #33591 Fungicidal: Trichophyton mentagrophytes, ATCC #9533 Virucidal: Herpes simplex type 1, ATCC #VR260HIV-1 (AIDS Virus)  2.
    
    For the liquid: Bactericidal: Streptococcus pyogenes, ATCC #49399, #19615Escherichia coli, Strain 0157, ATCC #43895Vancomycin-resistant Enterococcus faecalis (VRE), ATCC #51299Methicillin-resistant Staphylococcus aureus (MRSA), ATCC #33593 Virucidal: Cytomegalovirus (CMV), ATCC #VR538Respiratory syncytial virus (RSV), ATCC #VR26Rotavirus (SA-11; Group A)Influenza type A-2 (Hong Kong), ATCC #VR544Adenovirus type 2, ATCC #VR846Hepatitis A, B and C Our potential market for these products has increased as a result of the
additional approvals. Our COMPLETE listing of currently approved claims is as follows:  For the liquid: Bactericidal: Salmonella choleraesuis, ATCC #10708Staphylococcus aureus, ATCC #6538Pseudomonus aeruginosa, ATCC #15442Streptococcus pyogenes, ATCC #49399, #19615Escherichia coli, Strain 0157, ATCC #43895Vancomycin-resistant Enterococcus faecalis (VRE), ATCC #51299Methicillin-resistant Staphylococcus aureus (MRSA), ATCC #33593 Virucidal: 5




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Hepatitis A, B and CHIV-1 (AIDS virus)Herpes simplex type 2, ATCC# VR539Cytomegalovirus (CMV), ATCC #VR538Respiratory syncytial virus (RSV), ATCC #VR26Rotavirus (SA-11; Group A)Influenza type A-2 (Hong Kong), ATCC #VR544Adenovirus type 2, ATCC #VR846 Tuberculocidal: Mycobacterium tuberculosis Fungicidal: Trichophyton mentagrophytes, ATCC #9533  For the towelettes: Bactericidal: Salmonella choleraesuis, ATCC #10708Pseudomonus aeruginosa, ATCC #15442Streptococcus pyogenes, ATCC #19615Escherichia coli, ATCC #11229Vancomycin-resistant Enterococcus faecium (VRE), ATCC #51559Staphylococcus aureus, ATCC #6538Staphylococcus aureus (MRSA), ATCC #33591 Virucidal: Herpes simplex type 1, ATCC #VR260HIV-1 (AIDS Virus) Tuberculocidal: Mycobacterium bovis (BCG) Fungicidal: Trichophyton mentagrophytes, ATCC #9533 For
in 2003 we have made the following adjustments to our focus, which
are continuing: CURRENT FOCUS During
2003 and early 2004, we have continued to focus our sales efforts on our
Infection Control products. We have expanded our product line to include
Viraguard® Toilet Seat Wipes, which are available for use in restrooms in
hotels, restaurants, airports and other public places as well as in hospitals
and physicians offices, and other places where disinfection is critical to
controlling the spread of disease carrying organisms. Since 2002, we have contracted the services of Dunnigan Developments Ltd. to
coordinate sales and marketing activities with our large multi-national and
other major corporate customers. Paul Dunnigan, the principal of Dunnigan
Developments Ltd., has 22 years experience in marketing and merchandising
consumer products, as well as in supply-chain management for large retailing
operations, including many years with a multi-national corporation. We are aggressively continuing to pursue possible strategic alliances with a
number of major corporations to further strengthen our Company. 6




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During 2002, we entered into a global distribution agreement with E.I. DuPont
de Nemours and Company to market Veridiens line of sunscreen towelettes.
DuPont has commenced marketing Veridiens towelettes and sales of these
products in the Emergency Services and Industrial markets began in the second
quarter of 2003. In addition, we entered into a five (5) year Distribution Agreement with DuPont
for all Viraguard® products in the United States of America for specific market
segments. The Agreement includes certain exclusivity rights for the Emergency
Services and Industrial markets. The products concerned are Viraguard® Hard
Surface Disinfectant Towelettes, Viraguard® Antiseptic Hand Wipes, Viraguard®
Disinfectant solution in one gallon, 16 ounce and 2 ounce formats all of which
are being produced for DuPont under their brand label. Deliveries commenced in
February 2003. In 2003, DuPont and Veridien agreed to test the Virahol® formulation for
efficacy on Hepatitis A, B and C in order to create superior kill claims for
the Viraguard® product line. Hepatitis outbreaks across North America in 2002
and 2003 have increased demand for products with Hepatitis kill claims,
particularly in the Healthcare and First Responder markets. As of December
2003, Veridien has received label claim approval representing effectiveness
against Hepatitis A, B and C on Viraguard® Disinfectant liquids for Hard
Surfaces. Veridien has also drug listed all the Viraguard® Hand Antiseptic
products with the FDA, which products reflect effectiveness against Hepatitis
A, B and C based on in vitro testing. These new Hepatitis kill claims should
provide Veridien and its subregistrants (ie. Dupont) with a strong competitive
advantage in 2004. During 2003 we signed a supply contract with the American Red Cross. Our
patented Viraguard® disinfectants and wipes may be used by the Red Cross to
meet regulatory requirements concerning the type of hard surface disinfectants
used in Red Cross Biomedical Services facilities across America. The products
the American Red Cross have contracted for are: Viraguard® Hospital Hard
Surface Disinfectant Cleaner and Instrument Presoak, Viraguard® Antiseptic Hand
Spray, Viraguard® Hospital Surface Disinfectant Towelettes and Viraguard®
Antiseptic Hand Wipes. The Viraguard® products will be used for personal hand
sanitation, disinfection of clinic surfaces and for maintenance of blood
collection equipment. Early in 2004 we signed a multi-year contract with H2O to Go, LLC. Purified
Water to Go operates a fast growing chain of retail franchises marketing
purified water, nutrition and healthy lifestyle products. They will be using
our patented Viraguard® infection control products for cleaning and
disinfecting their stores and operating equipment, as well as providing hand
hygiene for their staff and customers when water refilling in stores. The full
Viraguard® line of infection control products and our unique SunSwipe
Sunscreen Towelettes will be sold to retail customers in H2O to Go stores
across the United States and Canada. Employees Our core team encompasses eleven (11) people including employees,
active Board members, and primary consultants. We employ four persons, all of whom are full-time employees. Department
    
    Number of EmployeesManagement & Finance
    
    
    2Sales
    
    
    1Administration/Regulatory
    
    
    1
 In addition, we also utilize seven (7) primary consultants (some full-time and
some part-time) to assist with administration, sales, operations, and
marketing. 7




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THE INFECTION CONTROL DIVISION Competitive Advantage In the field, there are many competitors in our major
product categories: (i) hard surface disinfectants and (ii) instant hand
sanitizers. Our competitors include companies currently marketing disinfecting
and sanitizing products for use in the home, hospital, private medical and
dental offices, restaurants, and other institutions. Many of the competitors
products contain one or more of the following four ingredients: quaternary
ammonium, phenol, chlorine, or glutaraldehyde. One of the common
characteristics of these types of active ingredients is that they are harmful
to the skin and usually require gloves when being used. Our
Virahol®/Viraguard® product line, based on our patented formulation, has the
basic underlying characteristic of being recognized by the FDA as being safe
and effective for use on human skin. The active ingredient in each of our
products is Isopropyl alcohol/Isopropanol. The other ingredients in our
patented composition are propylene glycol, water and fragrance. Propylene
glycol is a wetting agent that retards evaporation and aids in the penetration
of cell walls, as well as lowers flammability. Isopropyl alcohol/Isopropanol
and propylene glycol combine to create a synergistic action that makes the
formulation more effective than alcohol alone. As well, the new Hepatitis A, B
and C kill claims on our Virahol®/Viraguard® formulation provide a significant
new competitive advantage in the marketplace. Many of our competitors, recognizing an untapped market potential in changing
consumer awareness about disease transmission, are expanding the market through
various marketing campaigns. This market expansion is deemed to be of great
importance to us as increased market growth of the market base (due to
increased awareness) will allow for an easier penetration by our products. Research & Development Research and Development may be carried out from time
to time in order to assist the company in moving forward with its existing
and/or additional products and claims related to same. Product research and/or
product testing may form part of the costs to be incurred. Pricing Strategy The divisions pricing strategy remains unchanged from last
year. Although the VIRAHOL® composition is inherently more expensive than the
raw materials of the competitive products, our new pricing strategy is to
remain as close as possible to competitors pricing to emphasize the clear
price/value comparison. We revised our prices during 2002 and again in 2004 to
take advantage of various size containers which are in demand and to adjust to
new market conditions for raw materials and finished products. We still
believe that our current pricing structure allows us margins which can support
the Company at the anticipated volume of sales during the next year and yet
provide our customers with competitive pricing. Expanded Marketing While we continue with our sales representatives to sell
to the medical and dental market, we are positioning to move into the
janitorial and sanitation market and the restaurant market, for both our
surface disinfectant, which has EPA approval, and the hand sanitizer, which is
FDA drug listed. While there is substantial competition in the retail market
for towelettes, the competition within niche markets we seek is not so
intensive and the addition of the towelettes in the product line expands our
configurations for delivery of our patented formulation. In 2003 we started approaching pharmaceutical companies to develop joint
marketing programs of Viraguard® products in the medical markets. This
strategy is designed to leverage the brand power and large sales representative
networks of these companies in order to build demand with the end user of the
products (ie. the doctors offices) and to create demand in retail drug chains.
We are currently in
discussions with two major multi-national pharmaceutical companies for programs
expected to launch in 2004. 8




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ManufacturingOur products are manufactured in various locations primarily by
contract fillers and contract packagers. Availability of Raw Materials The largest ingredients by weight for the
VIRAHOL® composition are isopropanol and propylene glycol. Both of these
chemicals are readily available from a wide variety of sources nationally and
internationally, at competitive prices. Although we prefer to use isopropanol
as the monohydric alcohol and propylene glycol as the polyhydric alcohol, our
patent covers the full range of both of these alcohols so that a wide variety
of choices are available should a shortage in one or more chemicals occur,
subject to EPA approval. Substantial numbers of companies produce both the
plastic and corrugated packaging used by the Company. Trade secret ingredients
are employed for fragrances used in the Companys products but are available
from several sources. Governmental Regulation Those who develop products to control pests are
subject to regulation under several Federal Laws. However, only certain pest
control products are subject to registration. The Federal Insecticide,
Fungicide and Rodenticide Act (FIFRA) and Federal Food, Drug, and Cosmetic Act
(FFDCA) As Amended by the Food Quality Protection Act (FQPA) of August 3, 1996,
requires that before any person in any state or foreign country can sell or
distribute any pesticide in the United States, they must obtain a registration
from the U. S. Environmental Protection Agency (EPA). The term pesticide, as
defined in FIFRA section 2 (u), means any substance or mixture of substances
intended for preventing, destroying, repelling, or mitigating any pest, virus,
bacteria, or other micro-organism (except viruses, bacteria, or other
micro-organism on or in living man or other living animals). Pesticides
include fungicides, disinfectants, sanitizers, and germicides. After the
registration process and submission of required data, an accepted label is
stamped accepted and returned to the registrant for the registered product.
Annual Pesticide Maintenance Fees are required for registered products. Anyone
who sells/distributes a pesticide (including antimicrobial products such as
disinfectants, sanitizers, and germicides) must register that product in every
state that they intend to sell/distribute and pay a registration fee. As of
this date, Alaska does not require a registration fee but does require
registration. In order to produce, defined to mean to manufacture, prepare, propagate,
compound, or process any pesticide . . . or to repackage or otherwise change
the container of any pesticide . . . the plant(s) and/or facility must be
registered. Upon registration an establishment number is assigned. The label
and/or container must bear the registration number as well as the establishment
number. Annual reports are required to be submitted to the U.S. EPA indicating
the amount produced, repackaged/relabeled for the past year, amount
sold/distributed for the past year U.S. and Foreign, and amount to be
produced/repackaged/ relabeled for the current year. The Company currently has two products registered with the United States
Environmental Protection Agency. They are as follows:  A.
    
    VIRAHOL® Hospital Disinfectant/Cleaner & Instrument Presoak, assigned EPA
Registration No. 60142-1, and has an EPA accepted label, is designed for
effective disinfecting, cleaning and deodorizing of hard inanimate
surfaces such as walls, sink tops, tables, chairs, telephones, toilet
seats and bed frames.B.
    
