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United States
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-KSB/A  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
 for the transaction period from            to Commission File Number 0-02555 Veridien Corporation 
  Delaware
    
    59-3020382(State or other jurisdiction of incorporation)
    
    (I.R.S. Employer 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 which Registered
    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 þ No o 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. þ State issuers revenues for its most recent fiscal year. $1,802,154. 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 June
24, 2005 of $0.048, the aggregate market value of voting stock held by non-affiliates is $
7,704,150.




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TABLE OF CONTENTS This Amendment to the initial Annual Report on Form 10-KSB filed
March 31, 2005 sets forth the complete text of each item that is being amended. PAGEPART IItem 1.
    
    Description of Business
    
    
    3PART IIItem 6.
    
    Managements Discussion and Analysis
    
    
    12Item 7.
    
    Financial Statements
    
    
    18Item 8A.
    
    Controls and Procedures
    
    
    34EXHIBITS31.1
    
    RULE 13a-14(a)/15d-14(a) CERTIFICATIONS,
    
    
    35Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    RULE 13a-14(a)/15d-14(a) CERTIFICATIONS,
    
    
    36Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to 18 u.s.c. section 1350,
    
    
    37Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 u.s.c. section 1350,
    
    
    38Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Ex-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification
  EXPLANATORY NOTE We filed our Form 10KSB for the fiscal year ended December 31, 2004 with the Securities and
Exchange Commission on March 31, 2005 (the Original Filing). This Amendment No.1 is filed to
amend the Original Filing as follows:  1.
    
    Item I. Description of Business. We have amended our description of our
business to remove the references to two Divisions. We do not have business segments or
divisions because we only have one accounting system and one set of
management. We advertise and sell our products in different markets
and have previously termed these separate selling efforts as
divisions. The business section has been revised to
clarify this.2.
    
    Item 6. Managements Discussion and Analysis of Financial Condition. We have
expanded our discussion and analysis to include discussion of our Critical Accounting
Estimates, as well as to update it with our restated financial numbers (see details of
restatement in Item 7 below).3.
    
    Item 7. Financial Statements. Our Financial Statements have been re-issued
with the following changes: (i) Our Report of Independent Registered Public Accounting Firm
has been revised to clarify that the audit was performed in accordance with accounting
principles generally accepted in the United States of America.; (ii) Our 2004 and 2003
numbers have been re-stated to reflect the correct accounting treatment of our acquisition
and sale of marketable securities (see Notes O & P).; (iii) Our cashflow statement has been
expanded to include details for previously grouped categories.; (iv) Our notes to the
Financial Statements have been expanded to include clarification of Marketable Securities
transactions (Notes D & L); we have added details of our revenue recognition accounting
policy (Note A); we have disclosed the name of the Variable Interest
Entity which we have
consolidated (Note C); and we have made other minor style changes to the wording of certain
other notes.4.
    
    Item 8A. Controls and Procedures. We have amended our disclosures under Item
8A for the fiscal year ended December 31, 2004. In addition, pursuant to rule 12b-15 of the Securities Exchange Act of 1934, we are including with
this Amendment No.1 on Form 10KSB/A certain currently dated certifications. Except as described
herein, the information contained in our Annual Report on Form 10KSB as originally filed with the
Securities and Exchange Commission has not been updated or amended. Forward-Looking Statements




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When used in this Form 10-KSB/A, in our filings with the Securities and Exchange Commission
(SEC), in our press releases or other public or stockholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases would be, will
allow, intends to, will likely result, are expected to, will continue, is anticipated,
estimate, project, or similar expressions are intended to identify forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. We caution readers not to place undue reliance on any forward-looking statements, which speak
only as of the date made, are based on certain assumptions and expectations which may or may not be
valid or actually occur, and which involve various risks and uncertainties, including but not
limited to risk of a lack of demand or low demand for our products and services; competitive
products and pricing; changes in the regulation of our industry; a failure to timely obtain
necessary regulatory approvals; additional costs associated with compliance with the Securities and
Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002, including any changes in the SECs rules,
and other corporate governance requirements; changing government regulations and laws applicable to
our products; competitive factors such as pricing pressures; as well as other factors and other
risks set forth in Item 1 under Cautionary Factors That May Affect Future Results,Risks of Our Business, Risks of Our Products and elsewhere herein. Unless otherwise required by applicable law, we do not undertake, and specifically disclaim
any obligation, to update any forward-looking statements to reflect occurrences, developments,
unanticipated events or circumstances after the date of such statement. 
 PART I 
 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 3




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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
infection control products for the medical and dental markets. To this end the Companys line of
infection control products was expanded with the addition of new product delivery configurations
for the liquid and gel lines such as canisters, towelettes and private labeling. The Company also
sought out new products in the Healthy Lifestyles arena. We obtained distribution/sales rights
for: 1. the SunSwipe product line (sunscreen impregnated towelettes in 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, we continued 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 products gave the Company entry to a wide variety of larger markets, including
especially the retail and specialty markets. 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 120-day period, and
upon refiling, the 120-day period begins again;7.
    
    if, at the end of the 120-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. 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) 4




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Bactericidal:
          Streptococcus pyogenes, ATCC #19615
          Escherichia coli, ATCC #11229
          Vancomycin-resistant Enterococcus faecium (VRE), ATCC #51559
          Staphylococcus aureus (MRSA), ATCC #33591
     Fungicidal:
          Trichophyton mentagrophytes, ATCC #9533
     Virucidal:
          Herpes simplex type 1, ATCC #VR260
          HIV-1 (AIDS Virus) 2. For the liquid:
     Bactericidal:
          Streptococcus pyogenes, ATCC #49399, #19615
          Escherichia coli, Strain 0157, ATCC #43895
          Vancomycin-resistant Enterococcus faecalis (VRE), ATCC #51299
          Methicillin-resistant Staphylococcus aureus (MRSA), ATCC #33593
     Virucidal:
          Cytomegalovirus (CMV), ATCC #VR538
          Respiratory syncytial virus (RSV), ATCC #VR26
          Rotavirus (SA-11; Group A)
          Influenza type A-2 (Hong Kong), ATCC #VR544
          Adenovirus type 2, ATCC #VR846
          Hepatitis 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 #10708
          Staphylococcus aureus, ATCC #6538
          Pseudomonus aeruginosa, ATCC #15442
          Streptococcus pyogenes, ATCC #49399, #19615
          Escherichia coli, Strain 0157, ATCC #43895
          Vancomycin-resistant Enterococcus faecalis (VRE), ATCC #51299
          Methicillin-resistant Staphylococcus aureus (MRSA), ATCC #33593
     Virucidal:
          Hepatitis A, B and C
          HIV-1 (AIDS virus)
          Herpes simplex type 2, ATCC# VR539
          Cytomegalovirus (CMV), ATCC #VR538
          Respiratory syncytial virus (RSV), ATCC #VR26 Rotavirus (SA-11; Group A)
          Influenza type A-2 (Hong Kong), ATCC #VR544
          Adenovirus type 2, ATCC #VR846
     Tuberculocidal:
          Mycobacterium tuberculosis
     Fungicidal:
          Trichophyton mentagrophytes, ATCC #9533 For the towelettes:
     Bactericidal:
          Salmonella choleraesuis, ATCC #10708
          Pseudomonus aeruginosa, ATCC #15442
          Streptococcus pyogenes, ATCC #19615 5




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Escherichia coli, ATCC #11229
          Vancomycin-resistant Enterococcus faecium (VRE), ATCC #51559
          Staphylococcus aureus, ATCC #6538
          Staphylococcus aureus (MRSA), ATCC #33591
     Virucidal:
          Herpes simplex type 1, ATCC #VR260
          HIV-1 (AIDS Virus)
     Tuberculocidal:
          Mycobacterium bovis (BCG)
     Fungicidal:
          Trichophyton mentagrophytes, ATCC #9533 CURRENT FOCUS During 2004 we continued to focus our sales efforts on our Infection Control products. We expanded
our product line to include five new products for the Infection Control market. These products are:  
    
    Viraguard® Heavy Duty Textured Wipes  rugged, roughened wipes
designed for use in very rigorous and bloody environments such as
ambulances and emergency rooms.
    
    Viraguard® Medical Instrument Wipes  pocket size handy wipes for
cleaning Stethoscopes, scissors, otoscopes, etc.
    
    Viraguard® Telephone & Keyboard Wipes- for disinfecting office
equipment, cellular phones and computers.
    
    Water Cooler Cleaning Kits  special unscented formula for removal of
bacteria, fungus and mold that can accumulate in water cooler
equipment.
    
