##### 



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-QSB

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[X]   |  | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|     
|      |  | For the quarterly period ended June 30, 2002                                            
|     
|[   ] |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|     
|      |  | For the transition period from
 to                                                      
|     
|      |  | Commission file number 000-25555                                                        

Veridien Corporation

---

(Name of Small Business Issuer in its charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 59-3020382                       
|                                                               |  |                                  
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (IRS Employer Identification No.)
|                                                              
|2875 MCI Drive, Suite B, Pinellas Park, Florida                |  | 33782                            
|                                                               |  |                                  
|(Address of principal executive offices)                       |  | (Zip Code)                       

(727) 576-1600

---

(Issuers telephone number, including Area Code)


Indicate by check mark whether the issuer: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [   ]





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##### 



TABLE OF CONTENTS

|                                                                                                                                          |  |      
|----------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                                                          |  | Pages
|PART I FINANCIAL INFORMATION                                                                                                              |  |      
|Item 1. Financial Statements                                                                                                              |  | 3-6  
|Notes to Financial Statements                                                                                                             |  | 7-9  
|                                                                                                                                         
|Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations                                             |  | 10-16
|                                                                                                                                         
|PART II OTHER INFORMATION                                                                                                                 |  |      
|Item 1. Legal Proceedings                                                                                                                 |  | 17   
|                                                                                                                                         
|Item 2. Changes in
Securities                                                                                                             |  | 17   
|                                                                                                                                         
|Item 5. Other Information                                                                                                                 |  | 17   
|                                                                                                                                         
|Item 6. Exhibits and Report on Form 8-K                                                                                                   |  |      
|(a) Exhibit 3.9  Certificate of Amendment of Certificate of Incorporation                                                                |  | 19   
|(b) Exhibit 99.1  Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | 20   
|(c) Exhibit 99.2  Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | 21   

2



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##### 



PART I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Veridien Corporation
and Subsidiaries

Consolidated Balance Sheets
(Unaudited)
June 30, 2002 and December 31, 2001

|                              |                                                                             |                      |         |         |               |  |                   |         |           |  | 
|----------------------------- | --------------------------------------------------------------------------- | -------------------- | ------- | ------- | ------------- |  | ----------------- | ------- | --------- |  | 
|                              |                                                                             |                      |         |         | June 30, 2002 |  | December 31, 2001
|                              |                                                                             |                      |         |         |               |  |                  
|                              |                                                                             |                      | Assets  |         |               |  |                   |         |           |  | 
|Current Assets:               |                                                                             |                      |         |         |               |  |                   |        
|                              | Cash                                                                        |                      | $       | 70,184  |               |  | $                 | 7,219   |          
|                              | Accounts receivable  trade                                                 |                      |         |         |               |  |                   |         |          
|                              | Less allowance for doubtful account of
$52,980 and $46,900 respectively     |                      |         | 189,862 |               |  |                   | 158,127 |          
|                              | Inventory                                                                   |                      |         | 448,492 |               |  |                   | 586,313 |          
|                              | Marketable securities                                                       |                      |         | 217,120 |               |  |                   | 124,500 |          
|                              | Prepaid expenses and other current assets                                   |                      |         | 18,668  |               |  |                   | 54,728  |          
|                              |                                                                             |                      |         |         |               |  |                   |        
|                              |                                                                             | Total current assets |         |         | 944,326       |  |                   |         | 930,887   | 
|Property and equipment:       |                                                                             |                      |         |         |               |  |                   |        
|                              | Furniture and fixtures                                                      |                      |         | 390,211 |               |  |                   | 390,211 |          
|                              | Leasehold improvements                                                      |                      |         | -0-     |               |  |                   | -0-     |          
|                              |                                                                             |                      |         |         |               |  |                   |        
|                              |                                                                             |                      | 390,211 |         |               |  | 390,211           |        
|Less accumulated depreciation |                                                                             |                      | 370,950 |         |               |  | 364,560           |        
|                              |                                                                             |                      |         |         |               |  |                   |        
|                              |                                                                             |                      | 19,261  |         |               |  | 25,651            |        
|Other Assets:                 |                                                                             |                      |         |         |               |  |                   |        
|                              | Investment in common stock, cost basis                                      |                      |         | -0-     |               |  |                   | 64,500  |          
|                              | Patents less accumulated amortization
of $495,007 and $493,202 respectively |                      |         | 19,375  |               |  |                   | 21,179  |          
|                              | Security deposits and other assets                                          |                      |         | 33,875  |               |  |                   | 37,022  |          
|                              |                                                                             |                      |         |         |               |  |                   |        
|                              |                                                                             |                      | 53,250  |         |               |  | 122,701           |        
|                              |                                                                             |                      |         |         |               |  |                   |        
|                              |                                                                             | Total assets         |         | $       | 1,016,837     |  |                   | $       | 1,079,239 | 
|                              |                                                                             |                      |         |         |               |  |                   |        

See accompanying notes to the financial statements.

3



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##### 



Veridien Corporation
and Subsidiaries

Consolidated Balance Sheets  Continued
(Unaudited)
June 30, 2002 and December 31, 2001