    VIRAHOL® Hospital Surface Disinfectant Towelette, assigned EPA
Registration No. 60142-3, and has an EPA accepted label, is designed for
effective cleaning, disinfecting and deodorizing of hard
non-porous, inanimate surfaces such as walls, sink tops, tables, chairs,
telephones, toilet seats and bed frames. Additional brand names for these two products (e.g. VIRAGUARD®, Viraguard®
Toilet Seat Wipes, etc.) are also registered. 9




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The Company is registered and has been assigned EPA Establishment No.
60142-FL-1. Also our contract manufacturers are registered EPA establishments. In addition, the Company contract manufactures and distributes Antiseptic Drug
Products per 21 CFR Parts 333 and 369 and respective monographs, Topical
Antimicrobial Drug Products for Over-the-Counter Human Use. Veridien
Corporations establishment is registered and a Labeler Code Number was
assigned. Per Title 21, Part 207 of the Code of Federal Regulations (CFR),
the products are drug listed with the Food and Drug Administration (FDA). All regulated products, EPA and FDA, are manufactured in compliance with Good
Manufacturing Practices (GMPs). THE HEALTHY LIFESTYLES DIVISION This division is focused on new products for which we have obtained
distribution/sales rights. Products in this division include our SunSwipe
line and BugSwipe® product. We have adopted a new approach to marketing SunSwipe and BugSwipe® products
during 2003 which we continue to pursue. We are developing Master Distributor
Agreements with companies who have strong market penetration in specific areas.
These include Emergency Services, Healthcare, Retail Mass Merchandise,
Sporting Goods, Supermarkets, Convenience Stores, Industrial and Institutional
sales channels. Master Distribution agreements allow us to take advantage of
the Distributors extensive abilities to place products in these markets. There are many sources of raw materials for all of the products in this
division and many manufacturing alternatives available to us. We will be
competing with numerous other companies when introducing these products;
however, we believe that our innovative delivery systems for these conventional
products will give us a competitive edge. The Company manufactures and distributes sunscreen towelette products per 21
CFR Part 352 and respective tentative monographs, Sunscreen Drug Products for
Over-the-Counter Human Use. A Labeler Code Number has been assigned to
Veridiens subsidiary, The SunSwipe Corporation L.L.C. The Companys contract
manufacturers are registered FDA establishments. Per Title 21, Part 207 of the
Code of Federal Regulations (CFR), the products are drug listed with the Food
and Drug Administration (FDA). CANADIAN LICENSING We have entered into an agreement with a Canadian company to produce and market
the VIRAHOL® line in Canada on a non-exclusive basis. The products have been
approved with Health Canada and are marketed under the VIRAGUARD® trade name. COMPLIANCE WITH ENVIRONMENTAL LAWS We have had no need to spend monies on compliance with local, state and federal
environmental laws. We are current for our annual filing of the Pesticide
Registration Maintenance Fee Filing Form for 2003, and our 10




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annual filing of the
Pesticide Report for Pesticide-Producing Establishments. The Company is in
receipt of the certificates of approval from all states where the registered
products are currently sold and/or distributed. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS This report contains some forward-looking statements. Forward-looking
statements describe our current expectations or forecasts of future events.
These statements do not relate strictly to historical or current facts. In
particular, these include statements relating to future actions, prospective
products, future performance or results of current and anticipated products,
sales, efforts, the outcome of contingencies and financial results. Any or all
of the forward-looking statements we make may turn out to be wrong. They can
be affected by inaccurate assumptions we might make or by known or unknown
risks and uncertainties. Many factors, such as product acceptance, competition
and marketing capabilities, will be important in determining future results.
Consequently, no forward-looking statements can be guaranteed. Actual future
results may vary materially. We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any future disclosures we make on related subjects
in our 10-QSB, 8-KSB, and 10-KSB reports to the SEC. We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products.
These are factors that we think could cause our actual results to differ
materially from expected results. Other factors besides those listed here
could adversely affect us. RISKS OF OUR BUSINESS We are a small and relatively new company. To date, we have expended much of
our efforts and funds on development of products. We are initiating sales and
marketing efforts. We are uncertain about the market acceptance of our
products. As a small company, we are highly dependent upon the efforts and abilities of
our management. The loss of the services of any of them could have a
substantial adverse effect on us. We have not purchased key man insurance
policies on any of them. To date the Company has not had significant sales. We expect the growth in our
sales to come primarily from others, such as independent manufacturers
representatives and accessing existing distribution and fulfillment systems.
We cannot be certain about our ability to attract and retain representatives
until we have had greater experience with these groups and organizations. We
are also uncertain about their sales effectiveness for our products. We have expended substantial capital on developing our products and beginning
sales and marketing. Until we are cash flow-positive from sales, we will need
additional financing to fund our growth. We are uncertain about our ability to
secure the financing. We are also uncertain about the costs of any financing
which we may obtain. We have many competitors in our major product categories. We are uncertain
about our ability to compete effectively. We must be able to manage our expected growth. This means we must increase our
contract manufacturing capacity, expand and improve our timely management of orders, and
secure sufficient, reliable shipping. We must also 11




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have the systems to handle
ordering of raw materials and packaging supplies, as well as managing our
inventories. Although we are diversifying our product line to lessen our dependence on
VIRAHOL®, which is patented, that change will take time. Therefore, under
present circumstances, if VIRAHOL® were to become subject to a problem such as
loss of patent protection, regulatory proceedings, or pressure from a directly
competitive product, the impact on our revenues could be significant. RISKS OF OUR PRODUCTS Our products, disinfectants and antiseptics, are subject to regulation by
various governmental agencies. Typically, they must be tested before they can
be introduced into the market. Our VIRAHOL® product is EPA registered. We are
uncertain about approvals of future products. Any failure of our products to fulfill their stated purpose could result in
lawsuits for product liability or breech of contract. We currently maintain
product liability insurance. A successful claim against us in excess of our
insurance coverage could have a material adverse effect on our results of
operations, financial condition or business. Even unsuccessful claims would
result in expenditure of funds in litigation, as well as diversion of
management time and resources. 
 ITEM 2. DESCRIPTION OF PROPERTY During 2003 we leased approximately 2,600 square feet of office space in a
building located at 2875 MCI Drive, Suite B, Pinellas Park, Florida 33782-6105.
  . Our current lease commenced on January 1, 2003, is at the rate of $
1,625.00 per month and is for a period of 2 years. In addition to the rent, we
pay 3.5% of the utilities and the real estate taxes, allocated to the
percentage of the total building occupied by us. We were no longer in need of
the warehouse space we had previously utilized (at this same location) as we
have now contracted with North American Warehousing Company in Bedford Park,
Illinois to provide us with fulfillment services for our products, i.e.
warehousing and distribution. Our telephone number is (727) 576-1600, our
facsimile number is (727) 576-1611 and our website address is www.veridien.com. We currently lease a postage meter and copier. We have lease-to-buy agreements
for our computer network system for $532.55 per month. We own all other
equipment and furniture currently at the premises, which consists of certain
computers, computer accessories, office furniture, file cabinets, and
miscellaneous equipment. 12




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PATENTS AND TRADEMARKS PATENTS AND TRADEMARKS The Company has various United States patents and a United States utility
patent pending, as follows: Patent No. 5,145,663, VIRAHOL® (Disinfectant - DSI), issued September 8, 1992Patent No. 5,441,723, VIRAHOL® (Disinfectant - DSII), issued August 15, 1995Patent No. 5,637,307, Method (Sterilant - CCSS/AOCC III), issued June 10, 1997Patent No. 5,985,929, Cold Chemical Sterilant - UREA (STERIHOL® PLUS), issued November 16, 1999Patent No. 5,925,052, Umbilical Surgical Scissors, issued July 20, 1999Patent No. 5,891,052, Diagnostic Syringe Actuator Device, issued April 6, 1999 In addition, the Company has various foreign patents and a patent application,
as follows: Australia Patent No. 628932, VIRAHOL® (DSI), issued January 22, 1993United Kingdom Patent No. 2,245,171, VIRAHOL® (DSI), issued April 14, 1993New Zealand Patent No. 269419, VIRAHOL® (DSII), issued July 15, 1994Canadian Patent No. 1,337,329, VIRAHOL® (DSI), issued October 17, 1995Mexican Patent No. 185,884, VIRAHOL® (DSII), issued September 9, 1997Great Britain Patent No. 2,294,639, VIRAHOL® (DSII), issued January 14, 1998Australia Patent No. 695346, VIRAHOL® (DSII), issued November 26, 1998Japanese Patent No. 2,904,917, VIRAHOL® (DSI), issued June 14, 1999Canadian Patent No. 2,166,810, VIRAHOL® (DSII), issued March 14, 2000 The Company also has numerous trade names registered in the U.S. The Company
has trademarks for the following brands: VIRAHOL® registered September 24, 1991, Trademark No. 1,657,969VIRAGEL® registered July 20, 1993, Trademark No. 1,783,204VERIDIEN® registered September 5, 1995, Trademark No. 1,917,134STERIHOL® registered June 16, 1998, Trademark No. 2,166,502VIRASCRUB® registered June 16, 1998, Trademark No. 2,166,503VIRASONIC® registered June 16, 1998, Trademark No. 2,166,504VIRA-GC18® registered May 12, 1998, Trademark No. 2,157,635VIRALUBE® registered July 7, 1998, Trademark No. 2,171,823VIRAGUARD® registered September 1, 1998, Trademark No. 2,186,559VIRAGUARD® design registered February 20, 2001, Registration No. 2429809BUGSWIPE® registered August 19, 2003, Trademark No. 2,753,718 The Company also has trademark applications pending in the US: SUNSWIPE, filed January 24, 2003, Application No. 76/484748SIT SECURE filed July 31, 2003, Application No. 76/533712 The Company also has a trademark application pending in Canada: BUGSWIPE, filed November 30, 2000, Application No. 1,084,705 13




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##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS Except for the proceedings discussed below, we are not a party to any legal
actions nor are we aware of any legal proceedings pending, threatened or
contemplated against any of our officers or directors, respectively, in their
capacities as such. On December 28, 2001, the Securities and Exchange Commission issued a formal
order of private investigation with respect to Press Releases and other
communications issued by the Company concerning Anthrax related products.
The SEC requested that the Company provide them with certain documents and
the Company complied. Following our production of the documents, there has been no
further communication between the Company and the SEC. The outcome of this
inquiry cannot presently be determined. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of shareholders in 2003 
 PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Our Common Stock is traded on the NASDAQ Bulletin Board under the stock symbol
VRDE. The chart below breaks down the high bid and the low bid prices for
each of the last 8 quarters (as reported by NASDAQ Trading & Market Services)
which quotations reflect inter-dealer price, without retail mark-up, mark-down
or commission, and may not reflect actual transactions. During 2003 and 2002,
the high and low bid and asked prices were as follows: Quarter Ended
    
    High Bid
    
    Low BidDecember 31, 2003
    
    $
    .095
    
    
    $
    .057September 30, 2003
    
    
    .095
    
    
    
    .05June 30, 2003
    
    
    .11
    
    
    
    .027March 31, 2003
    
    
    .043
    
    
    
    .03December 31, 2002
    
    $
    .04
    
    
    $
    .02September 30, 2002
    
    
    .042
    
    
    
    .018June 30, 2002
    
    
    .052
    
    
    
    .018March 31, 2002
    
    
    .051
    
    
    
    .019
 14




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##### Table of Contents



On
March 12, 2004 the closing prices of the Companys Common
Stock were $0.075 bid
and $0.078 asked, as quoted on the NASDAQ Bulletin Board. HOLDERS The approximate number of holders of record of our Common Stock, which is our
only class of common equity, is 5,574 (which includes an estimated 5,000
shareholders whose holdings are in street name). DIVIDENDS We have never had net profits on operations and therefore are currently
proscribed under the Delaware General Corporation Law from declaring dividends.
We have not paid any cash dividends on our Common Stock or our Preferred
Stock. Our Board of Directors has no present intention of declaring any cash
dividends, as we expect to re-invest all profits in the business for additional
working capital for continuity and growth. The declaration and payment of
dividends in the future will be determined by our Board of Directors
considering the conditions then existing, including the Companys earnings,
financial condition, capital requirements, and other factors. In addition, there are two series of Preferred Stock which affect the payment
of dividends on the Common Stock:  1.
    
    At present there is a series of 100,000 shares of Preferred Stock,
created on April 3, 1995, titled 10% Cumulative Convertible Redeemable
Preferred Stock, of which 6,000 shares are issued and outstanding.
These shares are entitled to receive an annual dividend of $1.00 per
share before any dividend is paid to holders of the Common Stock. Any
dividend not declared and paid is accumulated and must be paid before
any dividend or distribution is made on our Common Stock.2.
    