    Viraguard® Toilet Seat Wipes   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. We are aggressively continuing to pursue possible strategic alliances with a number of major
corporations to further strengthen our Company. During 2002, 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 and
continued throughout 2004. In addition, 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 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 (i.e. Dupont) with a strong competitive advantage in 2005. During 2003 we signed a supply contract with the American Red Cross. The original contract was
renewed by the Red Cross for a further year (covering September 2004  September 2005). 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 6




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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. In December 2004, Veridien engaged the services of Medical Strategies International, a medical
marketing and consulting company whose expertise is the development of large scale contracts with
Group Purchasing Organizations, the Veterans Administration and Integrated Delivery Networks. These
organizations collectively account for 85% of all hospital purchasing, representing more than $52
billion dollars of annual purchases across all sectors of the medical industry. Dennis Daar, Thomas
Filer and Howard Lewis are the three senior executives of Medical Strategies International.
Together they have over 80 years experience in placing medical devices and medical supplies in
hospital purchasing groups. Medical Strategies International significantly extends our reach into
the large medical markets in North America. Veridien believes that our Viraguard® products, with their new Hepatitis and other kill claims,
are now ready for entry into consumer markets. We are aggressively pursuing a strategy of
establishing partnerships with major Consumer Packaged Goods companies to develop Viraguard®
Infection Control products for sale in large retail chains (food stores, drug chains and mass
merchandise chains). Veridien seeks an alliance with a major retail brand name that already has
penetration into these retail chains. To that purpose, Veridien has retained Marc Pearl, an expert
consultant in the development of retail branded name products. Mr. Pearls last position was
National Sales Director at Reckitt Benckiser, manufacturer of Lysol® products. Mr. Pearl will be
working with Veridien to establish retail marketing programs, retail product launches and to assist
in negotiating business relationships with major Packaged Consumer Goods companies. Employees- Our core team encompasses thirteen (13) people including employees, active Board
members, and primary consultants. We employ three persons, all of whom are full-time employees (1 Management & Finance, 1 Sales & 1
Administration/Regulatory). In addition, we also utilize ten (10) primary consultants (some
full-time and some part-time) to assist with administration, sales, operations, and marketing. 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. MYCOSOL, INC.  Veridiens Investment in Future Technology In June 2004, we announced that we had entered into an Agreement with Mycosol, Inc., a
development-stage chemical and pharmaceutical company, located in the Research Triangle Park area
of North Carolina. While our focus is on anti-infectives   killing bacteria, mold, mildew, and
viruses  through our Viraguard® product line of proprietary, alcohol-based liquid and towelette
antiseptics and disinfectants, Mycosol is developing complementary, non-alcohol-based technologies
of safe, potent, long lasting products that it believes will not only kill, but retard the regrowth
of infective microbials  particularly mold. We believe the integration of the two companies will
provide benefits to both in the areas of product development & commercialization, sales and
management. Under the Agreement, we have an option to acquire the majority ownership of Mycosol.
Veridien also has two seats on Mycosols four-Director Board. Mycosol will continue to focus its
technology on the further development of unique anti-microbials (bacteria, mold, yeast) to feed the
Veridien product pipeline and distribution channels. Mycosol was founded in late 2002. The Company has a unique, proprietary, low-cost platform
technology that it believes can safely and effectively prevent or treat microbial-induced and
microbial-exacerbated problems. Mycosols primary technology is based on M301  an analog derivative of a drug compound originally
developed by the pharmaceutical company, Burroughs Wellcome (BW), to orally treat diseases of the
digestive system. Although found to be safe and efficacious in Phase III clinical studies, due to
changes in corporate market strategies, the drug was never commercialized. More than a decade
later, an internal research development project found M301 to also be a unique, safe, multi-active
compound exhibiting potent, topical, anti-inflammatory (rivaling steroids), anti-fungal,
anti-allergic, and anti-bacterial 7




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properties. But, as before, corporate re-prioritization of drug
development projects again sidelined the technology. Years later, Jeffrey Selph, the Project Manager for M301 at BW, opted for early retirement and
subsequently formed Mycosol with medical industry executive and Co-Founder, Richard Klein, and VP
of Business Development, Jim Hriso. These senior executives, with nearly 100 years of combined
health sciences technology and market development experience, sought to create and develop an M301
technology platform and products targeted to a myriad of new, multi-billion dollar market
applications. The Company is supported by a cadre of outside consultant experts and strategic
alliance partners in the areas of biochemistry, chemical development, safety and efficacy testing,
regulatory, marketing, and administrative services. Mycosol acquired access to the original technical and preclinical database through a license with
BWs successor, GlaxoSmithKline, to use as a reference and for guidance in developing new,
anti-inflammatory and anti-microbial applications for M301. Mycosol has since developed a broad
technology platform, a large library of related compounds, expanded the safety and efficacy
database, and filed for five U.S. patents and a world patent covering commercial applications in
medical, veterinary, diagnostics, industrial, and agriculture. For example: further and recent
testing of the lead compound, M301, and several analogs have shown them to be potent fungicidal
(kills fungus) and fungistatic (prevents the growth of fungi) agents against a broad spectrum of
yeast and mold. Some forms of yeast and mold are known to cause human infection and inherently
produce a significant inflammatory response in the tissue or organ involved. Mycosol has identified
several medical indications in dermatology, otolaryngology (ENT), and inflammatory bowel disease
that are caused by fungi and/or allergic reactions to biomaterials and in which steroid-type drugs
are currently the gold standard of treatment. These targets were selected because they represent
very large market potential and because Mycosol believes that the M301 technologys multi-activity
can dramatically improve the level of care: palliative (faster reduction of itching and
inflammation)and curative (kill fungi, allergens, and other infectives)and with
fewer side effects (because they are not absorbed by the body). Mycosol can also leverage M301s
unique anti-fungal properties and the publics concern over mold-infiltrated buildings (a.k.a.
sick building syndrome) to focus on industrial market opportunities such as pre-treated
construction materials, e.g., sheetrock, structural lumber, air filters, HVAC systems, etc. To help
underwrite much of those anticipated development expenses and to provide for a future license
revenue stream, Mycosol intends to form collaborative partnerships with companies, where
applicable. The medical and agricultural opportunities are examples where the high cost of
development and long and rigorous regulatory paths (FDA and EPA, respectively) would strongly
suggest strategic alliances with companies specialized in those fields. To help facilitate this overall collaborative strategy, Mycosol entered into a comprehensive
strategic alliance with us (in June 2004) to jointly focus on both the burgeoning
anti-microbial/anti-infectives market in which we currently participate, and other life science
opportunities being developed around the M301 technology. More recently, Mycosols core technology efforts developed and validated the use of an M301
formulation as a unique staining reagent. Staining reagents are used extensively to study
cell-based assays in laboratory research and development, an unregulated market. The proprietary
M301 reagent formulation has demonstrated significant competitive advantages, which include: user
safety, reagent stability, non-toxicity to cells, very quick absorption by cells, real-time and
selective staining of the cell nucleus, and the ability to repeatedly stain living cells. Mycosol
intends to commercialize its first new staining reagent products in 2005, and to explore licensing
opportunities for the research laboratory market. In the not-too-distant future, Mycosol sees
further development of a pipeline of staining reagent products based on the M301 library of
analogs, as well as expansion into the similarly-sized, but FDA-regulated clinical diagnostics
market. Infection Control Products 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 somewhat to very
harmful to the skin and respiratory system and usually require gloves and other protection when
being used. Our Virahol®/Viraguard® product line, based on our patented formulation, has the
basic underlyingve
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 also aids in the penetration of cell walls, as well as
lowers flammability. Isopropyl alcohol/Isopropanol and propylene glycol combine to make 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 8




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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 Our 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. Manufacturing Our products are manufactured in various locations primarily by contract
formulators 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. The products that are manufactured and sold by Veridien specifically
come under the authority of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) as
amended by the Food Quality Protection Act (FQPA) of August 3, 1996 and the Federal Food, Drug, and
Cosmetic Act (FFDCA). FIFRA 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 9




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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. The Company is registered and has been assigned EPA Establishment No. 60142-FL-1. Also our contract
manufacturers are registered EPA establishments. Our antiseptic hand sanitizing products are regulated under the provisions of the FFDCA as carried
out by the U. S. Food and Drug Administration (FDA). Antiseptic hand sanitizing products are
classified as over the counter (OTC) pharmaceuticals and are regulated to a less stringent standard
than prescription or otherwise controlled pharmaceutical products. The manufacture of OTC
antiseptic hand sanitizers are subject to the review and inspection of the FDA and must be
formulated, packaged, and handled in accordance with current Good Manufacturing Practices for
Finished Pharmaceuticals (cGMP) as published and amended from time to time by the FDA. The Company
contract manufactures and distributes these products in accordance with 21 CFR Parts 333 and 369
and respective monographs. Veridien Corporations establishment is registered with the FDA and a
Labeler Code Number was assigned, permitting the Company to assign National Drug Code (NDC) numbers
to our FDA regulated products. Per Title 21, Part 207 of the Code of Federal Regulations (CFR), the
products are drug listed with the Food and Drug Administration (FDA) using those NDC numbers. Healthy Lifestyles Products We are focused on new products for which we have obtained distribution/sales rights. Products
include our SunSwipe line and BugSwipe® product. We 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 these products 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
2004, and our 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 10