|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                   |           |           |            |  
|-------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------- | ------------------------- | ----------------------------------------------- | --------- | ------------- | ---------- | ----------------- | --------- | --------- | ---------- | -
|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           | June 30, 2002 |            | December 31, 2001
|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  
|                                 |                                                                                                                                                                                                                                      |                                        |                           | Liabilities and Deficit in Stockholders Equity |           |               |            |                   |           |           |            |  
|Current liabilities:             |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  
|                                 |                                                                                                                                                                                                                                      | Current capital lease obligations      |                           | $                                               | 4,760     |               |            | $                 | 5,886     |          
|                                 |                                                                                                                                                                                                                                      | Note payable                           |                           |                                                 | 345,348   |               |            |                   | 343,792   |          
|                                 |                                                                                                                                                                                                                                      | Convertible debentures due             |                           |                                                 | 100,000   |               |            |                   | 100,000   |          
|                                 |                                                                                                                                                                                                                                      | Accounts payable                       |                           |                                                 | 1,490,692 |               |            |                   | 1,257,102 |          
|                                 |                                                                                                                                                                                                                                      | Accrued compensation                   |                           |                                                 | 10,350    |               |            |                   | 6,506     |          
|                                 |                                                                                                                                                                                                                                      | Accrued interest                       |                           |                                                 | 824,003   |               |            |                   | 684,968   |          
|                                 |                                                                                                                                                                                                                                      | Other accrued liabilities              |                           |                                                 | 22,040    |               |            |                   | 23,719    |          
|                                 |                                                                                                                                                                                                                                      | Customer deposits                      |                           |                                                 | 10,007    |               |            |                   | 20,327    |          
|                                 |                                                                                                                                                                                                                                      | Due to stockholders                    |                           |                                                 | 50,495    |               |            |                   | 49,463    |          
|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  
|                                 |                                                                                                                                                                                                                                      |                                        | Total current liabilities |                                                 |           | 2,857,695     |            |                   |           | 2,491,763 |           
|Long-term liabilities:           |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  
|                                 |                                                                                                                                                                                                                                      | Capital lease obligations less current |                           |                                                 | 8,699     |               |            |                   | 11,173    |          
|                                 |                                                                                                                                                                                                                                      | Convertible debentures                 |                           |                                                 | 2,086,096 |               |            |                   | 2,162,500 |          
|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  
|                                 |                                                                                                                                                                                                                                      |                                        |                           | Total long-term liabilities                     |           |               | 2,084,795  |                   |           |           | 2,173,673  |  
|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  
|                                 |                                                                                                                                                                                                                                      |                                        |                           | Total liabilities:                              |           |               | 4,952,490  |                   |           |           | 4,665,436  |  
|Deficit 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
and 6,000 issued and outstanding at
June 30, 2002 and December 31, 2001 |                                        |                           | 60,000                                          |           |               |            | 60,000            |          
|                                 | Series B Preferred Stock, $.001 par value, 245,344
Authorized, 174,219 and 174,219 issued and
outstanding at June 30, 2002 and December 31, 2001                                                                                     |                                        |                           | 175                                             |           |               |            | 175               |          
|                                 | Common Stock  $.001 par value; 300,000,000 shares
authorized, 179,316,675 and 174,179,487 shares
issued and outstanding at June 30, 2002 and
December 31, 2001                                                                      |                                        |                           | 179,317                                         |           |               |            | 174,181           |          
|                                 | Additional paid-in capital                                                                                                                                                                                                           |                                        |                           | 29,779,993                                      |           |               |            | 29,574,065        |          
|                                 | Common stock warrants                                                                                                                                                                                                                |                                        |                           | 26,399                                          |           |               |            | 26,399            |          
|                                 | Accumulated deficit                                                                                                                                                                                                                  |                                        |                           | (33,416,017                                     | )         |               |            | (31,342,593       | )        
|                                 | Current period profit/(loss)                                                                                                                                                                                                         |                                        |                           | (560,520                                        | )         |               |            | (2,073,424        | )        
|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  
|                                 |                                                                                                                                                                                                                                      |                                        | (3,930,653                | )                                               |           |               | (3,581,197 | )                
|                                 | Stock subscriptions receivable                                                                                                                                                                                                       |                                        |                           | (5,000                                          |           |               |            | (5,000            | )        
|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  
|                                 |                                                                                                                                                                                                                                      |                                        |                           | Total stockholders deficit                     |           |               | (3,935,653 | )                 |           |           | (3,586,197 | )
|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  
|                                 |                                                                                                                                                                                                                                      | $                                      | 1,016,837                 |                                                 |           | $             | 1,079,239  |                  
|                                 |                                                                                                                                                                                                                                      |                                        |                           |                                                 |           |               |            |                  

See accompanying notes to financial statements.

4



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##### 



Veridien Corporation
and Subsidiaries

Consolidated Statements of Operations
(Unaudited)