    Also, at present there is a series of 244,678 shares of Preferred
Stock created on December 15, 1997, titled Series B Convertible
Preferred Stock, of which 174,219 shares are issued and outstanding.
These shares are entitled to receive an annual dividend equal to the
greater of:  
    
    10% of the stated value, as adjusted from time to time;
and
    
    the actual dividend per share of Common Stock as
declared by the Companys Board of Directors times the number of
shares of Common Stock into which each share of Series B
Convertible Preferred Stock is convertible on the dividend record
date.  The dividend is cumulative, whether or not earned and, to the extent not
paid on a quarterly dividend payment date (commencing January 1, 1999),
is added to the stated value. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS On June 11, 2002 the Company filed a Form S-8 Registration Statement with the
Securities and Exchange Commission. The Form S-8 proposed the issuance of up
to 10,000,000 shares of the Companys common stock pursuant to the then
recently adopted Employees & Consultants Compensation and Stock Option Plan
(see Exhibit 10.34). These shares have not all been allocated. This compensation
plan was approved by the Board of Directors but has not been put forth to the
stockholders for their approval. At December 31, 2003 a total of 2,299,895 common shares had been issued to
employees and consultants under this plan. In addition 2,000,000 stock options
have been issued under this plan as follows: 15




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##### Table of Contents



Number of
    
    Weightedsecurities to be
    
    average
    
    Number of securitiesissued upon
    
    exercise price
    
    remaining available forexercise of
    
    of outstanding
    
    future issuance under equityoutstanding
    
    options,
    
    compensation plansoptions, warrants &
    
    warrants &
    
    (excluding securitiesrights
    
    rights
    
    reflected in column(a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    0
    
    
    
    0
    
    
    
    0Equity compensation
plans not approved
by security holders
    
    
    2,000,000
    
    
    $
    0.04
    
    
    
    5,700,105Total
    
    
    2,000,000
    
    
    
    
    
    
    
    5,700,105
 The plan was designed to (i) compensate employees and consultants in lieu of
cash and (ii) incentivize and compensate employees and consultants with stock
options. The material features of the plan include the ability of the company,
for a five year period commencing March 26, 2002, to issue shares and/or stock
options in any combination thereof to a combined maximum of 10,000,000 common
shares. No person or entity shall be issued more than $ 100,000 worth of stock
and no more than $ 100,000 worth of options per year. Any options granted will
have a 5 year expiration from their date of issuance and will have an exercise
price of not less than 100% of the fair market value of the Companys stock at
the time the options are granted. SALES OF UNREGISTERED SECURITIES DURING FISCAL YEAR 2003 The following issuances of equity securities (including debt securities
immediately convertible into equity securities) without registration under the
Securities Act of 1933 occurred during the fourth quarter of 2003 (all other
issuances during fiscal 2003 have been previously reported in the Companys
Quarterly Reports on Form 10-Qsb):: Debentures Issuance of Convertible Debentures During the fourth quarter of 2003 the Company issued nine (9) Convertible
Debentures in the aggregate principal amount of $158,575 to 8 parties unrelated
to the Company. The principal sums bear interest at the rate of 10% per annum
and the debentures each mature 3 years from the date of their respective
advances. Both the principal and all accrued interest are immediately
convertible into Common Stock at any time at the price of $0.05. . These issuances were considered exempt from registration by reason of Section
4(2) of the Securities Act. 16




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##### Table of Contents



Convertible Debenture Conversions On the following dates the indicated dollar amounts of both principal and
accrued interest of outstanding Convertible Debentures were converted to the
indicated number of shares of Common Stock: Shares of CommonSeries
    
    Date of Conversion
    
    Amount Converted
    
    Stock2000
    
    
    October 10, 2003
    
    $
    370,000
    
    
    
    7,400,0002000
    
    
    November 3, 2003
    
    $
    45,591
    
    
    
    793,1862000
    
    
    November 6, 2003
    
    $
    140,000
    
    
    
    2,800,0002001
    
    
    December 10, 2003
    
    $
    108,141
    
    
    
    3,443,366
 These issuances were considered exempt from registration by reason of Section
3(a)(9) of the Securities Act. Common Stock Warrants On December 31, 2003 we issued 1,000,000 warrants for the purchase of Common
Stock with an exercise price of $ 0.05 and an expiry of 24 months, to a
consultant providing marketing and management services to the Company. These
warrants were issued in fulfillment of part of the compensation portion of our
consulting agreement with this party. This issuance was considered exempt from
registration by reason of Section 4(2) of the Securities Act. 17




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##### Table of Contents



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion and analysis provide information that we believe is
relevant to an assessment and understanding of the results of operations and
financial condition for the two years ended December 31, 2003 compared to the
same periods of the prior year. This discussion should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto included
elsewhere in this Report. The discussion contained herein relates to the
financial statements, which have been prepared in accordance with GAAP. This
Report also contains certain forward-looking statements and information. The
cautionary statements should be read as being applicable to all related
forward-looking statements wherever they may appear. Our actual future results
could differ materially from those discussed herein. OVERVIEW We are a Health Care and Anti-Infectives company incorporated in Delaware
focusing on Infection Control and other Healthy Lifestyle products. The
Company has developed PATENTED and UNIQUE PRODUCTS including SURFACE
DISINFECTANTS, ANTISEPTIC HAND CLEANSERS, INSTRUMENT PRESOAK, and SUN
PROTECTANT PRODUCTS. The flagship product, Viraguard® Hospital Disinfectant/Cleaner and Instrument
Presoak is a skin friendly, patented, U.S.- EPA and Health Canada registered,
surface disinfectant. Viraguard® Antiseptic Hand Gel, Viraguard® Antiseptic
Hand Spray and Viraguard® Antiseptic Hand Wipes are U.S.- FDA and Health Canada
drug listed products utilizing Veridiens patented Virahol(R) formulation. Product line extensions have included sales of sunscreen impregnated towelettes
being marketed under the SunSwipe label. The Company has incurred losses since its incorporation. At December 31, 2003,
the Company had an accumulated deficit of $34,966,358. The Company has
financed its ongoing business activities through a combination of sales, equity
financing, sale of marketable securities and debt. 18




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##### Table of Contents



RESULTS OF OPERATIONS FISCAL 2003 COMPARED WITH FISCAL 2002 YEAR ENDED DECEMBER 31, 2003 VS. YEAR ENDED DECEMBER 31, 2002 Year Ended
    
    Percentage ofDecember 31
    
    net revenue2003
    
    2002
    
    2003
    
    2002Net Sales
    
    $
    1,661,911
    
    
    $
    834,647
    
    
    
    100
    %
    
    
    100
    %Cost of Goods Sold
    
    
    948,215
    
    
    
    489,840
    
    
    
    57
    %
    
    
    59
    %Gross Profit
    
    
    713,696
    
    
    
    344,807
    
    
    
    43
    %
    
    
    41
    %Operating ExpensesGeneral & Administrative
    
    
    1,238,098
    
    
    
    1,218,456
    
    
    
    74
    %
    
    
    146
    %Research & Development
    
    
    101,830
    
    
    
    144,420
    
    
    
    6
    %
    
    
    17
    %(Loss) from Operations
    
    
    (626,232
    )
    
    
    (1,018,069
    )
    
    
    (38
    )%
    
    
    (122
    )%Other Income (Expense) Net
    
    
    (110,805
    )
    
    
    204,765
    
    
    
    (7
    )%
    
    
    25
    %Net (Loss) Before Taxes
    
    
    (737,037
    )
    
    
    (813,304
    )
    
    
    (44
    )%
    
    
    (97
    )%Income Taxes
    
    
    0
    
    
    
    0
    
    
    
    0
    %
    
    
    0
    %Net (Loss)
    
    
    (737,037
    )
    
    
    (813,304
    )
    
    
    (44
    )%
    
    
    (97
    )%
 Consolidated gross revenues for 2003 increased by $391,984, or 27%, to
$1,819,383 compared with $1,427,399 in 2002.  
    
    Gross revenue from product sales increased in 2003 by $827,264, or
99%, to $1,661,911 compared with $834,647 in 2002. The increase in
sales revenue was due primarily to an increase in sales in the
Viraguard® and SunSwipe  lines. We continue active promotion of our
product line through trade-show presentations and direct calls on both
existing and potential customers. Our goal is to continue to expand
our product lines and we anticipate new products, which are scheduled
with various releases this year, will generate new revenue in this and
future years. In addition, we continue to pursue strategic alliances
with other corporations that have existing distribution networks. Our
goal for these alliances is to create immediate distribution and
fulfillment avenues for our products, while focusing on our capital
resources.
    
    Interest income for 2003 decreased by $42, or 11%, to $331 compared
to $373 in 2002. The decrease in interest income is due primarily to a
decrease in interest rates.
    
    During 2002, the Company recognized a net gain on sale of property
and equipment of $36,193 under other income. The Company received
6,000 common shares of Nutraceutical Clinical Laboratories
International, Inc. (NCCL) for payment on an aged accounts receivable.
A net gain of $3,630 was realized for the difference of the debt paid
and the fair market value of the common shares. Also during 2002, the
Company realized a gain on the sale of obsolete inventory by receipt of
18,000 common shares of Nutraceutical Clinical Laboratories
International, Inc. (NCCL). The investment in common shares was
recorded at $31,500 which represents fair market value of the security.
A realized gain on sale of property and equipment during 2002 resulted
in a realized gain of $1,063. 19




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##### Table of Contents




    
    During 2002, the Company recognized a further gain of
$64,500 on the prior sale
of cash credits as a result of a
reclassification on June 30, 2002 of the exchanged asset to marketable
equity securities at fair market value.
    
    During 2003, the Company recognized a change in the market value of
marketable equity securities of $90,606. At December 31, 2003, the
Company owned 660,300 shares of H-Quotient, Inc. (HQNT) with a fair
market value of $475,416. During 2002, the company recognized a change
in the market value of the marketable equity securities of $415,450.
At December 31, 2002, the Company owned 203,733 shares of H-Quotient,
Inc. (HQNT) with a fair market value of $273,002.
    
    During 2003, the Company realized a net gain on investments of
$157,141. During 2003, the Company sold 876,000 H-Quotient, Inc.
(HQNT) common shares and realized a net gain of $157,141. During 2002,
the Company realized a net gain on investments of $76,236. During
2002, the Company sold 641,267 H-Quotient, Inc. (HQNT) common shares
and realized a net gain of $89,381. During 2002, the Company also sold
24,000 Nutraceutical Clinical Laboratories, Inc. (NCCL) common shares
at a net loss of $13,145. Consolidated gross expenses for 2003 increased by $315,717, or 14%, to
$2,556,420 compared with $2,240,703 in 2002.  
    
    The cost of goods sold for 2003 increased by $458,375, or 94%, to
$948,215 compared with $489,840 in 2002. There was a decrease of 2% in
the cost of goods ratio as a percentage of sales to 57% in 2003
compared to 59% in 2002. The decrease in the cost of sales resulted
primarily from an increase in profit margins from the change in product
mix. The Company is continuing to work toward decreasing the cost of
goods ratio as a percentage by improving the product mix with higher
margins and new products.
    
    General, selling, and administrative expenses for 2003 increased
overall by $19,642, or 2%, to $1,238,098 compared with $1,218,456 in
2002. The increase in general and administrative costs was mostly
attributable to an increase in sales expenses for 2003 by 29% to
$539,280 compared with $416,629 in 2002. Additionally, decreases in
general and administrative costs were mostly attributable to a decrease
in administrative wages for 2003 by 5% to $103,828 compared with
$109,659 in 2002. And a decrease in professional  -  legal, consulting,
and accounting  -  service expenses for 2003 that decreased by 35% to
$223,273 compared with $344,019 in 2002.
    
    Research and development expenses for 2003 decreased by $42,590, or
29%, to $101,830 compared with $144,420 in 2002. The decrease was due
primarily to sharing of certain laboratory expenses by Dupont and a
shifting historical internal expenses to external - more cost effective
 - expenses. We continue additional research on the focus of broadening
the range of claims we can assert on our existing products and on
testing new products for commercialization.
    
    Interest expense for 2003 decreased by $210,316, or 54%, to
$177,671 compared with $387,987 in 2002. The decrease in interest
expense was due primarily to negotiation with certain expired
Convertible Debenture holders to waive accrued interest in the amount
of $206,537 in exchange for closer to market conversion rates for their
debt instruments. Interest continues to accrue on other various debts.
    