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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 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 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 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. 11




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PART II 
 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, 2004 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 Life Sciences 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, SUN
PROTECTANT PRODUCTS, and other 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®
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, 2004, the Company had an
accumulated deficit of $35,780,924. The Company has financed its ongoing business activities
through a combination of sales, equity financing, sale of marketable securities and debt. 12




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##### Table of Contents



Results of Operations Fiscal 2004 Compared With Fiscal 2003 Year Ended December 31, 2004 vs. Year Ended December 31, 2003 Year Ended
    
    
    Percentage ofDecember 31
    
    
    net revenue2004
    
    
    2003
    
    
    2004
    
    
    2003Revenues
    
    $
    1,802,154
    
    
    $
    1,661,911
    
    
    
    100
    %
    
    
    100
    %Cost of Revenue
    
    
    675,927
    
    
    
    948,215
    
    
    
    38
    %
    
    
    57
    %Gross Profit
    
    
    1,126,227
    
    
    
    713,696
    
    
    
    62
    %
    
    
    43
    %Operating ExpensesGeneral & Administrative
    
    
    923,255
    
    
    
    1,238,098
    
    
    
    51
    %
    
    
    74
    %Research & Development
    
    
    163,512
    
    
    
    101,830
    
    
    
    9
    %
    
    
    6
    %Research & Development  VIE
    
    
    325,000
    
    
    
    -0-
    
    
    
    18
    %
    
    
    0
    %(Loss) from Operations
    
    
    (285,540
    )
    
    
    (626,232
    )
    
    
    (16
    )%
    
    
    (38
    )%Other Income (Expense) Net
    
    
    (351,188
    )
    
    
    (288,642
    )
    
    
    (19
    )%
    
    
    (17
    )%Net (Loss) Before Taxes
    
    
    (636,728
    )
    
    
    (914,874
    )
    
    
    (35
    )%
    
    
    (55
    )%Income Taxes
    
    
    -0-
    
    
    
    -0-
    
    
    
    0
    %
    
    
    0
    %Net (Loss)
    
    
    (636,728
    )
    
    
    (914,874
    )
    
    
    (35
    )%
    
    
    (55
    )%
 Consolidated gross revenues for 2004 increased by $73,930, or 4%, to $1,904,175 compared with
$1,830,245 in 2003.  
    
    Gross revenue from licensing and service fees increased by $652,000 or
100% to $652,000 compared with $-0- in 2003. During 2004, the Company
earned gross revenue from an agreement signed with H-Quotient, Inc.
(HQNT) which involves the sale of product, licensing and service fees.
The initial amount earned in 2004 reflects 400,000 HQNT restricted
common shares which are reflected at December 31, 2004 at their fair
market value. Gross revenue from product sales decreased in 2004 by
$511,757, or 31%, to $1,150,154 compared with $1,661,911 in 2003. The
decrease in sales revenue was due primarily to a decrease in sales in
the SunSwipe  line. 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.
    
    During 2004, the Company had a Realized Loss on Investments of $9,694,
from sale of 703,369 H-Quotient, Inc. (HQNT) common shares. During
2003, the Company sold 985,400 H-Quotient, Inc. (HQNT) common shares
and realized a net loss of $72,768.
    
    During 2003, the Company reported some convertible debenture
conversions incorrectly. The Company underreported interest expense by
$206,537 and did not report an offsetting gain from debt
extinguishments of $101,700. This adjustment (net $104,837) has been
reflected in the 2003 consolidated financial statement comparatives.
    
    Interest income for 2004 increased by $1,770, or 535%, to $2,101
compared to $331 in 2003. The increase in interest income is due
primarily to an increase in cash on hand.
    
    Dividend income for 2004 increased by $1,397, or 100%, to $1,397
compared to $-0- in 2003. The dividend income recorded is for 10,741
Healthnostics, Inc. (HNST) common shares which were received in
December 2004 as a dividend. At December 31, 2004 the Company owned
10,741 HNST common shares and recorded them at fair market value.
During 2004, the Company also received 18,001 restricted dividend
common shares of H-Quotient, Inc. (HQNT). At December 31, 2004 the
Company owned 719,507 HQNT common shares and recorded them at fair
market value. Consolidated gross expenses for 2004 decreased by $204,216, or 7%, to $2,540,903 compared with
$2,745,119 in 2003. 13




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##### Table of Contents




    
    The cost of revenue for 2004 decreased as a percentage of total
revenue to 38% in 2004 from 57% in 2003. The cost of goods sold from
product sales for 2004 decreased by $272,288, or 29%, to $675,927
compared with $948,215 in 2003. The cost of goods ratio as a
percentage of product sales increased to 58% in 2004 compared to 57%
in 2003. The Company is continuing to work toward decreasing the cost
of goods ratio as a percentage by improving the product mix with
higher margins by sourcing new manufacturers and adding new higher
margin products. The Company has also increased pricing on some of
their product line for 2005.
    
    General, selling, and administrative expenses for 2004 decreased
overall by $314,843, or 25%, to $923,255 compared with $1,238,098 in
2003. The decrease in general, selling and administrative costs was
partially attributable to a decrease in professional - legal, consulting,
and accounting - service expenses for 2004 which decreased by 10% to
$201,615 compared with $223,273 in 2003. Legal and consulting fees
decreased by 18% while accounting fees increased by 32%. Additionally,
there was a decrease in sales expenses for 2004 by 32% to $369,397
compared with $539,280 in 2003. The decreases in sales expenses were
attributable to utilizing outside sales staff as opposed to inside sales
staff. Increases in general, selling and administrative costs were
mostly attributable to an increase in administrative wages for 2004 by
34% to $138,754 compared with $103,828 in 2003. The increase in
administrative wages reflects the increase in permanent staff from
temporary services.
    
    Research and development expenses for 2004 increased by $61,682, or
61%, to $163,512 compared with $101,830 in 2003. The increase was due
primarily to 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.
    
    Research and development  Variable Interest Entity (VIE) expenses,
arising from our investment in Mycosol, Inc., for 2004 increased by
$325,000, or 100%, to $325,000 compared with $-0- in 2003. In December
2003, the FASB issued revised FASB Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 requires that a
Company that holds variable interests in an entity consolidate the
entity if the Companys interest in the variable interest entity (VIE)
is such that the Company will absorb a majority of the VIEs expected
losses and/or receive a majority of the VIEs expected residual
returns, if they occur. In such cases, the Company is the primary
beneficiary of the VIE. FIN 46 also requires additional disclosures by
primary beneficiaries and other significant variable interest holders.
Effective June 7, 2004, the Company reached an understanding to create
an alliance with an unrelated chemical and drug development company.
The Company obtained the rights to acquire a majority interest of the company based
on future purchases of preferred stock and purchase of common stock
under agreements with Mycosol principals and shareholders. The Company has no common stock
equity ownership in the VIE at December 31, 2004. The Company is
considered the primary beneficiary as it stands to absorb the majority
of the VIEs expected losses as the equity owners have insufficient
capital invested to absorb the expected losses. The purpose of the VIE
is to bring to market mutually beneficial products that utilize
existing technologies of the Company and new technologies being
developed by the VIE. It is anticipated that both the Company and the
VIE will provide logistic support to each other. At December 31, 2004,
the Company has advanced $470,000 of loans that are convertible into
preferred stock of the VIE and has purchased $125,000 of preferred
stock. These amounts as well as a $100,000 fee paid by the VIE to the
Company for management services have been eliminated in consolidation.
The accounts of the VIE that have been consolidated with the Company
at December 31, 2004 are as follows: Cash
    
    $
    3,000Inventory  raw materials
    
    
    58,000Property and equipment
    
    
    14,000Deposits and other
    
    
    11,000Patents  pending
    
    
    118,000Accrued expenses
    
    
    (34,000
    )Accumulated deficit
    
    
    (70,000
    )100,000Elimination of fee paid by VIE
    
    
    100,000Research and development expenses
    
    
    325,000$
    525,000
 14




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##### Table of Contents



Veridien accounts eliminated
against VIE accounts consolidated:Investment in preferred stock
    
    $
    125,000Notes receivable
    
    
    470,000Elimination of deficit in VIE
    
    
    (70,000
    )$
    525,000
  
    
    Interest expense for 2004 increased by $59,307, or 15%, to $443,515
compared with $384,208 in 2003. The increase in interest expense was
due primarily to additional Convertible Debenture holders in 2004 and
interest continues to accrue on other various debts.
    