|                                 |                                         |   |                    |         |                  |   |             |          |      |   |             |          |   |   |             |          |  
|-------------------------------- | --------------------------------------- | - | ------------------ | ------- | ---------------- | - | ----------- | -------- | ---- | - | ----------- | -------- | - | - | ----------- | -------- | -
|                                 |                                         |   | Three Months Ended |         | Six Months Ended
|                                 |                                         |   | June 30,           |         | June 30,        
|                                 |                                         |   |                    |         |                 
|                                 |                                         |   | 2002               |         | 2001             |   | 2002        |          | 2001
|                                 |                                         |   |                    |         |                  |   |             |          |     
|Sales                            |                                         | $ | 282,362            |         |                  | $ | 463,673     |          |      | $ | 567,155     |          |   | $ | 585,890     |         
|Operating costs and expenses:    |                                         |   |                    |         |                  |   |             |          |      |   |             |          |   |   |             |         
|                                 | Cost of sales                           |   |                    | 183,935 |                  |   |             | 307,324  |      |   |             | 317,761  |   |   |             | 389,043  |  
|                                 | General, selling, and
administrative    |   |                    | 329,166 |                  |   |             | 408,719  |      |   |             | 699,619  |   |   |             | 810,477  |  
|                                 | Research and development                |   |                    | 53,429  |                  |   |             | 11,799   |      |   |             | 79,403   |   |   |             | 37,146   |  
|                                 |                                         |   |                    |         |                  |   |             |          |      |   |             |          |   |   |             |         
|                                 |                                         |   | 566,530            |         |                  |   | 727,842     |          |      |   | 1,096,783   |          |   |   | 1,236,666   |         
|                                 |                                         |   |                    |         |                  |   |             |          |      |   |             |          |   |   |             |         
|Loss from Operations             |                                         |   | (284,168           | )       |                  |   | (264,169    | )        |      |   | (529,628    | )        |   |   | (650,776    | )       
|Other income (expense):          |                                         |   |                    |         |                  |   |             |          |      |   |             |          |   |   |             |         
|                                 | Interest expense                        |   |                    | (80,198 | )                |   |             | (66,424  | )    |   |             | (156,143 | ) |   |             | (135,006 | )
|                                 | Interest income                         |   |                    | 49      |                  |   |             | 456      |      |   |             | 81       |   |   |             | 797      |  
|                                 | Rental income                           |   |                    | -0-     |                  |   |             | 1,846    |      |   |             | -0-      |   |   |             | 5,351    |  
|                                 | Change
in market value of securities    |   |                    | 13,570  |                  |   |             | (252,186 | )    |   |             | 13,570   |   |   |             | (252,186 | )
|                                 | Realized gain or loss                   |   |                    | -0-     |                  |   |             | -0-      |      |   |             | 35,130   |   |   |             | -0-      |  
|                                 | Realized gain or loss on sale of
assets |   |                    | 11,970  |                  |   |             | (21,834  | )    |   |             | 11,970   |   |   |             | (21,834  | )
|                                 | Realized sale of cash credits           |   |                    | 64,500  |                  |   |             | 129,000  |      |   |             | 64,500   |   |   |             | 129,000  |  
|                                 | Sale of labs and equipment              |   |                    | -0-     |                  |   |             | 85,000   |      |   |             | -0-      |   |   |             | 85,000   |  
|                                 |                                         |   |                    |         |                  |   |             |          |      |   |             |          |   |   |             |         
|                                 |                                         |   | 9,891              |         |                  |   | (124,142    | )        |      |   | (30,892     | )        |   |   | (188,878    | )       
|Net loss before taxes            |                                         |   | (274,277           | )       |                  |   | (388,311    | )        |      |   | (560,520    | )        |   |   | (839,654    | )       
|Income taxes                     |                                         |   | -0-                |         |                  |   | -0-         |          |      |   | -0-         |          |   |   | -0-         |         
|                                 |                                         |   |                    |         |                  |   |             |          |      |   |             |          |   |   |             |         
|Net loss                         |                                         | $ | (274,277           | )       |                  | $ | (388,311    | )        |      | $ | (560,520    | )        |   | $ | (839,654    | )       
|                                 |                                         |   |                    |         |                  |   |             |          |      |   |             |          |   |   |             |         
|Net loss per common share        |                                         | $ | (0.002             | )       |                  | $ | (0.003      | )        |      | $ | (0.003      | )        |   | $ | (0.006      | )       
|Weight average share outstanding |                                         |   | 178,514,576        |         |                  |   | 148,820,706 |          |      |   | 176,912,060 |          |   |   | 147,820,706 |         

See accompanying notes to financial statements.

5



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Veridien Corporation
and Subsidiaries

Consolidated Statements of Cash Flows
(Unaudited)

For the six months ended
June 30, 2002 and June 30, 2001

|                                          |                                                                                 |                                             |        |               |         |               |          |          |           |  
|----------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------- | ------ | ------------- | ------- | ------------- | -------- | -------- | --------- | -
|                                          |                                                                                 |                                             |        | June 30, 2002 |         | June 30, 2001
|                                          |                                                                                 |                                             |        |               |         |              
|Cash flows from operating activities:     |                                                                                 |                                             |        |               |         |               |          |         
|                                          | Net (loss)                                                                      |                                             | $      | (560,520      | )       |               | $        | (839,654 | )        
|                                          | Adjustments to reconcile net (loss) to net cash
(used) by operating activities: |                                             |        |               |         |               |          |          |          
|                                          |                                                                                 | Depreciation
and amortization               |        |               | 8,195   |               |          |          | 8,500     |  
|                                          |                                                                                 | Change
in market value of securities        |        |               | (13,570 | )             |          |          | -0-       |  
|                                          |                                                                                 | Stock
issuances for service                 |        |               | 61,150  |               |          |          | 63,500    |  
|                                          |                                                                                 | Realized gain/loss on marketable securities |        |               | (11,970 | )             |          |          | -0-       |  
|                                          | (Increase) decrease in:                                                         |                                             |        |               |         |               |          |          |          
|                                          |                                                                                 | Accounts receivable                         |        |               | (31,735 | )             |          |          | (214,859  | )
|                                          |                                                                                 | Licensing fees receivable                   |        |               | -0-     |               |          |          | 49,997    |  
|                                          |                                                                                 | Prepaid and other current assets            |        |               | 36,060  |               |          |          | (44,540   | )
|                                          |                                                                                 | Inventories                                 |        |               | 137,821 |               |          |          | (491,082  | )
|                                          |                                                                                 | Other assets                                |        |               | 6,756   |               |          |          | 121,651   |  
|                                          | Increase (decrease) in:                                                         |                                             |        |               |         |               |          |          |          
|                                          |                                                                                 | Accounts payable and accrued expenses       |        |               | 370,156 |               |          |          | 1,113,494 |  
|                                          |                                                                                 | Due to stockholders                         |        |               | 1,032   |               |          |          | 516       |  
|                                          |                                                                                 | Customer deposits                           |        |               | (10,320 | )             |          |          | 2,206     |  
|                                          |                                                                                 |                                             |        |               |         |               |          |         
|Net cash (used) by operating activities:  |                                                                                 |                                             | (6,945 | )             |         |               | (230,271 | )       
|Cash flow from investing activities:      |                                                                                 |                                             |        |               |         |               |          |         
|                                          | Net purchases and disposal of property and equipment                            |                                             |        | -0-           |         |               |          | 18,297   |          
|                                          |                                                                                 |                                             |        |               |         |               |          |         
|Net cash (used) by investing activities   |                                                                                 |                                             | -0-    |               |         |               | 18,297   |         
|Cash flow from financing activities:      |                                                                                 |                                             |        |               |         |               |          |         
|                                          | Proceeds from convertible debentures                                            |                                             |        | 204,000       |         |               |          | 85,000   |          
|                                          | Net payment on capital leases                                                   |                                             |        | (3,600        | )       |               |          | (3,495   | )        
|                                          | Net proceeds from borrowings                                                    |                                             |        | (130,490      | )       |               |          | 140,681  |          
|                                          |                                                                                 |                                             |        |               |         |               |          |         
|Net cash provided by financing activities |                                                                                 |                                             | 69,910 |               |         |               | 222,186  |         
|Net increase/(decrease) in cash           |                                                                                 |                                             | 62,965 |               |         |               | 10,212   |         
|Cash at beginning of year                 |                                                                                 |                                             | 7,219  |               |         |               | 20,960   |         
|                                          |                                                                                 |                                             |        |               |         |               |          |         
|Cash at end of quarter                    |                                                                                 | $                                           | 70,184 |               |         | $             | 31,172   |         
|                                          |                                                                                 |                                             |        |               |         |               |          |         

See accompanying notes to financial statements.