    Loss from Operations for 2003 decreased by $391,837, or 38%, to
$626,232 compared to 20




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$1,018,069 in 2002. The decrease in loss from operations is primarily
due to an overall decrease in the cost of goods sold ratio as a percentage of
sales and a decrease in research and development expenses. LIQUIDITY AND WORKING CAPITAL Historically, our principal source of financing for our research and
development and business activities has been through sales, equity offerings,
and debt. As of December 31, 2003 and December 31, 2002 we had working capital
deficits of approximately $2,452,160 and $3,818,329 respectively. Our
independent certified public accountants stated in their report on the 2003 and
2002 consolidated financial statements that due to losses from operations and a
working capital deficit, there is substantial doubt about the Companys ability
to continue as a going concern. We are addressing the going concern issue in
virtually every aspect of our operation. We continue to cut operating expenses
and are successfully changing our product mix such that the company is
achieving improved margins. Because of our significant losses incurred since
inception, we have become dependent on (1) loans from officers, directors, and
third parties, (2) private placements of our securities (3) revenue from sales,
and (4) liquidation of our marketable securities to fund operations. These
financings and equity placements are included in the following descriptions. During the 12 months ended December 31, 2003, the Company issued $291,775 in
Convertible Debentures.
Each debenture bears interest at the rate of 10% per annum, matures 3 years
from the date of its advance and is convertible at any time to the Companys
Common Stock at rates, depending on the time of issuance, of between $ 0.03 and
$0.05. During the twelve months ended December 31, 2003, $6,200 of the Loan and
Security Agreement principal was converted by the holders to 400,000 shares of Common Stock. During the twelve months ended December 31, 2003, Convertible Debentures with
principal balances of $630,709 and accrued interest of $69,749 were converted
into 15,660,763 shares of common stock at conversion rates between $0.03 and
$0.06 per share. During the twelve months ended December 31, 2003 a total of 113,820 common
shares were issued to an employee under the terms of his employment contract.
The average effective price per share was $0.053. These shares were issued
under the companys S8 Registration Statement. During the twelve months ended December 31, 2003 the Company liquidated a
portion of its marketable securities for a net cash inflow of $663,063. During the fourth quarter 2003 77,000 common shares were issued to various
staff in recognition of performance during 2003. These shares were issued
under the Companys S8 Registration Statement. During the twelve months ended December 31, 2003 558,820 common shares were
issued to providers of various services to the company. Said services amounted
to the cash equivalent of $22,100 and included sales consulting services and
legal services. The average effective price per share was $0.04. During the fourth quarter of 2003 the company borrowed $75,000 in short term
loans. During the second quarter of 2003 660,000 common shares were issued to a former
officer of the Company in fulfillment on all obligations to him under his
employment contract with the Company. During 2003, accounts receivable decreased by $27,882 to $70,323 from $98,205
at December 31, 2002. 21




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##### Table of Contents



This decrease can be attributed to shorter collection periods for our receivables. During 2003 accounts payable and accrued expenses decreased by $141,613,
primarily due to a decrease in accounts payable and accrued expenses
of $223,196. During 2003, inventory decreased by 45% to $125,500 compared with $226,688 at
December 31, 2002. The decrease is due to (i) minimization of inventories on
hand as we increasingly move towards fulfillment of our customer orders via
drop-shipping from our contract manufacturers and (ii) lower SunSwipe
inventory carry forward from the 2003 season to 2004 due to increased 2003
sales. We plan to utilize our current debt financing arrangements and pursue
additional equity and debt financing while managing cash flow in an effort to
provide funds to increase revenues to support operation, research and
development activities. We believe that our long-term success depends on
revenues from operations from product sales and ongoing royalties from
technologies. If such sources of funds are not adequate, we may seek to obtain
financing to meet operating and research expenses from other sources including,
but not limited to, future equity or debt financings. As of March 16, 2004, we have cash of approximately $287,509 and during April
and May 2004, we expect cash flow of $300,000 from operating activities,
private placements and possible sale of marketable securities. This level of
liquidity should be sufficient to operate the Company for 180 days. The Company
anticipates increasing sales, reduced operating expenses, and additional
private placement funding will contribute to continuous operations of the
Company. We anticipate utilizing a portion of our funds to support the working capital
requirements of our anticipated increase in sales. If disruptions occur in third party vendors that supply raw materials to our
contract fill manufacturers, we may experience the inability to have product
inventory for sale to our customers. Such events could have material adverse
effect on Veridien to compete effectively in the marketplace. Since the second
quarter 2000 Veridien has been utilizing the services of four new contract fill
manufacturers. One manufacturer handles Veridiens liquid products, another
the canister products and the third and fourth the SunSwipe product line. We
have also been able to identify alternative manufacturers for all of these
products. Our contract fill manufacturers have been successful in locating
sources of our commonly available raw materials and converting these into
finished products and we believe that use of these contract fill manufacturers
will assure us of the timely production of products. 22




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##### Table of Contents



ITEM 7. FINANCIAL STATEMENTS CARTER, CARTIER, MELBY & GUARINO, C.P.A.s, P.A. LOGO INDEPENDENT AUDITORS REPORT To the Board of Directors
Veridien Corporation We have audited the accompanying consolidated balance sheets of Veridien
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2003
and 2002, and the related statements of operations, changes in deficit in
stockholders equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Veridien
Corporation and subsidiaries as of December 31, 2003 and 2002, and the results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note B to the
consolidated financial statements, the Company, since its inception, has
sustained substantial losses, has a deficit in stockholders equity, a deficit
in working capital, and is experiencing a continued cash flow deficiency.
Those conditions raise substantial doubt about the Companys ability to
continue as a going concern. Managements plans regarding these matters are
described in Note B. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Carter, Cartier, Melby & Guarino, C.P.A.s, P.A.
St. Petersburg, Florida March 12, 2004 23




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##### Table of Contents



Veridien Corporation
and Subsidiaries Consolidated Balance Sheets December 31, 2003 and 2002 2003
    
    2002AssetsCurrent Assets:Cash
    
    $
    101,506
    
    
    $
    89,048Accounts receivable  trade
less allowance for doubtful accounts of
$12,640 and $20,584, respectively
    
    
    70,323
    
    
    
    98,205Inventory
    
    
    125,500
    
    
    
    226,688Due from shareholder
    
    
    69,764
    
    
    
    Marketable equity securities, trading, at fair value
(cost: 2003,$402,758 - 2002, $109,738 )
    
    
    475,416
    
    
    
    273,002Prepaid expenses and other current assets
    
    
    63,637
    
    
    
    62,553Total current assets
    
    
    906,146
    
    
    
    749,496Property and equipment:Furniture and fixtures
    
    
    409,211
    
    
    
    409,211409,211
    
    
    
    409,211Less accumulated depreciation
    
    
    385,731
    
    
    
    377,19723,480
    
    
    
    32,014Other Assets:Investments in preferred stock, cost basis
    
    
    50,000
    
    
    
    Patents, less accumulated amortization of
$500,967 and $496,811, respectively
    
    
    63,415
    
    
    
    17,571Security deposits and other assets
    
    
    1,625
    
    
    
    1,625115,040
    
    
    
    19,196$
    1,044,666
    
    
    $
    800,706
 See accompanying notes to the consolidated financial statements. 24




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##### Table of Contents



Veridien Corporation
and Subsidiaries Consolidated Balance Sheets - Continued
December 31, 2003 and 2002 2003
    
    2002Liabilities and Deficit in Stockholders EquityCurrent Liabilities:Current capital lease obligations
    
    $
    6,022
    
    
    $
    5,150Notes payable
    
    
    878,845
    
    
    
    293,323Convertible debentures due
    
    
    304,291
    
    
    
    1,981,311Accounts payable
    
    
    890,595
    
    
    
    1,113,791Accrued compensation
    
    
    2,692
    
    
    
    7,412Accrued interest
    
    
    1,156,537
    
    
    
    1,053,227Other accrued liabilities
    
    
    23,221
    
    
    
    40,229Customer deposits
    
    
    62,064
    
    
    
    41,406Due to stockholders
    
    
    34,039
    
    
    
    31,976Total current liabilities
    
    
    3,358,306
    
    
    
    4,567,825Long term liabilities:Capital lease obligations less current
    
    
    
    
    
    
    6,022Convertible debentures
    
    
    1,687,086
    
    
    
    349,000Total liabilities
    
    
    5,045,392
    
    
    
    4,922,847Deficit in stockholders equity:Undesignated Preferred Stock $.001 par value,
25,000,000 shares authorizedConvertible Redeemable Preferred Stock,
$10 par value; 100,000 authorized, 6,000 issued and
outstanding at December 31, 2003 and 2002
    
    
    60,000
    
    
    
    60,000Series B Preferred Stock, $.001 par value,
245,344 authorized, 174,219 issued
and outstanding at December 31, 2003 and 2002
    
    
    175
    
    
    
    175Common Stock, $.001 par value; 300,000,000 shares
authorized, 205,745,290 and 183,274,887 shares issued
and outstanding at December 31, 2003 and 2002
    
    
    205,745
    
    
    
    183,275Additional paid-in capital
    
    
    30,678,313
    
    
    
    29,842,331Common Stock warrants
    
    
    26,399
    
    
    
    26,399Accumulated deficit
    
    
    (34,966,358
    )
    
    
    (34,229,321
    )(3,995,726
    )
    
    
    (4,117,141
    )Stock subscriptions receivable
    
    
    (5,000
    )
    
    
    (5,000
    )Total stockholders deficit
    
    
    (4,000,726
    )
    
    
    (4,122,141
    )$
    1,044,666
    
    
    $
    800,706
 See accompanying notes to the consolidated financial statements. 25




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##### Table of Contents



Veridien Corporation
and Subsidiaries Consolidated Statements of Operations Years ended December 31, 2003 and 2002 2003
    
    2002Sales
    
    $
    1,661,911
    
    
    $
    834,647Operating costs and expenses:Cost of sales
    
    
    948,215
    
    
    
    489,840General and administrative
    
    
    1,238,098
    
    
    
    1,218,456Research and development
    
    
    101,830
    
    
    
    144,4202,288,143
    
    
    
    1,852,716Loss from operations
    
    
    (626,232
    )
    
    
    (1,018,069
    )Other income (expense):Interest expense
    
    
    (177,671
    )
    
    
    (387,987
    )Change in market value of marketable securities
    
    
    (90,606
    )
    
    
    415,450Realized gain (loss) on investments
    
    
    157,141
    
    
    
    76,236Sale of cash credits
    
    
    
    
    
    
    64,500Gain on sale of property and equipment
    
    
    
    
    
    
    36,193Interest income
    
    
    331
    
    
    
    373(110,805
    )
    
    
    204,765Net loss before income tax
    
    
    (737,037
    )
    
    
    (813,304
    )Income tax
    
    
    
    
    
    
    Net loss
    
    $
    (737,037
    )
    
    $
    (813,304
    )Net loss per common share
    
    $
    (.0038
    )
    
    $
    (.0046
    )Weighted average shares outstanding
    
    
    191,916,724
    
    
    
    178,849,107
 See accompanying notes to the consolidated financial statements. 26




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##### Table of Contents



Veridien Corporation
and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT IN STOCKHOLDERS EQUITY Years ended December 31, 2003 and 2002 ConvertibleRedeemable
    
    Series B
    
    Number
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    Stock
    
    StockholdersPreferred
    
    Preferred
    
    Common
    
    Common
    
    Paid-in
    
    Stock
    
    Accumulated
    
    Subscriptions
    
    EquityStock
    
    Stock
    
    Shares
    
    Stock
    
    Capital
    
    Warrants
    
    Deficit
    
    receivable
    
    (Deficit)Balances at January 1, 2002
    
    
    60,000
    
    
    
    175
    
    
    
    174,279,487
    
    
    $
    174,181
    
    
    $
    29,574,065
    
    
    $
    26,399
    
    
    $
    (33,416,017
    )
    
    $
    (5,000
    )
    
    $
    (3,586,197
    )Conversion of convertible debentures
    
    
    
    
    
    
    
    
    
    
    3,325,278
    
    
    
    3,324
    
    
    
    146,589
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,913Conversion of debt
    
    
    
    
    
    
    
    
    
    
    3,500,000
    
    
    
    3,500
    
    
    
    50,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,251Issuance of stock for services
    
    
    
    
    
    
    
    
    
    
    2,170,122
    
    
    
    2,270
    
    
    
    70,926
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,196Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (813,304
    )
    
    
    
    
    
    
    (813,304
    )Balances at December 31, 2002
    
    
    60,000
    
    
    
    175
    
    
    
    183,274,887
    
    
    $
    183,275
    
    
    $
    29,842,331
    
    
    $
    26,399
    
    
    $
    (34,229,321
    )
    
    $
    (5,000
    )
    
    $
    (4,122,141
    )Conversion of convertible debentures
    
    
    
    
    
    
    
    
    
    
    15,660,763
    
    
    
    15,661
    
    
    
    684,797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700,458Issuance of stock for services
    
    
    
    
    
    
    
    
    
    
    1,409,640
    
    
    
    1,409
    
    
    
    50,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,794Partial conversion of loan & security agreement
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    400
    
    
    
    5,800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,200Issuance of stock for investment
    
    
    
    
    
    
    
    
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    95,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (737,037
    )
    
    
    
    
    
    
    (737,037
    )Balances at December 31, 2003
    
    
    60,000
    
    
    
    175
    
    
    
    205,745,290
    
    
    $
    205,745
    
    
    $
    30,678,313
    
    
    $
    26,399
    
    
    $
    (34,966,358
    )
    
    $
    (5,000
    )
    
    $
    (4,000,726
    )
 See accompanying notes to the consolidated financial statements 27




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##### Table of Contents



Veridien Corporation
and Subsidiaries Consolidated Statements of Cash Flows Years ended December 31, 2003 and 2002 2003
    
    2002Cash flows from operating activitiesNet (loss)
    
    $
    (737,037
    )
    
    $
    (813,304
    )Adjustments to reconcile net (loss) to net cash
used by operating activities:Depreciation and amortization
    
    
    12,690
    
    
    
    16,246(Gain) loss on disposal of property
    
    
    
    
    