    During 2004, the Company recognized a change in the market value of
marketable equity securities of $98,523 (unrealized gain). At December
31, 2004, the Company owned 719,507 common shares of H-Quotient, Inc.
(HQNT) and 10,741 common shares of Healthnostics, Inc. (HNST) with a
fair market value of $397,083. During 2003, the Company recognized a
change in the market value of marketable equity securities of $66,303
(unrealized gain). At December 31, 2003, the Company owned 660,300
common shares of H-Quotient, Inc. (HQNT) with a fair market value of
$475,416.
    
    Loss from Operations for 2004 decreased by $340,692, or 54%, to
$285,540 compared to $626,232 in 2003. The decrease in loss from
operations is primarily due to an overall decrease in the general,
selling and administrative expenses in 2004. 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, 2004 and December
31, 2003 we had working capital deficits of approximately $929,916 and $2,452,161 respectively. Our
independent certified public accountants stated in their report on the 2004 and 2003 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 twelve months ended December 31, 2004 1,856,627 common shares were issued to providers of various services to the company.
Said services amounted to the cash equivalent of $120,242 and included
sales consulting services and legal services. The average effective
price per share was $0.065.
    
    During the fourth quarter of 2004 3,225,806 restricted common shares
were issued to a supplier in lieu of cash for an Inventory deposit of
$250,000.
    
    During the fourth quarter 2004 we issued 1 convertible debenture for
cash proceeds of $50,000. This debenture carries an interest rate of
8%, has a term of 3 years and a conversion rate of $0.051.
    
    During the twelve months ended December 31, 2004, 94,627 common shares
were issued under the companys S-8 Registration Statement to an
employee under the terms of his employment contract. The average
effective price per share was $0.063.
    
    During the twelve months ended December 31, 2004 400,000 restricted
common shares were issued to the Chairman of the Board under the terms
of his consulting agreement with the company. The effective price per
share was $0.043.
    
    During the second quarter of 2004 the company liquidated a portion of
its marketable securities for a net cashflow of $754,314.
    
    During the second quarter of 2004 $471,215 of existing convertible
debenture principal, along with $427,773 of convertible debenture
accrued interest and $1,181,822 of payable debt was rolled into 2
convertible debentures. These 15




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##### Table of Contents



debentures carry interest rates of 10%
and have terms of 3 years. These instruments are immediately
convertible into common shares, at the option of the holder, at
conversion rates of $0.051. One debenture in the principal amount of
$300,000 was issued to a person not affiliated or related to the company
and one debenture in the principal amount of $1,780,811 is held by
Dunvegan Mortgage Corporation a company of which Veridiens President
& C.E.O., Mr. Sheldon Fenton, is an officer and a director.
    
    During the first quarter of 2004 the company liquidated a portion of
its marketable securities for a net cashflow of $244,214.
    
    During the first quarter of 2004 we issued 2 convertible debentures
for cash proceeds of $330,000. These debentures carry interest rates
of 10%, have terms of 3 years and have conversion rates of $0.06.
    
    During the first quarter of 2004 a Convertible Debenture with a
principal balance of $25,000 (accrued interest waived) was converted
into 500,000 shares of common stock.
    
    During the first quarter of 2004, as allowed under its agreement, the
Company repaid its accounts receivable factoring debt of $77,614 with
the issuance of 1,552,272 common shares. During 2004, accounts receivable increased by $110,355 to $180,678 from $70,323 at December 31,
2003. This increase can be attributed to a number of orders which were received and shipped in the
month of December 2004, including one large order for one of our multi-national customers. During 2004, accounts payable and accrued expenses decreased by $769,902 to $1,303,144 from
$2,073,046 at December 31, 2003. The decrease can mostly be attributed to a reduction in accrued
interest debt by 18% and a reduction of accounts payable debt by 69%. During 2004, inventory increased by 164% to $331,702 compared with $125,500 at December 31, 2003.
The increase is mostly attributable to an increase in raw goods by 647% to $209,431 compared with
$28,035 at December 31, 2003. At December 31, 2004 the Company had $46,436 of raw goods in work in
process for completion of a large order to a multi-national customer and $15,115 of raw goods in
work in process at a manufacturer for completion of three new products to be released in 2005. The
consolidation of the Variable Interest Entity (VIE) resulted in an additional $58,000 of raw goods
for the Company at December 31, 2004. 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 15, 2005, we have cash of approximately $470,978 and during April and May 2005, 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 and new product development costs for
Veridien and our VIE, Mycosol. 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 a 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. Critical Accounting Estimates We consider the following estimates made by management to be critical to our financial results as
reported: 16




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##### Table of Contents



Accounts receivable  whether all accounts are collectible is our only significant estimate. At
each period-end, we look at all significant amounts older than 60 days and evaluate collectibility,
calling the customer if necessary. We use the allowance method for accounting for bad debts, and
our allowance is based on our historical writeoff experience. We adjust this allowance if recent
trends indicate actual results are differing significantly. Inventory  impairment for slow-moving items is our only significant judgment call here. We look
at recent historical activity for each item in our inventory and compare with our own forecasts of
what is likely to sell in the near future. We write off currently all items which we deem from our
analysis to be effectively obsolete or which are expired. Marketable securities  the majority of our marketable securities over the past two years are our
holdings of H-Quotient, Inc. (HQNT) stock. HQNT is a pink-sheet company (non-reporting) which
trades actively, and we have bought and/or received as compensation for our
sales. Because of this high level of our trading activity, we classify our investment in this
stock as trading. The price has fluctuated significantly. We record all acquisitions at their
fair market value, which is generally the stocks trading price on the day of the transaction. At
each period-end, we mark the stocks carrying value up or down to the periods last days trading
price. We dont believe that at any period-end the carrying value exceeds our likely proceeds upon
sale. Asset impairments  we look at all non-cash assets at least annually to challenge the role each
plays in our sales and collections cycle. All assets not deemed to be contributing significantly
are written off. All of our assets are individually insignificant to our statement of operations and even large
individual changes in the estimates would not likely produce significant adjustments, but the above
reviews are conducted separately so that any collective impact is known and applied consistently. There have been no material changes to our accounting estimates or our method of reviewing them
over the past three years. 17




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##### Table of Contents



ITEM 7. FINANCIAL STATEMENTS CARTER, CARTIER, MELBY & GUARINO, C.P.A.s, P.A. LOGO Report of Independent Registered Public Accounting Firm To the Board of Directors
Veridien Corporation
Pinellas Park, Florida We have audited the accompanying consolidated balance sheets of Veridien Corporation (a Delaware
corporation) and subsidiaries as of December 31, 2004 and 2003, 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 standards of the Public Accounting Oversight Board
(United States). 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.
The Company has determined that it is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express
no such opinion. An audit also 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, 2004 and 2003, 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. As discussed in Notes P and O to these 2004 and 2003 financial statements, errors resulting in
overstatements and understatements of previously reported assets, liabilities, stockholders equity
and net loss were discovered by the management of Veridien during 2005. Accordingly, adjustments
have been made to 2004 and 2003 to correct the errors. Carter, Cartier, Melby & Guarino, C.P.A.s, P.A.
St. Petersburg, Florida March 19, 2005 18




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##### Table of Contents



Veridien Corporation
and Subsidiaries
Consolidated Balance Sheets
December 31, 2004 and 2003 Restated
    
    
    Restated2004
    
    
    2003AssetsCurrent Assets:Cash
    
    $
    126,027
    
    
    $
    101,506Accounts
receivable  trade less allowance for doubtful accounts of $12,640 and $20,584, respectively
    
    
    180,678
    
    
    
    70,323Inventory
    
    
    331,702
    
    
    
    125,500Due from shareholder
    
    
    
    
    
    
    69,764Marketable securities
    
    
    397,083
    
    
    
    475,416Other current assets
    
    
    76,087
    
    
    
    63,637Total current assets
    
    
    1,111,577
    
    
    
    906,146Property and equipment, net of accumulated depreciation of $397,250 and $385,731
    
    
    27,648
    
    
    
    23,480Other Assets:Escrow deposit
    
    
    110,000
    
    
    
    Investment in Mycosol
    
    
    
    
    
    
    50,000Patents, less accumulated amortization of $506,077 and $500,967, respectively
    
    
    176,305
    
    
    
    63,415Security deposits and other assets
    
    
    11,000
    
    
    
    1,625297,305
    
    
    
    115,040$
    1,436,530
    
    
    $
    1,044,666
 See accompanying notes to the consolidated financial statements. 19




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##### Table of Contents



Veridien Corporation
and Subsidiaries
Consolidated Balance Sheets - Continued
December 31, 2004 and 2003 Restated
    
    
    Restated2004
    
    
    2003Liabilities and Deficit in Stockholders EquityCurrent Liabilities:Current capital lease obligations
    
    $
    
    
    
    $
    6,022Notes payable
    
    
    289,347
    
    
    
    878,845Convertible debentures due
    
    
    449,000
    
    
    
    304,291Accounts payable
    
    
    275,505
    
    
    