6



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##### 



Veridien Corporation
and
Subsidiaries

Notes to the Unaudited Interim Consolidated Financial Statements At June 30, 2002:

These unaudited interim consolidated financial statements and notes to unaudited
interim consolidated financial statements should be read in conjunction with the
financial statements and related footnotes included in the Companys Form 10Ksb
filed with the SEC in March 2002.

Note A  Summary of Significant Accounting Policies

A summary of the Companys significant accounting policies consistently applied
in the preparation of the accompanying unaudited interim consolidated financial
statements follows.

1. Principles of Consolidation

The accompanying financial statements include the accounts of the company and
its subsidiaries, each of which is wholly-owned.

2. 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.

3. Accounts Receivable

The Company uses the allowance method of accounting for doubtful accounts. The
balance is based on historical collections and managements review of the
current status of existing receivables and estimate as to their collectibility.

4. 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 June 30, 2002, raw materials and finished goods amounted to
approximately $448,492.

5. Reclassification

Certain reclassifications have been made to the December 31, 2001 audited
consolidated financial statements to be in conformity with the June 30, 2002
unaudited interim financial statements.

7



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##### 



Note A  Summary of Significant Accounting Policies  Continued

6. Net Loss Per Share

Net loss per common share is calculated by dividing the net loss by the weighted
average number of common shares outstanding during the period. Weighted average
number of common shares outstanding is calculated as the sum of the month-end
balances of shares outstanding, divided by the number of months. The weighted
average shares outstanding were 178,514,576 and 148,820,706 for the quarter
ending June 30, 2002 and 2001, respectively. Common stock equivalents (stock
options, warrants, convertible debentures and convertible redeemable preferred
stock) are not included in the weighted average number of common shares because
the effects would be anti-dilutive.

Note B  Realization of Assets

The accompanying unaudited interim consolidated financial statements of the
Company as of June 30, 2002 and for the three months and six months ended June
30, 2002 and 2001, included herein have been prepared in accordance with the
instructions for Form 10-Qsb under the Securities Exchange Act of 1934, as
amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as
amended. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and regulations
relating to interim financial statements.

In the opinion of management, the accompanying unaudited interim consolidated
financial statements of the Company reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company as of June 30, 2002, and the results of its operations and its
cash flows for the three months and six months ended June 30, 2002 and June 30,
2001, respectively. The results for the three months and six months ended June
30, 2002 are not necessarily indicative of the expected results for the full
fiscal year or any future period.

The preparation 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.

Since inception, the Company has incurred losses of approximately $34 million,
resulting primarily from research and development, sales and marketing, and
administrative expenses being substantially in excess of sales revenue.

The Company has a deficit in stockholders equity of $3.9 million, a deficit in
working capital of $1.9 million and is experiencing a continuing cash flow
deficiency. Those conditions raise substantial doubt about the Companys ability
to continue as a going concern.

The company plans to utilize its 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 operations, research and
development activities.

8



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##### 



Note B  Realization of Assets  Continued

In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon the continued operations of the
Company and that such operations will be profitable and provide adequate cash
flows. Further, the ability of the Company to continue its operations and
successfully defend itself against potential claims or assessments is dependent
on the ability to obtain additional debt and equity financing, employ cash
management techniques and aggressively market its products.

The unaudited interim consolidated financial statements do not contain any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.

Note C  Marketable Securities and Investments

On May 4, 2001 the Company exchanged cash credits with a stated value of
$129,000 for 430,000 shares of restricted common shares of H-Quotient Inc. The
Company recognized $64,500 of other income from this transaction which
represents 50% of fair market value of the shares after an estimated
marketability discount due to restrictions. The
investment in the common shares was recorded at the cost of $64,500 at December
31, 2001 and had not been recognized as a marketable security due to the
restrictions that existed on its disposition. On May 4, 2002, the
restrictions expired and the Company reclassified the shares to and
has made an adjustment in the amount of $64,500 reflect the current
market value at June 30, 2002. The shares were recorded to marketable
securities and valued at $137,600. An unrealized gain in the amount
of $64,500 was recognized for the difference between book value and
fair market value.

In February 2002 the Company realized a gain on the sale of obsolete inventory
by receipt of 18,000 common shares of Nutraceutical Clinical Laboratories
International, Inc. (NCCL). The investment in common shares was recorded at
$31,500 which represents fair market value of the security received. During the quarter
ending June 30, 2002 these shares were sold and a loss in the
amount of $10,720 was recognized.

In February 2002 the Company realized a gain on marketable securities. The
Company received 6,000 common shares of Nutraceutical Clinical Laboratories
International, Inc. (NCCL) for payment on an aged accounts receivable. A net
gain of $3,630 was realized for the difference of the debt paid and the fair
market value of the common shares received. During the quarter ending June 30, 2002 these
shares were sold and a loss in the amount of $2,425 was recognized.

During the quarter ending June 30, 2002, an
additional 166,500 shares H-Quotient Inc. (HQNT) shares were sold and a gain was recognized
in the amount of $25,115.

At June 30, 2002 and December 31, 2001 the Company
owned 678,500 and 415,000 shares, respectively of H-Quotient Inc.
(HQNT) representing a carrying value of $217,120 and $124,500. The
Company also owned an additional 430,000 restricted shares of HQNT at
December 31, 2001. (see note above)

Note D  Supplemental Cash Flow Disclosures

The Company exchange accounts receivable and
inventory in the amount of $38,370 for marketable securities. The
Company recognized an increase in carrying value and change in
classifications on an investment in the amount of $64,500 due to the
elapsing of time restrictions.