    
    (36,193
    )Stock issuances, warrants and options for services
    
    
    51,794
    
    
    
    73,196Stock issuances for interest expense, non-cash
    
    
    69,749
    
    
    
    14,510Other, not affecting cash
    
    
    (98,797
    )
    
    
    (58,592
    )Realized (gains) losses on investments
    
    
    (157,141
    )
    
    
    (76,236
    )Unrealized (gains) losses on marketable securities
    
    
    90,606
    
    
    
    (415,450
    )Proceeds from sale of marketable securities
    
    
    546,744
    
    
    
    498,339Exchange of barter credits
    
    
    
    
    
    
    (64,500
    )Change in:Accounts receivable
    
    
    27,882
    
    
    
    59,922Inventories
    
    
    101,188
    
    
    
    359,625Prepaid and other current assets
    
    
    (1,084
    )
    
    
    (7,825
    )Other assets
    
    
    
    
    
    
    99,897Current capital lease obligations
    
    
    
    
    
    
    (716
    )Accounts payable and accrued expenses
    
    
    (141,613
    )
    
    
    242,364Customer deposits
    
    
    20,658
    
    
    
    21,079Due to stockholders
    
    
    (67,701
    )
    
    
    (17,487
    )Total adjustments
    
    
    454,975
    
    
    
    708,179Net cash (used) by operating activities
    
    
    (282,062
    )
    
    
    (105,125
    )Cash flow from investing activities:Purchase of investment  preferred stock
    
    
    (50,000
    )
    
    
    Purchases of property and equipment
    
    
    
    
    
    
    (19,000
    )Patent development
    
    
    (50,000
    )
    
    
    Net cash (used) by operating activities
    
    
    (100,000
    )
    
    
    (19,000
    )Cash flow from financing activities:Proceeds from convertible debentures
    
    
    291,775
    
    
    
    204,000Net payment on capital leases
    
    
    (5,150
    )
    
    
    (5,151
    )Net proceeds from borrowings
    
    
    107,895
    
    
    
    7,105Net cash provided (used) by financing activities
    
    
    394,520
    
    
    
    205,954Net increase (decrease) in cash and equivalents
    
    
    12,458
    
    
    
    81,829Cash and equivalents, beginning of year
    
    
    89,048
    
    
    
    7,219Cash and equivalents, end of year
    
    $
    101,506
    
    
    $
    89,048
 See accompanying notes to the consolidated financial statements. 28




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##### Table of Contents



VERIDIEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Companys significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows. 1. Organization, Business and Control On June 4, 1991, the Company was incorporated in Delaware as VCT Acquisitions
II, Inc.. The Company then acquired all of the assets of another Delaware
corporation called Viral Control Technology, Inc. On September 13, 1991, the
Company changed its name to Viral Control Technology, Inc. Subsequently, on
November 8, 1991, the Company again changed its name and became Veridien
Corporation (the Company). The Viral Control Technology, Inc. from which the Company acquired its assets
was created on August 3, 1989, by a reverse acquisition of a public shell
called Valencia Enterprises, Inc., by a private company named Viral Control
Technology, Inc. The original Viral Control Technology, Inc., was organized in
Delaware on August 10, 1988, while Valencia Enterprises was organized in Utah
on February 10, 1984. Valencia, which had changed its name to Viral Control
Technology, Inc., after the reorganization, was redomesticated in Delaware on
December 14, 1990. The original private company called Viral Control
Technology, Inc., was organized by Paul L. Simmons and his wife. The Company was founded to develop disinfectants and sterilants which will pose
no hazard to people who use them and will not harm the environment. To this
end, the Company has developed a hard surface disinfectant
(VIRAHOL®/VIRAGUARD®), which has been registered with the Environmental
Protection Agency (EPA). The Companys research and development efforts are
currently focused on further development of infection control chemicals and on
devices, both medical and commercial, which utilize the Companys liquid
products and are in keeping with the corporate philosophy of environmentally
friendly products. To this end the patented VIRAHOL®/VIRAGUARD® formula is now
marketed in liquid form, in an antiseptic hand gel, in single use towelettes
and in 60-160 count towelette canisters for both hand and hard surface
applications. The Company has recently expanded its product offerings to
include unique Healthy Lifestyle products including sun protection products. In October 1995, the Company entered into a 10% Convertible Senior Secured Term
Loan agreement to finance marketing efforts for its line of products, to fund
operating cash flow deficiencies, and to continue its research and development
activities. The original agreement required the Company to issue to the lender warrants, in
sufficient quantity, that at all times the loan agreement is in force the
lender could obtain 51% of all classes of outstanding stock for a $2,500,000
exercise price. This provision was waived and the number of warrants fixed
effective January 1, 2001. During 2003 and 2002, $6,200 and $54,250 of the
lenders debt were converted into 400,000 and 3,500,000 common shares
respectively, and 0- and 0- Series B preferred shares respectively. 2. Principles of Consolidation The accompanying financial statements include the accounts of the company and
its subsidiaries, each of which is wholly owned. All intercompany balances and
transactions have been eliminated in consolidation. 29




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##### Table of Contents



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  CONTINUED 3. Accounting Estimates The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and 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. 4. Accounts Receivable The Company uses the allowance method of accounting for doubtful accounts. The
year-end balance is based on historical collections and managements review of
the current status of existing receivables and estimate as to their
collectibility. 5. Inventories Inventories, consisting primarily of raw materials and finished goods, are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method. At December 31, 2003, raw materials and finished goods
amounted to approximately $28,035 and $97,465, respectively. At December 31,
2002, raw materials and finished goods amounted to approximately $112,320 and
$114,368, respectively. 6. Marketable Equity  Securities, Trading Marketable Equity  Securities, Trading are comprised of common stock and are
carried at estimated fair value. The associated unrealized gains and losses,
net of income tax are included in the statement of operations. 7. Property and Equipment Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over their estimated useful
lives ranging from three to seven years. Leasehold improvements are amortized
on the straight-line method over the shorter of the lease term or estimated
useful life. Major renewals, betterments and replacements are capitalized.
Maintenance and repairs are charged to expense as incurred. 8. Patents The Company capitalizes certain costs, primarily legal and other fees, related
to patents. Accumulated costs are amortized over the estimated lives of the
patents using the straight-line method, commencing at the time the patents are
issued. 9. Loan Costs Loan costs are amortized by the straight-line method over the term of the
respective loans. 30




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##### Table of Contents



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  CONTINUED 10. Investment in Preferred Stock  Cost Basis During the fourth quarter of 2003 the Company invested $50,000 in preferred
stock of an unrelated entity. In addition the Company executed a subscription
agreement for an additional $50,000 which was paid in January,
2004. The investee company is an early stage drug development company. 11. Income Taxes Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment. 12. Reclassification Certain reclassifications have been made to the 2002 financial statements to be
in conformity with the 2003 presentation. 13. Net Loss per Share Net loss per share is calculated by dividing the net loss by the weighted
average number of common shares outstanding during the period. Weighted
average number of common shares outstanding is calculated as the sum of the
month-end balances of shares outstanding, divided by the number of months. The
weighted average shares outstanding were 191,916,724 and 178,849,107 for the
years ended December 31, 2003 and 2002, respectively. Common stock equivalents
(stock options, warrants, convertible debentures and convertible redeemable
preferred stock) are not included in the weighted average number of common
shares because the effects would be anti-dilutive. NOTE B  REALIZATION OF ASSETS The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. Since inception, the Company
has incurred losses of approximately $35 million, resulting primarily from
research and development, sales and marketing, and administrative expenses
being substantially in excess of sales revenue. The Company has a deficit in
stockholders equity of $4.0 million, a deficit in working capital of $2.5
million and is experiencing a continuing cash flow deficiency. For the year ended December 31, 2003, the Companys operating activities
resulted in cash outflows of $282,062. In addition, the Company used $50,000
for patent development and made a $50,000 investment in preferred stock. In
order to fund these cash outflows, the Company borrowed $107,895, received net
proceeds of $291,775 from the sale of convertible debentures and received
proceeds of $546,744 from the sale of some of the Companys equity investments. These proceeds, together with the cash balance at the beginning of the year,
provided the Companys cash needs, resulting in a net cash increase of $12,458
for the year ended December 31, 2003. 31




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##### Table of Contents



NOTE B  REALIZATION OF ASSETS  CONTINUED The Company plans to continue to liquidate its marketable securities and pursue
additional equity and debt
financing while managing cash flow in an effort to provide funds to increase
revenues to support operations, research and development activities.
Management anticipates cash flow from product sales and/or strategic equity
financing will meet and exceed cash requirements in the Fall of 2004. In
addition, the Company plans to pursue additional cash through sales of
convertible debentures. In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon the continued operations of the
Company and that such operations will be profitable and provide adequate cash
flows. Further, the ability of the Company to continue its operations and
successfully defend itself against potential claims or assessments is dependent
on the ability to obtain additional debt and equity financing, employ cash
management techniques and aggressively market its products. The consolidated financial statements do not contain any adjustments relating
to the recoverability and classification of recorded asset amounts or amounts
and classification of liabilities that might be necessary should the Company be
unable to continue in existence. NOTE C  RELATED PARTY TRANSACTIONS At December 31, 2003 and 2002, the Company owed $34,039 and $31,976,
respectively to stockholders who have made advances of material or provided
services to the Company. The Company has entered into numerous financing transactions with Dunvegan
Mortgage Corporation, a corporation of which the Companys President and CEO is
an officer and a director. These transactions are detailed elsewhere in these
footnotes. During 2003 and 2002, the Company utilized the services of a management company
which has as its senior officer and director, the individual who serves as the
Companys President/CEO and a director, to assist with administrative and
organizational function of the Company. The Company incurred expenses of
$122,020 and $124,954 in 2003 and 2002 respectively for professional services
and related costs. At December 31, 2003, these fees remain unpaid in the
amount of $486,569 and are included in accounts payable. During 2003 and 2002 the Companys President/CEO personally incurred expenses
on behalf of the Company for travel, etc. The amounts accrued by the Company
and not yet reimbursed to this individual are $750 and $6,025 for 2003 and 2002
respectively. In addition, this individual has previous years unreimbursed
expenses which when added to these numbers total $113,145 and are included in
accounts payable at December 31, 2003. During 2001 a company which has as its senior officer and director the
individual who serves as the Companys President/CEO and a director, purchased
$480,000 (plus accrued interest) of an accounts receivable owed for inventory
by the Company to one of its vendors. $472,386 of these monies, plus interest
accruing at 10% per annum are included in notes payable and accrued interest. During the fourth quarter 2003, a company which has as its senior officer and
director the individual who serves as the Companys President/CEO and a
director, advanced a short term loan in the amount of $75,000 to the Company.
This loan with interest accrued at 10% was repaid during the first quarter of
2004. 32




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##### Table of Contents



NOTE D  MARKETABLE EQUITY SECURITIES, TRADING The Company owned 660,300 and 203,733 shares of H-Quotient, Inc., with a fair
value of $475,416 and $273,002 at December 31, 2003 and 2002, respectively.
During 2003 the Company sold 876,000 shares and realized a net gain of
$157,141. During 2002 (i) 430,000 shares of H-Quotient, Inc. were reclassified
from Investments in Common Stock Restricted to Marketable Equity Securities and
(ii) the Company sold 641,267 shares and realized a net gain of $89,381. In February 2002 the Company realized a gain on the sale of obsolete inventory
by receipt of 18,000 common shares of Nutraceutical Clinical Laboratories
International, Inc. (NCCL). The investment in common shares was recorded at
$31,500 which represents fair market value of the security received. During
the quarter ending June 30, 2002 these shares were sold and a loss in the
amount of $10,720 was recognized. The Company received 6,000 common shares of Nutraceutical Clinical Laboratories
International, Inc. (NCCL) for payment on an aged accounts receivable. During
the quarter ending June 30, 2002 these shares were sold and a loss in the
amount of $2,425 was recognized. NOTE E  NOTES PAYABLE In October 1995, the Company secured a 10% Convertible Senior Secured Term Loan
of up to $2,500,000 with a mortgage company. During 2003 and 2002, the holder
converted $6,200 and $54,250 of debt into 400,000 and 3,500,000 common shares
and 0- and -0- Series B preferred shares, respectively. Originally the loan
agreement granted the lender warrants to purchase 51% of the Companys
outstanding common and preferred stock. This provision was waived and the
number of warrants fixed effective January 1, 2001. The note is collateralized
by the assets and intellectual properties of the Company and its subsidiaries
and requires semi-annual payments of interest only with the entire principal
balance due in May 2004. As of December 31, 2003, the remaining principal
balance outstanding was $243,342, and $237,154 of interest has accrued under
the agreement. The Company received short-term loans in the amount of $75,000 and $7,105,
during 2003 and 2002 respectively. These loans were due on demand with a
stated interest rate of 10% per annum and there remained $75,000 and $7,105 was
outstanding at December 31, 2003 and December 31, 2002 respectively. The Company owes $472,326 as a result of the conversion of an accounts payable.
The note carries interest at 10% per annum and is due on demand. (See also
Note C.) NOTE F  CONVERTIBLE DEBENTURES During 2003 and 2002, the Company received $291,775 and $204,000, respectively
of proceeds from the sale of convertible debentures. Interest is accrued at
the rate of 10% per annum, compounded in full, with various maturities from
November 2004 to December 2006. Prior to the retirement of the debentures, the
debenture holders may convert any or all amounts owed into common stock. The
conversion price for each debenture ranges from $.02 to $.10 per share. The
conversion privilege terminates when all principal plus interest due has been
paid in full. 33