    890,596Accrued compensation
    
    
    8,480
    
    
    
    2,692Accrued interest
    
    
    948,032
    
    
    
    1,156,537Other accrued liabilities
    
    
    71,129
    
    
    
    23,221Customer deposits
    
    
    
    
    
    
    62,064Due to stockholders
    
    
    
    
    
    
    34,039Total current liabilities
    
    
    2,041,493
    
    
    
    3,358,307Long-term liabilities:Convertible debentures
    
    
    3,506,973
    
    
    
    1,687,086Total liabilities
    
    
    5,548,466
    
    
    
    5,045,393Deficit in
stockholders equity:Undesignated Preferred Stock $.001 par value, 25,000,000 shares authorized
Convertible Redeemable Preferred Stock, $10 par value; 100,000
authorized, 6,000 issued and outstanding at December 31, 2004
and 2003
    
    
    60,000
    
    
    
    60,000Series B Preferred Stock, $.001 par value, 245,344 authorized, 174,219
issued and outstanding at December 31, 2004
and 2003
    
    
    175
    
    
    
    175Common Stock, $.001 par value; 300,000,000 shares authorized, 214,369,622
and 205,745,290 shares issued and outstanding at December 31, 2004
and 2003
    
    
    214,370
    
    
    
    205,745Additional paid-in capital
    
    
    31,394,443
    
    
    
    30,877,549Accumulated deficit
    
    
    (35,780,924
    )
    
    
    (35,144,196
    )Total stockholders deficit
    
    
    (4,111,936
    )
    
    
    (4,000,727
    )$
    1,436,530
    
    
    $
    1,044,666
 See accompanying notes to the consolidated financial statements. 20




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##### Table of Contents



Veridien Corporation
and Subsidiaries
Consolidated Statements of Operations
Years ended December 31, 2004 and 2003 Restated
    
    
    Restated2004
    
    
    2003Revenues  sales of products
    
    $
    1,150,154
    
    
    $
    1,661,911- license fees
    
    
    652,000
    
    
    
    1,802,154
    
    
    
    1,661,911Operating costs and expenses:Cost of sales
    
    
    675,927
    
    
    
    948,215General and administrative
    
    
    923,255
    
    
    
    1,238,098Research and development
    
    
    163,512
    
    
    
    101,830Research and development  Mycosol
    
    
    325,000
    
    
    
    2,087,694
    
    
    
    2,288,143Loss from operations
    
    
    (285,540
    )
    
    
    (626,232
    )Other income (expense):Interest expense
    
    
    (443,515
    )
    
    
    (384,208
    )Realized gain (loss) on marketable securities
    
    
    (9,694
    )
    
    
    (72,768
    )Unrealized gain on marketable securities
    
    
    98,523
    
    
    
    66,303Gain on extinguishment of debt
    
    
    
    
    
    
    101,700Interest and dividend income
    
    
    3,498
    
    
    
    331(351,188
    )
    
    
    (288,642
    )Net loss
before income tax
    
    $
    (636,728
    )
    
    $
    (914,874
    )Income tax
    
    
    
    
    
    
    Net loss
    
    $
    (636,728
    )
    
    $
    (914,874
    )Net loss per common share
    
    $
    (.00
    )
    
    $
    (.00
    )Weighted average shares outstanding
    
    
    209,484,117
    
    
    
    191,916,724
 See accompanying notes to the consolidated financial statements. 21




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##### Table of Contents



Veridien Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIT
Years ended December 31, 2004 and 2003 (Restated) Number of SharesConvertibleRedeemable
    
    
    Series B
    
    
    
    
    
    
    Capital
    
    
    Accumulated
    
    
    StockholdersPreferred
    
    
    Preferred
    
    
    Common
    
    
    Stock
    
    
    Deficit
    
    

Equity
(Deficit)Balances at
January 1, 2003
    
    
    6,000
    
    
    
    174,219
    
    
    
    183,274,887
    
    
    $
    30,107,123
    
    
    $
    (34,229,321
    )
    
    $
    (4,122,198
    )Conversion of convertible
debentures
    
    
    
    
    
    
    
    
    
    
    15,660,763
    
    
    
    805,295
    
    
    
    
    
    
    
    805,295Common stock issued for- services
    
    
    
    
    
    
    
    
    
    
    1,409,640
    
    
    
    51,794
    
    
    
    
    
    
    
    51,794- partial conversion of
loan & security
agreements
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    6,200
    
    
    
    
    
    
    
    6,200- purchase of HQNT securities
    
    
    
    
    
    
    
    
    
    
    5,000,000
    
    
    
    172,667
    
    
    
    
    
    
    
    172,667Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (    914,874
    )
    
    
    (  914,874
    )Balances at
December 31, 2003
    
    
    6,000
    
    
    
    174,219
    
    
    
    205,745,290
    
    
    
    31,143,079
    
    
    
    (35,144,195
    )
    
    
    (4,001,116
    )Conversion of convertible
debentures
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    25,000
    
    
    
    
    
    
    
    25,000Common stock issued for- cash received for
exercise of warrants
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    30,000
    
    
    
    
    
    
    
    30,000- payment of debt
    
    
    
    
    
    
    
    
    
    
    1,552,272
    
    
    
    77,614
    
    
    
    
    
    
    
    77,614- services
    
    
    
    
    
    
    
    
    
    
    2,346,254
    
    
    
    143,295
    
    
    
    
    
    
    
    143,295- HQNT inventory deposit
    
    
    
    
    
    
    
    
    
    
    3,225,806
    
    
    
    250,000
    
    
    
    
    
    
    
    250,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (     636,729
    )
    
    
    (    636,729
    )Balances at December 31, 2004
    
    
    6,000
    
    
    
    174,219
    
    
    
    214,369,622
    
    
    
    31,668,988
    
    
    $
    (35,780,924
    )
    
    $
    (4,111,936
    )Less par values:Convertible redeemable preferred
    
    
    (60,000
    )Series B preferred
    
    
    (175
    )Common
    
    
    (   214,370
    )Paid in capital
    
    $
    31,394,443
 See accompanying notes to the consolidated financial statements. 22




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##### Table of Contents



Veridien Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 2004 and 2003 Restated
    
    
    Restated2004
    
    
    2003Cash flows from operating activitiesNet (loss)
    
    $
    (636,728
    )
    
    $
    (914,874
    )Adjustments to reconcile net (loss) to net cash used by operating activities:Depreciation and amortization
    
    
    16,629
    
    
    
    12,690Common stock issued for services
    
    
    143,295
    
    
    
    51,794Realized (gain) losses on sales of marketable securities
    
    
    9,694
    
    
    
    72,768Unrealized (gain) losses on marketable securities
    
    
    (98,523
    )
    
    
    (66,303
    )Marketable securities received as revenue
    
    
    (652,000
    )
    
    
    (581,322
    )Writeoff of Mycosol investment in 2004 consolidation
    
    
    50,000
    
    
    
    Common stock issued for interest expense
    
    
    
    
    
    
    174,586Proceeds from sale of marketable securities
    
    
    998,528
    
    
    
    661,924Purchases of marketable securities
    
    
    
    
    
    
    (165,700
    )Change in:Accounts receivable
    
    
    (110,355
    )
    
    
    27,882Inventory
    
    
    (206,202
    )
    
    
    101,188Due from stockholders
    
    
    69,764
    
    
    
    Marketable securities
    
    
    62,134
    
    
    
    Other current assets
    
    
    (3,950
    )
    
    
    (1,084
    )Accounts payable
    
    
    (65,377
    )
    
    
    330,713Accrued liabilities
    
    
    393,302
    
    
    
    60,719Customer deposits
    
    
    (62,064
    )
    
    
    20,658Due to shareholders
    
    
    (34,039
    )
    
    
    (67,701
    )Net cash (used) by operating activities
    
    
    (125,892
    )
    
    
    (282,062
    )Cash flow from investing activities:Investment in Mycosol
    
    
    
    
    
    
    (50,000
    )Deposits
    
    
    (9,375
    )
    
    
    Purchases of property and equipment
    
    
    (15,687
    )
    
    
    Escrow deposit
    
    
    (110,000
    )
    
    
    Patent development
    
    
    (118,000
    )
    
    
    (50,000
    )Net cash (used) provided by investing activities
    
    
    (253,062
    )
    
    
    (100,000
    )Cash flow from financing activities:Proceeds from convertible debentures
    
    
    380,000
    
    
    
    291,775Proceeds from exercise of options
    
    
    30,000
    
    
    
    Net payments on capital leases and debt
    
    
    (6,525
    )
    
    
    (5,150
    )Net proceeds from borrowings
    
    
    
    
    
    
    107,895Net cash provided by financing activities
    
    
    403,475
    
    
    
    394,520Net increase (decrease) in cash and equivalents
    
    
    24,521
    
    
    