These unaudited interim consolidated financial
statements and notes to unaudited interim consolidated financial
statements should be read in conjunction with the financial
statements and related footnotes included in the Company's Form 10Ksb
filed with the SEC in March 2002.

9



---



##### 



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

Second Quarter  June 30, 2002 Compared With June 30, 2001, and Six-months Ended
June 30, 2002 Compared With June 30, 2001

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 as of June 30, 2002 for the three months and six months
ended June 30, 2002 and June 30, 2001, respectively. This discussion should be
read in conjunction with the Consolidated Financial Statements and the Notes
thereto included elsewhere in this Report. This Report also contains certain
forward-looking statements and information. This cautionary statement should be
read as being applicable to all related forward-looking statements wherever they
may appear. Our actual future results could differ materially from those
discussed herein.

Overview

We are a Health Care company incorporated in Delaware focusing on infection
control and other Healthy Lifestyle products. The Company has
developed and/or focused on PATENTED
as well as UNIQUE PRODUCTS including SURFACE DISINFECTANTS, ANTISEPTIC HAND CLEANSERS,
FRUIT & VEGETABLE WASH and SUN PROTECTION PRODUCTS.

The flagship product, VIRAHOL® Hospital Disinfectant/Cleaner & Instrument
Presoak, is now being marketed as VIRAGUARD® Hospital Disinfectant/Cleaner &
Instrument Presoak. VIRAGUARD® Hospital Disinfectant/Cleaner & Instrument
Presoak and VIRAGUARD® Hospital Surface Disinfectant Towelette are EPA
registered disinfectants designed for effective disinfecting, cleaning and
deodorizing of hard, inanimate nonporous surfaces. VIRAGUARD® Antiseptic Hand
Gel and VIRAGUARD® Antimicrobial Hand Wipes, which are regulated by the FDA
and utilize Veridiens patented formulation, are effective against germs when
soap and water hand washing is not possible.

Recent 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 June 30, 2002, the
Company had an accumulated deficit of $33,976,537. The Company has financed its
ongoing business activities through a combination of sales, equity financing,
and debt.

10



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##### 



Results of operations

Second Quarter ended June 30, 2002 vs. Second Quarter ended June 30, 2001

|                                  |  |                |          |               |  |      |          |      |  |  |      |    |  |  |     |   
|--------------------------------- |  | -------------- | -------- | ------------- |  | ---- | -------- | ---- |  |  | ---- | -- |  |  | --- | --
|                                  |  | Second Quarter |          | Percentage of
|                                  |  | June 30,       |          | Net Revenue  
|                                  |  |                |          |              
|                                  |  | 2002           |          | 2001          |  | 2002 |          | 2001
|                                  |  |                |          |               |  |      |          |     
|Net Sales                         |  | $              | 282,362  |               |  | $    | 463,673  |      |  |  | 100  | %  |  |  | 100 | % 
|Cost of Goods Sold                |  |                | 183,935  |               |  |      | 307,324  |      |  |  | 65   | %  |  |  | 66  | % 
|Gross Profit                      |  |                | 98,427   |               |  |      | 156,349  |      |  |  | 35   | %  |  |  | 34  | % 
|Operating Expenses:               |  |                |          |               |  |      |          |      |  |  |      |    |  |  |     |   
|General, Selling & Administrative |  |                | 329,166  |               |  |      | 408,719  |      |  |  | 117  | %  |  |  | 88  | % 
|Research & Development            |  |                | 53,429   |               |  |      | 11,799   |      |  |  | 19   | %  |  |  | 3   | % 
|(Loss) from Operations            |  |                | (284,168 | )             |  |      | (264,169 | )    |  |  | (101 | )% |  |  | (57 | )%
|Other Income (Expense) Net        |  |                | 9,891    |               |  |      | (124,142 | )    |  |  | 4    | %  |  |  | (27 | )%
|Net (Loss) Before Taxes           |  |                | (274,277 | )             |  |      | (388,311 | )    |  |  | (97  | )% |  |  | (84 | )%
|Income Taxes                      |  |                | -0-      |               |  |      | -0-      |      |  |  | 0    | %  |  |  | 0   | % 
|Net (Loss)                        |  | $              | (274,277 | )             |  | $    | (388,311 | )    |  |  | (97  | )% |  |  | (84 | )%

Second Quarter  June 30, 2002 Compared With June 30, 2001

Consolidated gross revenues for second quarter 2002 decreased by $33,504 or 8%,
to $372,451 compared with $405,955 in second quarter 2001.



| |  | Gross revenue from product sales decreased for second quarter 2002 by
$181,311, or 39%, to $282,362 compared with $463,673 in second quarter
2001. We continue active promotion of our product line through
trade-show presentations and direct calls on both existing and
potential customers. Our goal is to continue to expand our product
lines and we anticipate new products, which are scheduled with various
releases this year, will generate new revenue in this and future years.
In addition, we continue to pursue strategic alliances with other
corporations that have existing distribution networks. Our goal for
these alliances is to create immediate distribution and fulfillment
avenues for our products, while focusing on our capital resources.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Interest income for second quarter 2002 decreased by $407, or 89% to
$49 compared with $456 in second quarter 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| 
| |  | Gross rental income for second quarter 2002 decreased by $1,846, or
100% to $-0- compared with $1,846 in second quarter 2001. The Company
previously subleased a portion of our former 38,000 square foot
manufacturing facility to a medical manufacturer. On May 1, 2001 our
company entered into an agreement with Vin-Dotco, Inc. to lease
approximately 15,000 square feet of their building located at 2875 MCI
Drive, Suite B, Pinellas Park, Florida 33782. Our lease with our
previous landlord expired on May 18, 2001, and the Company moved into
our new facility during May 2001. The rental agreement for our new
facility is for a 19-month period ending December 31, 2002, and                                                                          