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##### Table of Contents



NOTE G  COMMITMENTS AND CONTINGENCIES The Company from time to time is involved in lawsuits and actions by third
parties arising in the ordinary course of business. With respect to these
matters, management believes that it has adequate legal defenses that can be
asserted. The Company is not aware of any additional litigation, claims or
assessments that were pending that could have a material adverse effect on the Companys business,
financial condition and results of operations. During 2002 the Company leased manufacturing and office facilities for $5,900
per month under a lease that expired December 31, 2002. Beginning January 1,
2003 the Company entered into a new lease with the existing landlord for office
facilities only. The new lease is for $1,625 per month and the lease expires
December 31, 2004. Rent expense was approximately $19,500 and $67,850 for 2003
and 2002, respectively. The following table reflects approximate future minimum annual rental expense
amounts: Year
    
    Amount2004
    
    $
    19,500
 NOTE H  CONVERTIBLE REDEEMABLE PREFERRED STOCK In 1994, the Company prepared an Offering Circular to raise approximately
$1,000,000 of 10% Cumulative Convertible Redeemable Preferred Stock with a $10
par value. At the option of the Company, the shares can be redeemed after two
years at $10 per share plus accrued and unpaid dividends in aggregate amounts
not to exceed $250,000 annually. Each preferred share is convertible into
twenty common shares. Additionally, the Offering Circular provides for common
stock purchase warrants with an exercise price of $.01 per share. The number
of warrants issued, when exercised in combination with conversion of the
preferred stock into common stock, will result in an effective cost for each
share of the common stock equal to the closing bid price of the common stock,
in the over-the-counter market, on the day of the subscription to the Offering
Circular. The warrants may be redeemed for $.001, at the election of the
Company, upon thirty days written notice after the bid price of the common
stock in the then existing public market has been $1.00 or more for thirty
continuous days in which the market is open for business. From inception
through December 31, 2003, $622,000 of preferred stock was issued for cash and
$318,150 was issued in satisfaction of debt and services at $10 per share.
Preferred shareholders have converted 88,015 shares of preferred stock into
1,760,300 shares of common stock. No conversion of preferred stock into common
stock occurred during 2003 or 2002. At December 31, 2003, preferred stock
dividends in arrears totaled approximately $54,000. NOTE I  SERIES B CUMULATIVE PREFERRED STOCK The Series B Cumulative Preferred Stock was created on December 31, 1997, as a
mechanism of permitting the conversion of part of the indebtedness under the
Loan and Security Agreement, without sacrificing the intent of the original
Loan and Security Agreement warrants. The Series B Cumulative Preferred Stock
has a par value of $.001 per share and an initial stated capital of $10 per
share, which is subject to adjustment. This Series is senior to the Common
Stock and is senior to all other classes and series except that it is junior to
the Convertible Redeemable Preferred Stock (Note I) with respect to the payment
of dividends. Each share has 34




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##### Table of Contents



NOTE I  SERIES B CUMULATIVE PREFERRED STOCK  CONTINUED that number of votes equal to the number of share of Common Stock into which it
is convertible on the record date. Subject to adjustment in the event of
certain future Common Stock or convertible security issuances, each share is
convertible into 20.04010695 shares of Common Stock. These shares are entitled
to receive an annual dividend equal to the greater of 10% of the stated value
and the actual dividend per share of common stock declared by the Companys Board of Directors times the number shares of Common
stock into which each share of Series B is convertible on the dividend record
date. The dividend is cumulative, whether or not earned and, to the extent not
paid on a quarterly dividend payment date is added to the stated value. NOTE J  STOCK WARRANTS During 2003, 500,000 warrants were issued under the terms of an employment
contract at an exercise price of $0.08 and 1,000,000 warrants were issued under
the terms of a consulting contract at an exercise price of $0.05. In addition,
during 2003 5,604,539 warrants expired. During 2002, 500,000 warrants were issued under the terms of an employment
contract at exercise prices of $0.08 and 1,000,000 warrants were issued under
the terms of a consulting contract at exercise prices of $0.03. In addition,
during 2002 100,000 warrants expired. As described in Note J, the Company offered $1,000,000 of 10% Cumulative
Convertible Redeemable Preferred Stock along with common stock purchase
warrants at $.01 per share. The number of warrants issued, when exercised in
combination with conversion of the preferred stock into common stock results in
an effective cost for each share of the common stock equal to the closing bid
price of the common stock, in the over-the-counter market, on the day of the
subscription to the Offering Circular. The warrants are recorded at their fair
market value at the time of issuance less the exercise price of $.01 and
reported as a reduction to preferred stock. The value assigned to the warrants
is amortized over the shorter of the life or the exercise of the warrant. As described in Note A, in October 1995, the Company entered into a 10%
Convertible Senior Secured Term Loan agreement. The original agreement
required the Company to issue to the lender warrants, in sufficient quantity,
that at all times the loan agreement was in force the lender could obtain 51%
of all classes of outstanding stock for a $2,500,000 exercise price. This
provision was waived and the number of warrants fixed effective January 1,
2001. At December 31, 2001, in aggregate the lender was entitled to 84,524,866
warrants at a cumulative exercise price of $2,500,000 under the terms of the
agreement. This equated to an effective cost of $0.0296 per share. As of
December 31, 2003, the lender(s) had converted $2,256,658 of the debt and the
lenders warrants were exercised into 64,514,388 common shares and 213,590
Series B preferred shares (convertible into 4,280,350 common shares) at a
combined cost of equivalent to $0.033 per common share. 35




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##### Table of Contents



NOTE J  STOCK WARRANTS - CONTINUED Warrants issued and exercised are summarized as follows: ExerciseCommon Stock
    
    Warrants
    
    Price RangeOutstanding at January 1, 2002
    
    $
    24,144,546
    
    
    $
    .001  .20Granted
    
    
    1,500,000
    
    
    
    .03 - .08Expired
    
    
    (100,000
    )
    
    
    .20Loan & Security
Agreement
Conversion
    
    
    (3,500,000
    )
    
    
    .016Outstanding at December 31, 2002
    
    
    22,044,546
    
    
    $
    .001 - .20Granted
    
    
    1,500,000
    
    
    
    .05 - .08Expired
    
    
    (5,604,539
    )
    
    
    .08 - .20Loan & Security
Agreement Conversion
    
    
    (400,000
    )
    
    
    .016Outstanding at December 31, 2003
    
    $
    17,540,007
    
    
    $
    .001 - .20
 Effective December 31, 1997, the Board of Directors created the Series B
Cumulative Preferred Stock (as discussed in Note I) and issued 245,344 warrants
for this Preferred Stock to the lender under the Loan and Security Agreement to
replace 4,916,720 common stock warrants already issued to them. The warrants
expired on November 18, 2000, and have been extended through May 18, 2004 and
have a $10 exercise price. During 2003 and 2002, -0- of these warrants were
exercised by the holder. At December 31, 2003, 27,451 of these warrants are
still outstanding. Preferred warrants issued and exercised are summarized as follows: Equivalent #Common SharesPreferred
    
    Preferred
    
    on PreferredShare
    
    Exercise
    
    ShareWarrants
    
    Price
    
    ConversionOutstanding at December 31, 2002
    
    
    27,451
    
    
    
    
    
    
    
    550,121Outstanding at December 31, 2003
    
    
    27,451
    
    
    
    
    
    
    
    550,121Series B
    
    
    27,451
    
    
    
    
    
    
    
    550,121
 36




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##### Table of Contents



NOTE K  INCOME TAXES There is no income tax provision for the years ended December 31, 2003 and 2002
due to net operating losses for which no benefit is currently available. The
Company has net operating loss carryforwards of approximately $22,243,000 at
December 31, 2003, available to offset future taxable income from 2004 through
2024. The Company has determined that in 1995 a change of ownership occurred as
defined in the Internal Revenue Code 382 and related Treasury Regulations.
After elimination of net operating loss carry forwards of approximately
$10,920,000, the Company has approximately $22,243,000 remaining net operating
loss carry forwards. The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets are presented below: December 31,2003
    
    2002Deferred Tax Assets:Net Operating loss carry forwards
    
    $
    7,785,000
    
    
    $
    7,527,000Less valuation allowance
    
    
    (7,785,000
    )
    
    
    (7,527,000
    )Net deferred tax assets
    
    $
    
    
    
    $
    
 NOTE L  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest amounted to $1,309 and $-0- for 2003 and 2002,
respectively. During 2003, the Company issued 14,101,323 common shares in conversion of
convertible securities in the amount of $630,709, 1,559,440 common shares in
exchange for interest of $69,749, 5,000,000 common shares in exchange for
marketable securities of $100,000 (which were subsequently sold for net
proceeds of approximately $144,142) and 1,349,640 common shares in exchange for
services of $51,794. During 2003, the Company received 1 million shares of marketable securities in
exchange for $581,322 of product sales. (See notes D and N.) During 2002, the Company issued 3,500,000 common shares in exchange for debt
conversion in the amount of $54,251. In 2002, the Company issued 3,004,987
common shares in conversion of convertible securities in the amount of
$135,404. In 2002, the Company issued 320,291 common shares in exchange for
interest of $14,509 and 2,270,131 common shares in exchange for services of
$73,196. 37




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##### Table of Contents



NOTE M  FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:  Cash and Short Term Investments. For those short term instruments, the
carrying amount is a reasonable estimate of fair value.Investment in Securities. For investments in securities, fair values are
based on quoted market prices or dealer quotes, if available. If a
quoted market price is not available, fair value is estimated using
quoted market prices for similar securities. NOTE N  CONCENTRATION OF RISK Financial instruments that subject the Company to concentrations of credit risk
consist principally of trade receivables. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses. Sales of the Companys products are concentrated among specific customers. During 2003 the Company recorded sales from eight customers which comprise 75%
of total sales and range from 2 - 35% each. Thirty-five percent of sales were
exchanged for marketable securities. (See Note D.) During 2002 the Company recorded sales from six customers which comprise 49% of
total sales and range from 2.5  - 13.4% each. NOTE O  SUBSEQUENT EVENTS On March 8, 2004, the Companys Board of Directors approved further investments
in the preferred stock of an early stage anti-infectives/drug development
company. (See Note A-10.) 38




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##### Table of Contents



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Carter & Cartier P.A., CPAs, now named Carter, Cartier, Melby & Guarino,
C.P.A.s, P.A., who have audited our financial statements for the previous six
(6) fiscal years ended December 31, 1997 to 2002, have audited our financial
statements for the current fiscal year ended December 31, 2003. There has been
no change in our accountants and there have been no disagreements with respect
to any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure. 
 ITEM 8A. CONTROLS AND PROCEDURES Pursuant to rules adopted by the SEC as directed by Section 302 of the
Sarbanes-Oxley Act of 2002, the company has performed an evaluation of its
disclosure controls and procedures (as defined by Exchange Act rule 13a-14) as
of the end of the period covered by this report. Based on this evaluation, the
companys Chief Executive Officer and Acting Chief Financial Officer has
concluded that these procedures are effective in ensuring that information
required to be disclosed by the company is recorded, processed, summarized, and
reported within the time periods specified in the SECs rules and forms. In
addition, there have not been any significant changes in internal controls or
other factors that could significantly affect internal controls subsequent to
the date of the companys most recent evaluation. 39




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##### Table of Contents



PART III 
 ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and Executive Officers. The position(s) held by each of our
executive officers and Directors as of March 12, 2004 are shown in the
following table. Biographical information for each is set forth following the
table. Our current Directors were elected at the 2001 Annual Meeting held on
March 6, 2002. Each Director serves for a one-year term and until a successor
is elected and has qualified. Currently, our Directors are not compensated for
their services, although their expenses in attending meetings are reimbursed. Name
    