    12,458Cash and equivalents, beginning of year
    
    
    101,506
    
    
    
    89,048Cash and equivalents, end of year
    
    $
    126,027
    
    
    $
    101,506
 See accompanying notes to the consolidated financial statements. 23




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##### Table of Contents



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of Veridiens significant accounting policies consistently applied in the preparation of
the accompanying consolidated financial statements follows. 1.Organization, Business and Control Viral Control Technology, Inc. was formed in Delaware on August 10, 1988. Viral Control was
acquired in a reverse merger by Valencia Enterprises, Inc., and changed its name to Veridien
Corporation on November 8, 1991. Veridien was founded to develop disinfectants and sterilants. Veridiens research and development
efforts now focus on further development of infection control chemicals and on devices, both
medical and commercial, which utilize Veridiens liquid products and are in keeping with the
corporate philosophy of environmentally friendly products. To this end, Veridiens VIRAHOL®/
VIRAGUARD® formula is now marketed in liquid form, in an antiseptic hand gel, and in towelettes for
both hand and hard surface applications. Veridien expanded its product offerings to
include unique Healthy Lifestyle products including sun protection products. 2.Principles of Consolidation The accompanying financial statements include the accounts of Veridien and its wholly-owned
subsidiaries. Veridiens Consolidated Financial Statements also include the accounts of Mycosol,
Inc., a Variable Interest Entity where Veridien is the primary beneficiary because of its financial
control. All significant intercompany balances and transactions with consolidated subsidiaries are
eliminated in our consolidated financial statements. Where Veridiens ownership interest is less
than 100 percent, the minority ownership interests are reported in our Consolidated Statements of
Financial Position as a liability. 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.Cash Equivalents Veridien considers all highly liquid instruments purchased with maturities of three months or less
to be cash equivalents. 5. Revenue Recognition All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is
complete, the price is fixed or determinable and collectibility is reasonably assured. Revenue
from product sales is recognized when the products are shipped. Revenue from licensing and service
fees during 2004 was a single occurrence from a relationship with H-Quotient (HQNT), who had
purchased Webpack, a Veridien supplier. HQNT had hired Veridien in 2003 to develop two new
products which it had planned to sell. In early 2004, H-Quotient paid for these development
services and the corresponding license to sell them with 400,000 shares of its common stock, then
valued at its fair market value of $652,000. The product development and testing was completed by
Veridien during 2004. Later in 2004, HQNT and subsidiaries changed the relationship to that of a supplier by
designing and producing packaging of some of these products for Veridien. Veridien advanced
5,000,000 of its common shares as a deposit valued at is then-fair market value of $250,000, and
this is netted on the financial statements against the $241,500 of additional deposits in the form
of HQNT stock issued by HQNT to Veridien. Veridien expects to take delivery of these new products
commencing in mid-2005. Subsequent payments by HQNT are shown as a liability, pending repayment or
delivery of goods or services by Veridien. See Note D for additional explanations of the HQNT
relationship. 6.Accounts Receivable Veridien 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. 24




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##### Table of Contents



7.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, 2004, raw
materials and finished goods amounted to $209,431 and $122,271, respectively. At December 31,
2003, raw materials and finished goods amounted to $28,035 and $97,465, respectively. 8.Marketable Securities Marketable Securities is comprised of HQNT common stock which is classified by Veridien as trading
securities, and is carried at fair market value. Changes in the fair market value are shown as
unrealized gains and losses included in the statement of operations. 9.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. 10.Patents Veridien 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. 11.Investment in Mycosol  Cost Basis During 2003, Veridien invested $50,000 in preferred stock of Mycosol, Inc. Beginning June 2004,
because Veridien became the primary funding source, Mycosol was consolidated as a Variable Interest
Entity. 12.Stock-Based Compensation Compensation cost is measured on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. The Company is aware of the requirement and provides
pro forma net income and pro forma net earnings per share disclosures for employee stock option
grants made in 1995 and subsequent years as if the fair value based method had been applied in
accordance with SFAS No. 123, Accounting for Stock Based Compensation. Veridien believes that this information is insignificant due to the fact that its effect would be
anti-dilutive due to continuing losses Veridien is experiencing. 15.Asset Impairment Veridien is required to test its other assets and intangibles with indefinate useful lives for
impairment on a periodic basis, which could have an adverse effect on Veridiens consolidated
financial statements if these assets are deemed impaired. 16.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. 25




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##### Table of Contents



17.Reclassification Certain reclassifications have been made to the 2003 financial statements to be in conformity with
the 2004 presentation. 18.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. 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  GOING CONCERN The accompanying consolidated financial statements have been prepared in conformity with generally
accepted accounting principles, which contemplate Veridiens continuation as a going concern. Since
inception, Veridien has incurred losses of approximately $36 million. Veridien has a deficit in
stockholders equity of $4.1 million, a deficit in working capital
of $.9 million and is
experiencing a continuing cash flow deficiency. During 2004, Veridiens
operating activities resulted in cash outflows of $125,892. In addition,
Veridien used $118,000 for patent development, made a $15,687 addition to property and
equipment used $119,375 for deposit and made $6,525 in capital lease
payments. In order to fund these cash outflows, Veridien received net proceeds of $380,000 from
the sale of convertible debentures and $30,000 from the exercise of
warrants. These proceeds, together with the cash balance at the beginning of the year, provided Veridiens
cash needs, resulting in a net cash increase of $24,521 during 2004. Veridien 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 2005. In addition, Veridien 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 Veridien and that such operations will be profitable and provide
adequate cash flows. Further, Veridiens ability to continue its operations and successfully defend
itself against potential claims or assessments is dependent on its 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 Veridien be unable to continue in existence. NOTE C  CONSOLIDATION OF MYCOSOL In December 2003, the FASB issued revised FASB Interpretation 46 (FIN 46), Consolidation of
Variable Interest Entities. FIN 46 requires that a company that holds variable interests in an
entity consolidate the entity if the companys interest in the variable interest entity (VIE) is
such that the company will absorb a majority of the VIEs expected losses and/or receive a majority
of the VIEs expected residual returns, if they occur. In such cases, the company is the primary
beneficiary of the VIE. FIN 46 also requires additional disclosures by primary beneficiaries and
other significant variable interest holders. Effective June 7, 2004, Veridien reached an understanding to create an alliance with Mycosol, Inc.,
an unrelated drug and chemical development company. Veridien obtained the rights to acquire 37.5%
of Mycosol based on future purchase of preferred stock. Veridien had no common stock equity
ownership in Mycosol at December 31, 2004 but had a right to acquire a further 12.5% of Mycosol
through a common share purchase from the Mycosol principals. Veridien
has other agreements with the Mycosol principals and Mycosol
shareholders which would allow it to obtain a majority interest in
Mycosol. Veridien is considered
the primary beneficiary as it stands to absorb the majority of the VIEs expected losses as the
equity owners have insufficient capital invested to absorb the expected losses. 26




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##### Table of Contents



Mycosols business purpose is to bring to market mutually beneficial products that utilize existing
technologies of Veridien and new technologies being developed by Mycosol. It is anticipated that
both Veridien and Mycosol will provide logistic support to each other. At December 31, 2004, Veridien has advanced $470,000 of loans that are convertible into Mycosol
preferred stock and has also purchased $125,000 of preferred stock. All Mycosol preferred stock is
convertible into Mycosol common stock. These amounts as well as a $100,000 fee paid by Mycosol to
Veridien for management services have been eliminated in consolidation. The accounts of the VIE that have consolidated with Veridien and subsidiaries at December 31, 2004
are as follows: Cash
    
    $
    3,000Inventory  raw materials
    
    
    58,000Property and equipment
    
    
    14,000Deposits and other
    
    
    11,000Patents  pending
    
    
    118,000Accrued expenses
    
    
    (34,000
    )Accumulated deficit
    
    
    (70,000
    )100,000Elimination of fee paid by VIE
    
    
    100,000Research and development expenses
    
    
    325,000$
    525,000
 Veridien accounts eliminated against VIE accounts consolidated: Investment in preferred stock
    