11



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##### 





|  |  | the reduction in rent as compared to our old facility will result in
net savings in excess of $180,000 annually. The new facility has
sufficient office and warehouse space to satisfy our current needs and
allow for future expansion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Change in value of securities for second quarter 2002
recognizes an increase of $13,570 in the value of the marketable
securities held by the Company. During second quarter 2001, the amount
of $252,186 was recognized as a write down of investment in common
stock, restricted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
| |  | Realized gain or loss on sale of assets for second quarter 2002
recognized a net gain of $11,970 on the sale of marketable securities.
During second quarter 2001, the amount of $21,834 was recognized for a
loss on sale and disposal of assets during the Companys relocation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
| |  | Realized sale of cash credits for second quarter 2002 recognized a net
gain on the sale of cash credits in the amount of $64,500. This
investment has now been reclassified as a marketable security at the
fair market value as of June 30, 2002. These credits were originally
recorded in June 2001 in the amount of $129,000 with a stated value of
$150,500. At December 31, 2001 the $129,000 was written down to $64,500
due to their restrictions. These credits were exchanged for 430,000
shares of restricted common shares of H-Quotient, Incorporated (HQNT).
The cash credits were originally received when the Company sold
inventory in May 2001 to SGD International Corporation. Currently, a
remainder of $23,000 cash credits still remains with SGD International.
| 
| |  | During second quarter 2001, an amount of $85,000 was recognized for
sale of the chemistry and microbiology labs and additional
manufacturing equipment that was located at the old location and was no
longer needed at the new location. All testing and research is done off
site on an as needed basis which lowers cost of overhead.                                                                                                                                                                                                                                                                                                                                                                                                                                               

Consolidated gross expenses for second quarter 2002 decreased by $147,538, or
19%, to $646,728 compared with $794,266 in second quarter 2001.



| |  | The cost of goods sold for second quarter 2002 decreased by $123,389,
or 40% to $183,935 compared with $307,324 in second quarter 2001. The
decrease in the cost of sales resulted primarily from decreased sales
of 39% over the same period of 2001. Profit margins at 35% and 34%,
respectively were relatively the same.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | General, selling, and administrative expenses for second quarter 2002
decreased by $79,553 or 19% to $329,166 compared with $408,719 during
the same period of 2001. Decreases that affected general and
administrative costs were associated with rent expense for second
quarter 2002 that decreased by 40% to $17,700 compared with $29,523 in
second quarter 2001. Administrative wages also decreased for second
quarter 2002 by 59% to $30,807 compared with $74,820 in second quarter
2001. This decrease is attributable to the re-allocation of senior
management expenses from administrative wages to consulting (see
increase in consulting below). Additionally, selling expenses decreased
for second quarter 2002 by 7% to $105,185 compared with $113,035 in
second quarter 2001. Increases that affected general and administrative
expenses were associated with professional legal, consulting and
accounting fees for second quarter 2002 that increased by 69% to
$104,358 compared with $61,610 in second quarter 2001. Additional
increases in general and administrative costs were associated with
public company expenses for second quarter 2002 the increase in this
category increased by 955% to $26,471 compared with $2,510 in second
quarter 2001. This increase reflects expenses for the annual
shareholder meeting which was held on March 6, 2002.
| 
| |  | Research and development expenses for second quarter 2002 increased by
$41,630, or 353% to $53,429 compared with $11,799 in second quarter
2001. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

12



---



##### 





| |  | Interest expense for second quarter 2002 increased by $13,774, or 21%
to $80,198 compared with $66,424 in second quarter 2001. The increase
in interest expense was due primarily to the increase in Convertible
Debentures and continuing current debt financing arrangements.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Operating losses decreased to $274,277 second quarter 2002 from
$388,311 in second quarter 2001. This represented a 29% decrease in
operating losses.                                                                                                                          

Six Months ended June 30, 2002 vs. Six Months ended June 30, 2001

|                                  |  |                  |          |               |  |      |          |      |  |  |     |    |  |  |      |   
|--------------------------------- |  | ---------------- | -------- | ------------- |  | ---- | -------- | ---- |  |  | --- | -- |  |  | ---- | --
|                                  |  | Six Months ended |          | Percentage of
|                                  |  | June 30,         |          | Net Revenue  
|                                  |  |                  |          |              
|                                  |  | 2002             |          | 2001          |  | 2002 |          | 2001
|                                  |  |                  |          |               |  |      |          |     
|Net Sales                         |  | $                | 567,155  |               |  | $    | 585,890  |      |  |  | 100 | %  |  |  | 100  | % 
|Cost of Goods Sold                |  |                  | 317,761  |               |  |      | 389,043  |      |  |  | 56  | %  |  |  | 66   | % 
|Gross Profit                      |  |                  | 249,394  |               |  |      | 196,847  |      |  |  | 44  | %  |  |  | 34   | % 
|Operating Expenses:               |  |                  |          |               |  |      |          |      |  |  |     |    |  |  |      |   
|General, Selling & Administrative |  |                  | 699,619  |               |  |      | 810,477  |      |  |  | 123 | %  |  |  | 138  | % 
|Research & Development            |  |                  | 79,403   |               |  |      | 37,146   |      |  |  | 14  | %  |  |  | 6    | % 
|(Loss) from Operations            |  |                  | (529,628 | )             |  |      | (650,776 | )    |  |  | (93 | )% |  |  | (111 | )%
|Other Income (Expense) Net        |  |                  | (30,892  | )             |  |      | (188,878 | )    |  |  | (5  | )% |  |  | (32  | )%
|Net (Loss) Before Taxes           |  |                  | (560,520 | )             |  |      | (839,654 | )    |  |  | (99 | )% |  |  | (143 | )%
|Income Taxes                      |  |                  | -0-      |               |  |      | -0-      |      |  |  | 0   | %  |  |  | 0    | % 
|Net (Loss)                        |  | $                | (560,520 | )             |  | $    | (839,654 | )    |  |  | (99 | )% |  |  | (143 | )%

Six-Months ended June 30, 2002 Compared with Six Months Prior Year ended June 30, 2001

Consolidated gross revenues for the six months ended June 30, 2002 increased by
$160,388, or 30% to $692,406, compared with $532,018 during the same period of
2001.