    Age
    
    PositionRussell D. Van Zandt
    
    
    63
    
    
    Chairman of the Board of DirectorsRene A. Gareau
    
    
    62
    
    
    Vice Chairman of the Board of Directors/Corporate
SecretarySheldon C. Fenton
    
    
    52
    
    
    President and CEO/DirectorAlfred A. Ritter
    
    
    60
    
    
    DirectorPaul L. Simmons
    
    
    75
    
    
    Director
 RUSSELL D. VAN ZANDT was first named to the Board of Directors on October 28,
1997. Mr. Van Zandt was graduated in 1962 with a BA in Mathematics from St.
Michaels College in Vermont, and was graduated in 1973 with an MBA from
Florida Atlantic University in Florida. He also completed course work in 1975
for a doctorate in Business Administration from George Washington University in
Washington, DC. Mr. Van Zandt retired as President and CEO of Ela Medical in Plymouth, MN as of
May 2003. Ela Medical is a manufacturer and marketer of pacemakers and
implantable defibrillators. He is now a consultant to Veridien and ELA, as well
as other companies. Previously Mr. Van Zandt had been a corporate Vice
President at Datascope Corp., a NASDAQ listed company engaged in the health
care and medical device products industry. On behalf of Datascope Corp., he
had alternately headed two divisions as President. From 1996 to 1998, he was
President of the Intervascular, Inc. Division, which manufactures and markets
vascular grafts and patches on a worldwide basis. From July 1992 through
September 1996 he was President of the Cardiac Assist Division which
manufactures and markets intra-aortic balloon pumps and catheters. From
November 1969 until August 1992, Mr. Van Zandt worked with C.R. Bard, Inc., a
health care and medical device company listed on the New York Stock Exchange.
He started as personnel director at a division level and rose through the
companys ranks to reach, in 1992, the position of President of Bard Vascular
Systems Division. RENE A. GAREAU was first named to the Board of Directors on March 13, 1996.
Since 1989, Mr. Gareau has been Chairman of the Board of Sarasota Quay, a real
estate management company located in Sarasota, Florida, specializing in
property and asset management for commercial properties. From 1982 to 1989,
Mr. Gareau was the Chairman of a private Canadian real estate development
company involved in the development and syndication of residential condominium
and commercial projects in a number of Canadian provinces. From 1981 to 1982
he was President of Bank of America (Canada) with responsibilities for
overseeing all retail and mortgage banking operations in Canada. From 1974 to
1981 he was Senior Vice 40




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##### Table of Contents



President of Citicorp-Citibank in their International
Division. He had responsibilities in corporate and consumer banking with
assignments in Asia, Europe, South America, and the U.S.A. SHELDON C. FENTON is President and CEO. Mr. Fenton was first named to the
Board of Directors on June 3, 1998. Since 1981 Mr. Fenton has been President
and CEO of Tanlon Corporate Holdings Ltd. (and predecessor corporations),
located in Toronto, Canada. Tanlon is a fully integrated management services
company. The group also has knowledge and experience in the areas of strategic
acquisitions, real estate development and syndication, financing for private
and public ventures, as well as asset and property management. They are
regarded as specialists in the areas of structuring and restructuring of
investments and negotiation with lenders and other corporate stakeholders. Mr. Fenton is also an officer and director of Dunvegan Mortgage Corporation, a
company which has been a lender to the Company, as described under Principal
Shareholders. From 1979-1981 Mr. Fenton was employed by the Canadian Imperial Bank of
Commerce alternately as Solicitor and Manager. In 1977-1978 he worked for the
firm of Day Wilson & Campbell in Toronto, Canada focusing on corporate and real
estate law, and in 1976-1979 he worked as a financial consultant for FF.
Management in Toronto, Canada. Mr. Fenton graduated with honors with a Bachelor of Science degree from the
University of Toronto in 1974 and was graduated from the Faculty of Law with an
L.L.B. degree from the University of Western Ontario, Canada. ALFRED A. RITTER was first named to the Board of Directors on March 26, 1993.
Mr. Ritter has been the co-owner and director of EXPORATLAS, Lisbon, Portugal
since 1981. The company is an import/export firm involved in the paper and
pulp industry. Since 1996, Mr. Ritter has been the owner and director of
TEOTONIO INVESTMENTS, a commercial real estate and project development company
based in Vaduz, Liechtenstein. Additionally, since 1996, Mr. Ritter has been
co-owner and director of EUROVENTOS, which is developing alternative energy
sources in Portugal. Mr. Ritter has held positions with Credit Suisse in
Zurich, Switzerland, the Bank of London and South America, in London, England,
and Lloyds Bank Ltd. in New York City. PAUL L. SIMMONS has been a member of the Board of Directors since our
incorporation in 1991. He is a recognized authority by both the industry and
the FDA in plant manufacturing validation and certification, as well as
manufacturing plant and process design for the genetic, pharmaceutical, bulk
pharmaceutical chemical, device and diagnostic industries. Mr. Simmons (with
his wife, Diane) is the founder of our Company, commencing with one of our
predecessors, ROST, Inc. founded in 1980.  41




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##### Table of Contents



On October 6, 1998, Mr. Simmons filed a Petition for Reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Middle District of Florida, docketed
to Number 98-17181-8P1. Mr. Simmons Plan of Reorganization was confirmed
(approved) by the Court on December 27, 1999, which order operated as a
discharge of all debts except as covered by the Plan. AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT The Companys Audit Committee is comprised of two of its Directors, Mr. Rene
Gareau (Chairman of the Audit Committee) and Mr. Alfred Ritter. The Company
does not have an Audit Committee Financial Expert as a member of its audit
committee. The Company does not have available any person with the requisite
background and experience, nor has the Company been able to attract anyone to
its Board with the requisite background. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT All of our officers, directors and beneficial owners, except for Mr. Simmons,
were in compliance with Section 16(A) during fiscal year 2003. Mr.
Simmons advises us he will be filing a Form 5 in lieu of not having
filed a Form 4 with respect to the following transactions:  (a)

the sale during 2003 of 987,798 shares of our Common Stocks owned
by International Center for Technology Transfer Inc., of which Mr.
Simmons is an Officer and Director; and(b)

the sale during 2003 of 1,420,400 shares of our Common Stock
owned by Mr. Simmons personally. 42




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##### Table of Contents



SCIENTIFIC ADVISORY BOARD Prior to October 2001 we relied upon informal contacts and relationships for
general scientific advice in connection with our research and development. In
October 2001, in order to have a more structured arrangement, we formed a
Scientific Advisory Board including: JERRY A. MOORE, Ph.D., served for more than 25 years with the EPA, with 17
years in the Pesticide Programs Office in Washington, DC. Dr. Moore served in
the Office of Research and Development in the EPA where he acted as liaison
with other federal agencies. Dr. Moore has broad expertise in the field of
pesticide science and governmental regulation of products used for
environmental disinfection. BRIAN CHADROFF, D.D.S., is a Diplomat of the American Board of Periodontology
and Clinical Associate Professor of Post Graduate Periodontology in the
Department of Post Graduate Periodontology and Implant Dentistry at the New
York University College of Dentistry. Dr. Chadroff has conducted research,
published, and lectured nationally and internationally in the field of Bone
Grafting and Implant Dentistry and maintains a practice specializing in
Periodontics in New York City. JEROME KERN, Ph.D., is a Microbiologist and Virologist with 40 years of
experience in Bacteriology, Microbiology and Virology, serving in government,
industry and academia. Dr. Kern has served with the National Institutes of
Health, National Institute of Allergy and Infectious Diseases, and the National
Cancer Institute; Queens Hospital and the University of Hawaii; the Medical
University of South Carolina; Litton Bionetics, Inc.; Microbiological
Associates, Inc.; Bionetics Research, Inc.; and Veridien Corporation as
Laboratory Director from 1996 until his retirement in 2001. THOMAS C. LAIPPLY, M.D., FCAP, FIAP, is a Pathologist and Director of Molecular
Tissue Pathology with Nichols Institute-Quest Diagnostics, In San Juan
Capistrano, California. Dr. Laipply previously served as Assistant Professor of Pathology at Case Western Reserve University
Medical School in Cleveland, Ohio. Dr. Laipply has devoted 20 years to the
practice of Pathology and lecturing in aspects of Blood Banking, Clinical
Cytometry and Cytology, Morphologic Hematology, Immunology and Immunochemistry.
For the past decade Dr. Laipply has concentrated his practice in the field of
Surgical Pathology. Dr. Laipply has been issued more than 10 U.S. and
international patents for anti-infective and invisid fluid applicators. 
 ITEM 10. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS Currently, our directors are not compensated for their services as directors,
although their expenses in attending meetings are reimbursed. All directors
attended all meetings during 2003. COMPENSATION OF MANAGEMENT The following table sets forth the compensation paid to our Chief Executive
Officer or such other officer who fulfilled the duties of the Chief Executive
Officer for the periods indicated (see footnote 1). Except for the individuals
named, no executive officers had a total annual salary and bonus of $100,000 or
more. 43




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##### Table of Contents



Name & Principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherPosition
    
    Year
    
    Salary
    
    Bonus
    
    CompensationSheldon C. Fenton, President & CEO
    
    7/98-Present
    
    
    -0-
    2
    
    
    -0-
    
    
    
    -0-Kenneth J. Chester, COO
    
    
    1/01-12/01
    
    
    $
    150,000
    
    
    
    -0-
    
    
    $
    30,450
    3Kenneth J. Chester, former COO
    
    
    2003
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    17,688
    4
 Except for Mr. Chesters shares of Common Stock, none of the named persons has
received stock options or other such non-cash compensation.   1
    
    During the fourth quarter 2003 the Company entered into a Consulting
Agreement with Russell Van Zandt, who is the Chairman of the Board of
Directors. See details in Item 12 Certain Relationships and Related
Transactions.2
    
    Tanlon Management Services Inc. (of which Mr. Fenton is an officer and a
director) charges the Company an annual management fee of $120,000 at the
rate of $30,000 per quarter; however, such fee covers the services of
Tanlon employees and is not intended as compensation for Mr. Fenton. At
December 31, 2003 these fees remain unpaid in the amount of $486,569 and
are included in accounts payable.3
    
    Mr. Chester received 870,000 shares of restricted Common Stock, having an
assigned value of $30,450, on April 1, 2001.4
    
    Mr. Chester received 660,000 shares of restricted Common Stock, having an
assigned value of $17,688, during 2003 in full and final settlement of all
obligations to him under his employment contract with the Company. 44




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##### Table of Contents



CODE OF ETHICS The Company has not adopted a Code of Ethics as defined in Item 406 of
Regulation S-B. We have not adopted such a Code for the following reasons:  1.
    
    The management of the Company is limited to three (3)
persons;2.
    
    All of the management team have now been associated with
the Company for several years and have become familiar with the
requirements applicable to them;3.
    
    The management of the Company is so small and in such
regular communication that the conduct of any one member of
management is apparent to all; and4.
    
    The Company has centralized the collection and disclosure
of material information and the control of public communications
to persons familiar with the applicable requirements and having
direct professional access in the event of perceived problems. 45




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##### Table of Contents



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 12, 2004, information regarding the
beneficial ownership of shares of Common Stock by each person known by the
Company to own five percent or more of the outstanding shares of Common Stock,
by each of the Officers, by each of the Directors, and by the Officers and
Directors as a group. At the close of business on March 12, 2004, there were
207,618,861 shares issued and outstanding of record, as well as 49,016,621
shares issuable in the event of the conversion of the $1,991,377 of Convertible
Debentures outstanding and the $764,102 of interest thereon as of December 31,
2003. Shares of
    
    PercentageCommon
    
    as ofName and Address of Beneficial Owners
    
    Stock
    
    03/12/20041Sheldon C. Fenton
160 Eglinton Avenue East, Suite 500
Toronto, Ontario M4P 3B5
    
    
    31,484,5182
    
    
    
    15.2
    %Rene A. Gareau
603 Sarasota Quay
Sarasota, Florida 34236
    
    
    125,000
    
    
    
    0.06
    %Dunvegan Mortgage Corporation
222 Delaware Ave., PO Box 2306
Wilmington, Delaware 19899
    
    
    31,101,5183
    
    
    
    15.0
    %Paul L. Simmons
8825 Laurel Drive
Pinellas Park, Florida 33782
    
    
    2,019,4024
    
    
    
    .97
    %Russell D. Van Zandt
100 Beach Drive NE, Suite 1002
St. Petersburg, Florida 33701
    
    
    741,560
    
    
    
    0.35
    %Alfred A. Ritter
Rua Baronesa DeBeck 130
Malveira Da Serra
2750 Cascais Portugal
    
    
    0
    
    
    H. Quotient Inc.
(& subsidiary Quotient Capital Corp.)
8150 Leesburg Pike, Suite 503
Vienna, VA 22182
    
    
    19,800,000
    
    
    
    9.54
    %Milfen Limited
33 Jackes Avenue, #303
Toronto, Ontario
M4T 1E2
    
    
    1,594,0145
    
    
    
    0.77
    %
 46




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##### Table of Contents



Shares of
    
    PercentageCommon
    
    as ofName and Address of Beneficial Owners
    
    Stock
    
    03/12/20041All Directors and Officers
as a Group (5 persons)
    
    34,370,480
    
    
    