    $
    125,000Notes receivable
    
    
    470,000Elimination of deficit in VIE
    
    
    (70,000
    )$
    525,000
 NOTE D  MARKETABLE SECURITIES Veridien owned 203,733 shares of HQNT at December 31, 2002 valued at $166,831. During 2003,
Veridien purchased 441,967 shares for $165,700 and 5,000,000 shares of Veridien common stock valued
at $172,667, and received 1,000,000 shares as payment on sales to Pacific Shores valued at
$581,322. During 2003, Veridien sold 985,400 shares for net cash proceeds of $661,924, leaving
660,300 shares valued at $475,416. Also during 2003, HQNT hired Veridien to develop two new products for HQNT. In early 2004, HQNT
issued 400,000 of its common shares to Veridien as payment for these product development and
licensing fees valued at the fair market value of the HQNT shares of $652,000. In mid-2004, HQNT
issued 344,500 shares to Veridien valued at their fair market value of $241,500 for a deposit to
purchase Veridien inventory. No inventory shipments were ever made to HQNT during 2004. Also in
mid-2004, Veridien issued 3,225,806 Veridien common shares to HQNT for a deposit towards the
manufacturing for the same two new products that HQNT had hired Veridien to develop and other
products. These shares are valued at their fair market value of $250,000. The values for the
344,500 HQNT shares ($241,500) and 3,225,806 Veridien shares ($250,000) are netted as a Veridien
other current asset ($8,500) as of December 31, 2004. Also during 2004, Veridien sold 703,369 HQNT shares for net cash proceeds of $998,528 and received
a stock dividend of 18,001 shares, leaving 719,432 shares at their fair market value of $395,687 at
December 31, 2004. The remaining $1,396 in the carrying value of marketable securities as of
December 31, 2004 is 10,741 shares of HNST common stock. NOTE E - NOTES PAYABLE 27




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##### Table of Contents



NOTE E  NOTES PAYABLE In October 1995, Veridien secured a 10% Convertible Senior Secured Term Loan of up to $2,500,000
with a mortgage company. During 2003, the holder converted $6,200 of debt into 400,000 common
shares. Originally the loan agreement granted the lender warrants to purchase 51% of Veridien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 substantially all assets and requires
semi-annual payments of interest only with the entire principal balance due January 10, 2006. As of
December 31, 2004, the remaining amount due was $243,342, and $210,800 of interest has accrued
under the agreement. During 2003, Veridien received a short term loan in the amount of $75,000. This loan was due on
demand with a stated interest rate of 10% per annum and was repaid
during the first quarter of 2004. At December 31, 2003, Veridien owed $472,326 as a result of the conversion of an account payable.
The note carries interest at 10% per annum and is due on demand.
This note was converted into a convertible debenture during 2004. NOTE F  CONVERTIBLE DEBENTURES During 2004 and 2003, Veridien received $380,000 and $291,775, respectively, from the sale of
convertible debentures. Interest is accrued at a rate of 8  10% per annum, compounded in full,
with various maturities from January 2005 to December 2007. 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. Maturities of convertible debentures for the next three years are as follows: 2005
    
    $
    449,0002006
    
    $
    1,046,1622007
    
    $
    2,460,811
 NOTE G  COMMITMENTS AND CONTINGENCIES Veridien 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. Veridien 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. Veridien leased office and warehouse facilities for $1,625 per month under a lease that expired
December 31, 2004. The building was sold in December 2004 and Veridien is currently on a
month-to-month lease at the previous rates while the party they sublease from negotiates more
permanent terms with the new owners. Rent expense was $19,093 and $19,500 for 2004 and 2003,
respectively. NOTE H  CONVERTIBLE REDEEMABLE PREFERRED STOCK In 1994, Veridien 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, 2004,
$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 2004 or 2003. At December 31, 2004, preferred stock dividends in
arrears totaled approximately $60,000. 28




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##### Table of Contents



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 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 Veridien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 2004, 1,000,000 warrants issued under the terms of a consulting contract with a related
party were exercised at the price of $0.03 for proceeds of $30,000. In addition, during 2004,
1,000,000 warrants were issued under the terms of a consulting contract at an exercise price of
$0.07 and 250,000 warrants expired. During 2003, 500,000 warrants were issued under the terms of an employment contact at an exercise
price of $.08 and 1,000,000 warrants were issued under the terms of a consulting contract with a
related party at an exercise price of $.05. In addition, during 2003, 5,604,539 warrants expired. As described in Note I, Veridien 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, Veridien entered into a 10% Convertible Senior Secured
Term Loan agreement. The original agreement required Veridien 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 $0.033 per common share. Veridien has no formal plans with regards to the issuance of stock warrants. Periodically, Veridien
may issue warrants to an employee or vendor. The warrants are typically issued with an exercise
price equal to fair value at issuance and are typically vested immediately. 29




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##### Table of Contents



Warrants issued and exercised are summarized as follows: ExercisePriceCommon Stock
    
    Warrants
    
    
    RangeOutstanding at January 1, 2003
    
    
    22,044,546
    
    
    
    .001 - .20Granted
    
    
    1,500,000
    
    
    
    .05 - .08Expired
    
    
    (5,604,539
    )
    
    
    .08 - .20Loan & Surety Agreement Conversion
    
    
    (400,000
    )
    
    
    .016Outstanding at December 31, 2003
    
    
    17,540,007
    
    
    
    .001 - .20Granted
    
    
    1,000,000
    
    
    
    .07Expired
    
    
    (250,000
    )
    
    
    .20Exercised
    
    
    (1,000,000
    )
    
    
    .03December 31, 2004
    
    
    17,290,007
    
    
    
    .001 - .07
 Effective December 31, 1997, the Board of Directors created the Series B Cumulative Preferred Stock
(as discussed in Note J) 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 January 10, 2006 and have
a $10 exercise price. During 2004 and 2003, none of these warrants were exercised by the holder. At
December 31, 2004, 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, 2003
    
    
    27,451
    
    
    
    
    
    
    
    550,121Outstanding at December 31, 2004
    
    
    27,451
    
    
    
    
    
    
    
    550,121Series B
    
    
    27,451
    
    
    
    
    
    
    
    550,121
 30




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##### Table of Contents



NOTE K  INCOME TAXES There is no income tax provision for 2004 and 2003 due to net operating losses for which no benefit
is currently available. Veridien has net operating loss carryforwards of approximately $22,400,000
at December 31, 2004, available to offset future taxable income from 2005 through 2025. A reconciliation of income tax expense at the federal statutory rate of 35% to actual tax expense
is as follows: Years ended December 31,
    
    2004
    
    
    2003Income taxes (benefit) at federal statutory rates
    
    $
    (263,000
    )
    
    $
    (320,200
    )Losses in VIE not included in consolidated return
    
    
    148,800
    
    
    
    Increase in valuation allowance
    
    
    114,200
    
    
    
    320,200Other
    
    
    
    
    
    
    Income tax expense
    
    $
    
    
    
    $
    
 The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets as of December 31, 2004 and 2003 are as follows: 2004
    
    
    2003Deferred tax assetsNet operating loss carryforwards
    
    $
    7,840,100
    
    
    $
    7,847,000Permanent writedown of investment not recognized for tax
    
    
    121,100
    
    
    
    Deferred tax assets
    
    
    7,961,200
    
    
    
    7,847,000Less valuation allowance
    
    
    (7,961,200
    )
    
    
    (7,847,000
    )Deferred tax assets, net of valuation allowance
    
    $
    
    
    
    $
    
 NOTE L  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest amounted to $562 and $1,309 for 2004 and 2003, respectively. Non-cash investing and financing activities: during 2004, Veridien issued 500,000 common shares in
conversion of convertible securities of $25,000, 3,225,806 common shares to HQNT for a purchase
deposit of $250,000 (see Note D), and 1,552,272 common shares to extinguish debt of $77,614.
Veridien issued $2,080,811 of convertible debentures (Note G) in exchange for $472,387 of existing
notes payable, $549,714 of accounts payable, $587,495 of accrued interest and $471,215 of existing
convertible debentures. During 2003, Veridien 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 $174,586, 5,000,000
common shares in exchange for marketable securities of $172,667, and 1,409,640 common shares in
exchange for services of $51,794. NOTE M  RELATED PARTY TRANSACTIONS Veridien has entered into numerous financing transactions with Dunvegan Mortgage Corporation, a
corporation of which Veridiens President and CEO is an officer and a director. These transactions
are detailed elsewhere in these footnotes. 31




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##### Table of Contents



During 2004 and 2003, Veridien utilized the services of a management company which has as its
senior director and officer the individual who serves as Veridiens President/CEO and a director to
assist with administrative and organizational functions of the Company. Veridien incurred expenses
of $150,122 and $122,770 in 2004 and 2003, respectively for professional services and related
costs. At December 31, 2004, these fees remain unpaid in the amount of $31,573 and are included in
accounts payable. During the fourth quarter 2003, a company which has as its senior officer and director the
individual who serves as Veridiens President /CEO and a director, advanced a short term loan in
the amount of $75,000 to Veridien. This loan with interest accrued at 10% was repaid during the
first quarter of 2004. During 2004, Veridien utilized the consulting services of the Chairman of the Veridien Board of
Directors to assist with corporate and sales functions. Compensation in cash of $30,000 and 400,000
common shares were paid. NOTE N  MAJOR CUSTOMERS During 2004, Veridiens sales to six customers comprised 73% of total sales and range from 2% to 40
% each. During 2003, Veridiens sales to eight customers comprised 75% of total sales and range from 2% to
35% each. Thirty-five percent of sales were exchanged for marketable securities (See Note D). NOTE O  RESTATEMENT OF 2003 In 2003, Veridien reported some convertible debenture conversions in error. Veridien underreported
interest expense by $206,537 and did not report a gain from debt extinguishment of $101,700. In 2003, Veridien overstated a realized gain on sale of marketable securities by $73,000 which
should have been credited to additional paid in capital. These corrections have been reflected in the 2003 consolidated financial statements and added an
additional loss of $177,837 to the 2003 net loss. There
were errors and misstatements in Restatement 1 of the December 31, 2003 financials
discovered in 2005 which have been corrected. See the notes below. As OriginallyAs of December 31, 2003
    