| |  | Gross revenue from product sales decreased for the first six months of
2002 by $18,735, or 3%, to $567,155 compared with $585,890 in 2001. We
continue active promotion of our product line through trade-show
presentations and direct calls on both existing and potential
customers. Our goal is to continue to expand our product lines and we
anticipate new products, which are scheduled with various releases this
year, will generate new revenue in this and future years. In addition,
we continue to pursue strategic alliances with other corporations that
have existing distribution networks. Our goal for these alliances is to
create immediate distribution and fulfillment avenues for our products,
while focusing on our capital resources.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Interest income for the first six months of 2002 decreased by $716, or
90% to $81 compared with $797 during the same period of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| 

13



---



##### 





| |  | Gross rental income for the six months ended June 30, 2002 decreased by
$5,351, or 100% to $-0- compared with $5,351 in the same period of
2001. The Company previously subleased a portion of our former 38,000 square foot manufacturing facility to a medical
manufacturer. On May 1, 2001 our company entered into an agreement with
Vin-Dotco, Inc. to lease approximately 15,000 square feet of their
building located at 2875 MCI Drive, Suite B, Pinellas Park, Florida
33782. Our lease with our previous landlord expired on May 18, 2001,
and the Company moved into our new facility during May 2001. The rental
agreement for our new facility is for a 19-month period ending December
31, 2002, and the reduction in rent as compared to our old facility
will result in net savings in excess of $180,000 annually. The new
facility has sufficient office and warehouse space to satisfy our
current needs and allow for future expansion.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Change in value of securities for the six months ended June
30, 2002 recognizes an increase of $13,570 in the value of the
marketable securities held by the Company. During the six months ended
June 30, 2001 the amount of $252,186 was recognized as a write down of
investment in common stock, restricted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
| |  | Realized gain or loss for the six months ended June 30, 2002 realized a
gain on the receipt of 6,000 common shares of Nutraceutical Clinical
Laboratories International, Inc. (NCCL) for payment on an aged accounts
receivable. A net gain of $3,630 was realized for the difference of the
debt paid and the fair market value of the common shares. Also during the six months ended June 30, 2002 the Company
realized a gain on the sale of obsolete inventory by receipt of 18,000
common shares of Nutraceutical Clinical Laboratories International,
Inc. (NCCL). The investment in common shares was recorded at $31,500
which represents fair market value of the security.                                                                                                                                                                                                                                                                      
| 
| |  | Realized gain or loss on sale of assets for the six months ended June
30, 2002 recognized a net gain of $11,970 on the sale of marketable
securities. During the six
months ended June 30, 2001 the amount of $21,834 was recognized for a
loss on sale and disposal of assets during the Companies relocation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
| |  | Realized sale of cash credits for the six months ended June 30, 2002
recognized a net gain on the sale of cash credits in the amount of
$64,500. This investment has now been reclassified as a marketable
security at the fair market value as of June 30, 2002. These credits
were originally recorded in June 2001 in the amount of $129,000 with a
stated value of $150,500. At December 31, 2001 the $129,000 was written
down to $64,500 due to their restrictions. These credits were exchanged
for 430,000 shares of restricted common shares of H-Quotient,
Incorporated (HQNT). The cash credits were originally received when the
Company sold inventory in May 2001 to SGD International Corporation.
Currently, a remainder of $23,000 cash credits still remain with SGD
International.                                                                                                                                                      
| 
| |  | During the six months ended June 30, 2001 an amount of $85,000 was
recognized for sale of the chemistry and microbiology labs and
additional manufacturing equipment that was located at the old location
and was no longer needed at the new location. All testing and research
is done off site on an as needed basis which lowers cost of overhead.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Consolidated gross expenses for the first six months of 2002 decreased by
$118,746, or 9%, to $1,252,926 compared with $1,371,672 during the same period
of 2001.



| |  | The cost of goods sold for the six months ended June 30, 2002 decreased
by $71,282, or 18% to $317,761 compared with $389,043 during the same
period of 2001. The decrease in the cost of sales resulted primarily
from decreased sales at 3% over the same period of 2001. There was a
decrease in the cost of goods ratio as a percentage of sales to 56%
during the current year 2002 compared to 66% in the same period of
2001. The Company is continuing to work towards decreasing the cost of
goods ratio as a percentage by improving the product mix with higher
margins.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14



---



##### 





| |  | General, selling, and administrative expenses for six months ended June
30, 2002 decreased by $110,858, or 14% to $699,619 compared with
$810,477 during the same period of 2001. Decreases that affected
general and administrative costs were associated with rent expense for
six months ended June 30, 2002 that decreased by 45% to $35,400
compared with $64,693 in the same period 2001. Administrative wages
also decreased for six months ended June 30, 2002 by 56% to $63,156
compared with $142,348 in the same period 2001. This decrease is
attributable to the re-allocation of senior management expenses from
administrative wages to consulting (see increase in consulting below).
Additionally, selling expenses decreased for six months ended June 30,
2002 by 4% to $215,825 compared with $225,686 in the same period 2001.
Increases that affected general and administrative expenses were
associated with professional legal, consulting and accounting fees for
six months ended June 30, 2002 that increased by 53% to $205,058
compared with $134,240 in the same period 2001. Additional increases in
general and administrative costs were associated with public company
expenses for six months ended June 30, 2002 the increase in this
category increased by 959% to $70,399 compared with $6,649 in the same
period 2001. This increase reflects expenses for the annual shareholder
meeting which was held on March 6, 2002.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Research and development expenses for the first six months of 2002
increased by $42,257, or 114% to $79,403 compared with $37,146 during
the same period of 2001. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| 
| |  | Interest expense for the first six months of 2002 increased by $21,137,
or 16% to $156,143 compared with $135,006 during the same period of
2001. The increase in interest expense was due primarily to the
increase in Convertible Debentures and continuing current debt
financing arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

Operating losses decreased to $560,520 during the first six months of 2002 from
$839,654 during the same period of 2001. This represented a less than 33%
increase in operating losses.