    16.6
    %
   1
    
    Based on 207,618,861 shares issued and outstanding as of March 12, 2004.2
    
    Includes Mr. Fentons direct ownership of 383,000 shares, indirect
ownership of 22,333,014 shares owned by Dunvegan Mortgage Corporation, of
which Mr. Fenton is an officer and director, as well as 8,768,504 shares
issuable in the event of conversion of the $471,215 of Convertible
Debentures [principal] owned by Dunvegan Mortgage Corporation and the
$405,635 of interest thereon as of December 31, 2003. For
informational purposes, also does not include 15,730,128 Series I ($.499)
and Series II ($.001) Warrants previously owned by Dunvegan Mortgage
Corporation but assigned (in 1998) to 1192615 Ontario Limited et al and in
which he disclaims any beneficial interest. For informational purposes,
does not include holdings of his adult daughter including (i) 1,941,120
shares and (ii) the 3,338,136 shares issuable in the event of conversion
of the $90,000 Convertible Debenture (principal) and $25,085.96 of
interest thereon as of December 31, 2003; in which he disclaims any
beneficial interest. For informational purposes does not include holdings
of his adult son, including (i) 1,479,477 shares and (ii) the 4,188,755
shares issuable in the event of conversion of the $95,000 of Convertible
Debentures (principal) and $24,101.44 of interest thereon as of December
31, 2003; in which he disclaims any beneficial interest. For
informational purposes does not include holdings of Milfen Limited, a
Corporation owned by Mr. Fentons mother, in which he disclaims any
beneficial interest.3
    
    Includes 8,768,504 shares issuable in the event of conversion of the
$471,215 of Convertible Debentures [principal] owned by Dunvegan Mortgage
Corporation and the $405,635 of interest thereon as of December 31, 2003.
Does not include 154,163 shares of Series B Preferred Stock.4
    
    Includes Mr. Simmons' direct ownership of
1,332,600 shares and indirect ownership of 686,802 shares owned by
International Center for Technology Transfer, Inc., of which Mr.
Simmons is an Officer and Director.5
    
    Does not include 16,517,874 shares issuable in the event of conversion of
the $599,096 of Convertible Debentures [principal] owned by Milfen Limited
and the $152,458 of interest thereon as of December 31, 2003. 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Dunvegan Mortgage Corporation, a corporation of which Sheldon C. Fenton, the
Companys President/CEO and a director, is an officer and a director, entered
into various financing transactions with the Company prior to January 1, 1999.
As a result of those transactions, as of December 31, 2003, Dunvegan Mortgage
Corporation continued to hold 154,163 shares of Series B Preferred Stock
(88.5%), 22,333,014 shares of our Common Stock (10.85%), Convertible Debentures
(1996-1998) in the principal amount of $471,215 (100%), and 890 Series D
Dunvegan Warrants exercisable to purchase 890 shares of an as-yet-undesignated
series of Preferred Stock having 25,000 votes per share, at a price of $1.00
per share (100%). During
fiscal year 2003, Milfen Limited divested itself of $75,000 of
debenture principal (and interest accrued thereon) to other parties. During
fiscal year 2002, Milfen Limited (i) purchased seven additional debentures for
principal sums totaling $204,000; (ii) converted $36,383 of debenture principal
(& interest accrued thereon) into common stock at the price of $0.05; and (iii)
otherwise divested itself of $329,021 of debenture principal (and interest accrued
thereon) to other parties. Milfen Limited is a Canadian corporation
controlled by the mother of Mr. Shelley Fenton, our President and CEO. 47




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In 1995 the Company entered into a Loan and Security Agreement with Dunvegan
Mortgage Corporation, a company of which Sheldon Fenton is an officer and
director. On October 5, 1998 Dunvegan Mortgage
Corporation assigned their interest in the balance of the Loan and Security
Agreement (and conversion entitlements there under) to a group of companies,
some of which have as their officers or directors siblings of Mr. Fenton.
Neither Mr. Fenton nor Dunvegan Mortgage Corporation have any further interest
in the Loan and Security Agreement and disclaim any beneficial interest
therein. 935934 ONTARIO LTD. During late 2001, 935934 Ontario Ltd., a company of which Sheldon C. Fenton is
an officer and director, purchased $ 480,000US (plus accrued interest) of the
accounts receivable owed for inventory by The SunSwipe Corporation L.L.C. (a
wholly owned subsidiary of Veridien) to Norpak Manufacturing Inc. Of these
monies, $472,386 plus interest accruing at 10% per annum are still due and
owing by Veridien to 935934 Ontario Ltd.(and Assignees) and are included in
accounts payable and accrued interest respectively. TANLON MANAGEMENT SERVICES, INC. During fiscal years 1999, 2000, 2001 and 2002 we utilized the services of
Tanlon Management Services, Inc., a management company of which Sheldon C. Fenton
[the Companys President/CEO] is an officer and a director. We expensed
$120,000 for these professional services for each of 1999, 2000 and 2002 and
$90,000 for 2001 (for which the $30,000 due for the 4th quarter was waived).
These fees are intended to cover the salaries and costs of relevant Tanlon
employees who provide various support services; none of the fees are intended
to compensate Mr. Fenton. At December 31, 2003 these fees remain unpaid in the
amount of $486,569 and are included in accounts payable. In addition to the accrued indebtedness for services, the Company owes Tanlon
an additional $113,145 for advanced expenses for related travel,
courier/express deliveries, and telephone costs. During the fourth quarter 2003, Tanlon Management Services advanced a
short-term loan in the amount of $75,000 to Veridien. This loan was
outstanding at year-end and is included in notes payable. RUSSELL VAN ZANDT During the fourth quarter 2003 the Company entered into a Consulting Agreement
with Russell Van Zandt, who is the Chairman of the Board of Directors of the
Company. Under this agreement, Mr. Van Zandt will provide one-half of this
time in consulting services to Veridien for the period from October 1, 2003 to
December 31, 2004. He will be compensated via a payment of $ 2,500 per month,
a grant of 100,000 restricted shares per quarter (beginning in 2004) and sales
commissions of 10% (to a maximum of $ 100,000) on new business generated for
the Company by his direct efforts. See Exhibit 10.35. 48




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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT INDEX No.
    
    Description of Exhibit* 3.1
    
    Certificate of Incorporation of VCT Acquisitions II, Inc.  Dated June 4, 1991* 3.2
    
    Restated Certificate of Incorporation of VCT Acquisitions II, Inc.  Dated September 13, 1991* 3.3
    
    Certificate of Amendment of Restated Certificate of Incorporation  November 6, 1991* 3.4
    
    Bylaws of Veridien Corporation  1998 as amended to date* 3.5
    
    Certificate of the Powers, Preferences, Rights, Qualifications, Limitations and
Restrictions of Series B Convertible Preferred Stock  Dated September 11, 1998* 3.6
    
    Certificate of Designation  Dated April 3, 1995* 3.7
    
    Certificate of Amendment to the Certificate of Incorporation  Dated February 16, 1996* 3.8
    
    Certificate of Amendment of Restated Certificate of Incorporation* 3.9
    
    Certificate of Amendment of Certificate of Incorporation - Dated May 27, 2002* 4.1
    
    Debenture Sample* 4.2
    
    General Security Agreement between Veridien Corp. and Dunvegan Mortgage Corp.  Dated October 19, 1995* 4.3
    
    Loan and Security Agreement between Veridien Corp. and Dunvegan Mortgage Corp.  Dated October 19, 1995* 4.4
    
    General Security Pledge between Veridien Corp. and Dunvegan Mortgage Corp.  Dated October 19, 1995* 4.5
    
    Warrant Agreement regarding Warrants to purchase Common Stock of Veridien Corporation  Series I  Dated October 19, 1995*4.6
    
    Warrant Agreement regarding Warrants to purchase Common Stock of Veridien Corporation  Series II  Dated October 19, 1995* 4.7
    
    Warrant to purchase Common Stock Series I and Series II  Dated December 12, 1995* 4.8
    
    Common Stock Purchase Warrant: $0.135 per share  Dated June 10, 1998* 10.1
    
    Building Lease* 10.2
    
    Canadian Licensing Agreement  Dated February 28, 1998* 10.3
    
    Contract Fill and Sub-lease Agreement with Horizon Pharmaceuticals, Inc.  Dated August 1, 1998* 10.4
    
    Trademark  Virahol* 10.5
    
    Trademark  Viraguard* 10.6
    
    Trademark  Viragel* 10.7
    
    Trademark  Vira- CD7* 10.8
    
    Australian Patent No. 667,930/Sterihol
 49




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##### Table of Contents



No.
    
    Description of Exhibit* 10.9
    
    Australian Patent No. 628,932/Virahol* 10.10
    
    Canadian Patent No. 1,337,329/Virahol* 10.11
    
    Mexican Patent No. 185,884/Virahol* 10.12
    
    U.K. Patent No. 2,294,639/Virahol* 10.13
    
    U.K. Patent No. 2,245,171/Virahol* 10.14
    
    U.S. Patent No. 5,405,602/Sterihol* 10.15
    
    U.S. Patent No. 5,145,663/Virahol* 10.16
    
    U.S. Patent No. 5,441,723/Virahol* 10.17
    
    U.S. Patent No. 5,637,307/Method of Immersion Sterilization & Organic Cold Chemical Sterilant* 10.18
    
    New Zealand Patent No. 269,419/Virahol* 10.19
    
    Employment Agreement with Paul Simmons* 10.20
    
    Employment Agreement with Andrew T. Libby, Jr.* 10.21
    
    Norpak Manufacturing Inc. Agreement* 10.22
    
    Consulting Agreement with Kenneth J. Chester* 10.23
    
    Option Agreement re: Purchase of SunSwipe, Inc.* 10.24
    
    Consulting Agreement with Robert P. Belling* 10.25
    
    Scott R. Dotson Agreement* 10.26
    
    Trademark  Veridien* 10.27
    
    Australian Patent No. 695,346/Virahol (DSII)* 10.28
    
    U.S. Patent No. 5,891,052/Diagnostic Syringe Actuator* 10.29
    
    U.S. Patent No. 5,895,354/Integrated Medical Diagnostic Center* 10.30
    
    U.S. Patent No. 5,925,052/Umbilical Surgical Scissors* 10.31
    
    U.S. Patent No. 5,985,929/Cold Chemical Sterilant* 10.32
    
    Canadian Patent No. 2,166,810/Virahol (DSII)* 10.33
    
    Trademark and Design  Viraguard* 10.34
    
    Employees & Consultants Compensation and Stock Option Plan10.35
    
    Consulting Agreement with Russell Van Zandt* 21.1
    
    Subsidiaries* 21.2
    
    Subsidiaries (as of December 31, 2000)* 21.3
    
    Subsidiaries (as of December 31, 2001)* 21.4
    
    Subsidiaries (as of December 31, 2002)21.5
    
    Subsidiaries (as of December 31, 2003)
 50




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No.
    
    Description of Exhibit31.1
    
    RULE 13a-14(a)/15d-14(a) CERTIFICATION, ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 200231.2
    
    RULE 13a-14(a)/15d-14(a) CERTIFICATION, ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 200232.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as Adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as Adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
  *
    
    Exhibit previously filed. REPORTS ON FORM 8-K There were 2 reports on Form 8-K filed in the fourth quarter of 2003. One was
filed on October 17, 2003 and the other on December 23, 2003. Both reports
were disclosing press releases disseminated by Veridien and neither report
contained any financial statements. 51




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The Companys principal accountant is Carter, Cartier, Melby & Guarino,
C.P.A.s, P.A. They have been the companys principal accountant since the
Companys fiscal year ended December 31, 1997. On December 19, 2003, the Companys Audit Committee unanimously approved the
engagement of Carter, Cartier, Melby & Guarino for the audit of the
Corporations December 31, 2003 year-end financial statements. AUDIT FEES The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the Companys principal accountant for the
audit of the Companys annual financial statements and review of financial
statements included in the Companys 10-Qsb filings were : 2003 - $33,795 and
2002 - $44,307. AUDIT-RELATED FEES No other audit-related fees were billed by the Companys principal accountant
in either of 2003 or 2002 except those disclosed under Audit Fees above. TAX FEES The aggregate fees billed for each of the last two fiscal year for professional
services rendered by the Companys principal accountant for tax related items
were : 2003 - $ 4,600 and 2002 -$4,300. The only services provided under this
caption were preparation of the Companys annual tax return. ALL OTHER FEES No other fees were billed in either 2003 or 2002 by the Companys principal
accountant, except those disclosed above. 52




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SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. VERIDIEN CORPORATION By
    /s/ Sheldon C. Fenton, C.E.O.
    , PresidentSheldon C. Fenton, C.E.O.Date
    
    March 30, 2004
  In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated. By
    /s/ Sheldon C. Fenton, C.E.O.Sheldon C. Fenton, C.E.O.Date
    March 30, 2004
  By
    /s/ Russell D. Van Zandt, Chairman of the Board of DirectorsRussell D. Van Zandt, Chairman of the Board of DirectorsDate
    March 30, 2004
  By
    /s/ Rene A. Gareau, Vice Chairman of the Board of DirectorsRene A. Gareau, Vice Chairman of the Board of DirectorsDate
    March 30, 2004
  53