    Reported
    
    
    Corrections
    
    
    As RestatedTotal Assets
    
    $
    1,044,666
    
    
    $
    
    
    
    $
    1,044,666Total Liabilities
    
    
    5,045,393
    
    
    
    
    
    
    
    5,045,393Stockholders deficitPar and paid in capital
    
    
    30,965,243
    
    
    
    177,836
    
    
    
    31,143,079Accumulated deficit at December 31, 2002
    
    
    (34,229,321
    )
    
    
    
    
    
    
    (34,229,321
    )Net loss for 2003
    
    
    (737,037
    )
    
    
    (177,836
    )
    
    
    (914,874
    )Basic and diluted net loss per share
    
    $
    (.00
    )
    
    
    
    
    
    $
    (.00
    )Weighted average common shares outstanding
    
    
    191,916,724
    
    
    
    
    
    
    
    191,916,724Changes made:- convertible debenture conversion pricing errors,
charged as interest expense
    
    
    
    
    
    
    (206,869
    )- previously unreported gain on debt extinguishment
    
    
    
    
    
    
    101,700- adjustment to gain (loss) of marketable securities
    
    
    
    
    
    
    (  72,667
    )Net increase in reported loss
    
    
    
    
    
    $
    (177,836
    )
 NOTE P - RESTATEMENT OF 2004 In early 2004, H-Quolient, Inc.
(HQNT) issued 400,000 of its common shares to Veridien as payment for
products developed and licensing fees valued at the fair market value
of the HQNT shares of $652,000. In 2004, Veridien recorded the stock
in error at a discounted value of $456,000 and should have reported
it using a non-impaired marketable securities value of $652,000; a
difference of $196,000. This recording error resulted in errors in
the subsequent calculation of realized and unrealized gains and
losses for 2004. The corrected Realized (Loss) on investment ($9,694)
replaces the previously reported Realized Gain of $216,173. The
corrected Unrealized Gain of $98,523 replaces the previously reported
Unrealized (Loss) of ($52,409). The summation of the corrections is a
reduction in the previously reported loss of ($757,793) by $121,065
to ($636,728). Also see Note D- Marketable Securities for more
explanation on 2004 end of year value. 32




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##### Table of Contents



NOTE P  RESTATEMENT OF 2004 As OriginallyAs of December 31, 2004
    
    Reported
    
    
    Corrections
    
    
    As RestatedAssetsCash
    
    $
    126,027
    
    
    $
    
    
    
    $
    126,027Accounts receivable
    
    
    180,678
    
    
    
    
    
    
    
    180,678Inventory
    
    
    331,702
    
    
    
    
    
    
    
    331,702Marketable securities
    
    
    167,225
    
    
    
    229,858
    
    
    
    397,083Other current assets
    
    
    67,587
    
    
    
    8,500
    
    
    
    76,087Property and equipment, net
    
    
    27,648
    
    
    
    
    
    
    
    27,648Long-term portion of marketable securities
    
    
    108,793
    
    
    
    (108,793
    )
    
    
    Other assets, net
    
    
    297,305
    
    
    
    
    
    
    
    297,305Total Assets
    
    $
    1,306,965
    
    
    $
    129,565
    
    
    $
    1,436,530LiabilitiesAccounts payable
    
    $
    275,505
    
    
    
    
    
    
    $
    275,505Notes payable
    
    
    289,347
    
    
    
    
    
    
    
    289,347Convertible debentures
    
    
    3,955,973
    
    
    
    
    
    
    
    3,955,973Accrued liabilities
    
    
    1,027,641
    
    
    
    
    
    
    
    1,027,641Customer deposits
    
    
    160,855
    
    
    
    (160,855
    )
    
    
    Total Liabilities
    
    
    5,709,321
    
    
    
    (160,855
    )
    
    
    5,548,466Stockholders deficitPar and paid in capital
    
    
    31,499,633
    
    
    
    169,355
    
    
    
    31,668,988Accumulated deficit at December 31, 2003
    
    
    (35,144,196
    )
    
    
    
    
    
    
    (35,144,196
    )Net loss for 2004
    
    
    (757,793
    )
    
    
    121,065
    
    
    
    (636,728
    )Total Stockholders Deficit
    
    
    (4,402,356
    )
    
    
    290,420
    
    
    
    (4,111,936
    )$
    1,306,965
    
    
    $
    129,565
    
    
    $
    1,436,530Changes made:- marketable securities pricing errors
    
    
    
    
    
    $
    121,065Net decrease in reported loss
    
    
    
    
    
    $
    121,065
 NOTE Q  SUBSEQUENT EVENTS On February 28, 2005, Veridien amended its previously reported agreement with Mycosol, Inc. and
Mycosols three founding shareholders (see Form 10-QSB June 30, 2004) by increasing the maximum
Series A Preferred Stock subscription amount available to the Company from $1,500,000 to
$1,875,000. On February 28, 2005, Veridien exercised its option with Mycosol, Inc. and their three founding
shareholders to exchange 6,000,000 shares of its common stock (issued to the three founding
shareholders of Mycosol) for 687,500 shares of Mycosol common stock. On March 7, 2005, an unrelated third party, participating with Veridien as permitted under
Veridiens agreement with Mycosol, Inc. and their three founding shareholders acquired 458,333
shares of the common stock of Mycosol, Inc. from Veridien. Veridien agreed with the unrelated
third party to permit such third person at their option to (i) exchange until December 31, 2005
their 458,333 common shares of Mycosol, Inc. for 9,803,992 Veridien common shares; or if not so
exchanged (ii) commencing January 1, 2007 for a period of 3 months after notice by Veridien, to Put
to Veridien 229,167 common shares of Mycosol, Inc. for $250,000 payable in cash or Veridiens
common stock at Veridiens option. On March 8, 2005, Veridien acquired a further 250,000 shares of Mycosols Series A Preferred Stock
for $250,000. 33




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##### Table of Contents



Item 8A Controls and Procedures
   
    
    Some Convertible Debenture conversions were reported in error. We underreported
interest expense by $ 206,537 and did not report a gain from debt extinguishment of
$ 101,700.
    
    We overstated a realized gain on sale of marketable securities by $ 72,667 which
should have been credited to additional paid in capital
     
    
    On March 30, 2005 the Board of Directors directed the Audit Committee to begin the
process of seeking alternative auditors for the Company and to engage such alternative firm
as they deemed acceptable. There were no disagreements with the Companys auditors CCMG,
on any matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedures, which disagreements, if not resolved to the satisfaction of
CCMG would have caused it to make reference to such disagreements in its reports. The
decision of the Board to change auditors was made on the basis of their belief that the
Company required the expertise and experience of an auditing firm with broader experience
in the auditing of public companies and compliance with current SEC reporting requirements,
than that of the Companys previous auditors (CCMG).
  
    
    At the direction of Management, financial staff attended training provided by the SEC
Institute in June 2005. Attendance at this seminar was designed to ensure staff are
current on changes in SEC policy and requirements. It is the intention of management that
this type of professional development be supported and continued by the Company.
    
    On June 27, 2005 Mr. Russell Van Zandt, Chairman of the Veridien Board of Directors, at
the request of the Audit Committee agreed to take on the additional operational
responsibility of Chief Financial Officer of the Company. Mr. Van Zandt will manage and
oversee the accounting functions of the Company.
    
    Management has adopted a policy and procedure whereby financial management, when
dealing with the reporting of transactions that involve complex and unusual accounting
matters, will formally research relevant accounting literature relating to the issues and,
if necessary, retain the services of a qualified certified public accountant, other than
our independent auditor, to assist us with respect to accounting for the transaction(s).
  
 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. FentonSheldon C. Fenton, C.E.O./PresidentDate
    

November
2, 2005By
    
    /s/ Russell Van Zandt.Russell Van Zandt, C.F.O.Date
    

November
2, 2005
 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. FentonSheldon C. Fenton, C.E.O. & PresidentDate
    

November
2, 2005By
    
    /s/ Russell D. Van ZandtRussell D. Van Zandt, C.F.O. & Chairman of the Board of DirectorsDate
    

November
2, 2005By
    
    /s/ Rene A. GareauRene A. Gareau, Vice Chairman of the Board of DirectorsDate
    

November
2, 2005
 34