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 June 30, 2002 and June 30, 2001 we had working capital deficits of
approximately $1,913,369 and $2,270,660 respectively. Our independent certified
public accountants stated in their report on the 2001 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
substantially dependent on loans from officers, directors, and third parties,
and from private placements of our securities to fund operations. These
financings and equity placements are included in the following descriptions.



| |  | During the second quarter 2 Convertible Debentures with principal
balances of $85,000 and accrued interest of $9,747.22 were converted
into 2,225,278 shares of common stock at an average conversion rate of
$0.043 per share
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | During the second quarter 102,037 common shares were issued to an
employee under the terms of their employment contract. The effective
price per share was $0.029.                                                            
| 
| |  | During the second quarter 1,619,703 common shares were issued to
providers of various services to the company. Said services amounted to
the cash equivalent of $55,150 and included general                                  

15



---



##### 





|  |  | consulting services, R&D consulting services and shareholder relations
services. The effective price per share was $0.034.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | During the second quarter the company liquidated a portion of its
marketable securities for a net cashflow of $101,808.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
| |  | During the three months ended March 31, 2002 we borrowed $204,000 by
way of the issuance of Convertible Debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| 
| |  | During the three months ended March 31, 2002 2 Convertible Debentures
with principal balances of $50,404 and accrued interest of $4,762 were
converted into 1,100,000 shares of common stock at an average
conversion rate of $0.05 per share.                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
| |  | During the three months ended March 31, 2002, 90,170 common shares were
issued to an employee under the terms of their employment contract. The
effective price per share was $0.033.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| 
| |  | During the six months ended June 30, 2002, accounts receivable
increased by $31,735 to $189,862 from $158,127 at December 31, 2001.
This increase is attributable to our increased sales level.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| 
| |  | During the six months ended June 30, 2002, inventory decreased by 23.5
% to $448,492 compared with $586,313 at December 31, 2001. The decrease
is due to increased sales activity in the first two quarters. SunSwipe
inventory currently accounts for 63% of our total inventory.                                                                                                                                                                                                                                                                                                                                                                                   
| 
| |  | 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 August 7, 2002, we have cash of approximately $133,700 and during
August and September, 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 acquire a larger
volume of product inventory to support an anticipated increase in
orders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| 
| |  | If disruptions occur in third party vendors that supply raw materials
to our contract fill manufacturers, we may experience the inability to
have product inventory for sale to our customers. Such events could
have material adverse effect on Veridien to compete effectively in the
marketplace. We continue to utilize the services of a number of
contract fill manufacturers. These 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.

16



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##### 



PART II

OTHER INFORMATION


Item 1. Legal Proceedings

There have been no changes in the previously reported litigation.

Item 2. Changes in Securities



|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Not applicable.                                                                                                                                                                                                                        
|   
|(b) | Not applicable.                                                                                                                                                                                                                        
|   
|(c) | The following issuances of equity securities
    (including debt securities immediately convertible into equity
    securities) without registration under the Securities Act of
    1933 occurred during quarter ending June 30, 2002:

Debentures

2001 Convertible Debenture Conversions

On the following dates the indicated dollar
amounts of both principal and accrued interest of outstanding
2001 Convertible Debentures were converted to the indicated
number of shares of Common Stock.

|               |  |                  |  |                       
|-------------- |  | ---------------- |  | ----------------------
|Date of        |  |                  |  |                       
|Conversion     |  | Amount Converted |  | Shares of Common Stock
|               |  |                  |  |                       
|April 18, 2002 |  | $56,208          |  | 1,124,167             
|June 13, 2002  |  | $38,539          |  | 1,101,111             

These issuances were considered exempt from
registration by reason of Section 3(a)(9) of the Securities
Act.

Common Stock

On April 2, 2002 we issued 19,697 shares of
Common Stock valued at $650 to an individual for consulting
services in investor public relations. This issuance was
considered exempt from registration by reason of
Section 4(2) of the Securities Act.

On April 2, 2002 we issued 200,000 shares of
Common Stock valued at $6,400 to an individual involved in a
specific retail market industry for his services consisting of
introductions and implementations to a specific retail market.
This issuance was considered exempt from registration by reason
of Section 4(2) of the Securities Act.

On April 2, 2002 we issued 50,000 shares of
Common Stock valued at $2,000 to an individual as compensation
of services in investor public relations. This issuance was
considered exempt from registration by reason of
Section 4(2) of the Securities Act.

On April 2, 2002 we issued 150,000 shares of
Common Stock valued at $6,000 to an individual as compensation
of services in investor public relations. This issuance was
considered exempt from registration by reason of
Section 4(2) of the Securities Act.

On April 2, 2002 we issued 210,000 shares
of Common Stock valued at $10,500 to the Chairman of the Board
for related consulting services. This issuance was considered
exempt from registration by reason of Section 4(2) of the
Securities Act.

On June 30, 2002 we issued 102,037 shares of
Common Stock valued at $3,000 to an employee to fulfill the
Common Stock compensation portion of his employment contract.
This issuance was considered exempt from registration by reason
of Section 4(2) of the Securities Act.



|    |                
|--- | ---------------
|(d) | Not applicable.

Item 5. Other Information

Veridien and E.I. du Pont de Nemours and Company have entered
into an exclusive distribution agreement to market Veridiens line of sunscreen
towelettes. DuPont has commenced marketing Veridiens sunscreen towelettes in the
Consumer and Household, First Responder, Mass Merchandise, Industrial and
Institutional, and Pool and Spa markets.

In second quarter 2002, Veridien and Dupont signed
an interim distribution agreement for all Viraguard® products
worldwide. Veridien and Dupont are negotiating an exclusive global
sales agreement for Viraguard® products worldwide in specific
market segments. The agreement is expected to be completed in third
quarter 2002.

Item 6. Exhibits and Report On Form 8-K

(a) Exhibit 3.9   Certificate of Amendment of Certificate of Incorporation

(b) Exhibit 99.1  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(c) Exhibit 99.2  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

17



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##### 



SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|                     |  |                                               
|-------------------- |  | ----------------------------------------------
|                     |  | Veridien Corporation
(Registrant)             
|                    
|Date August 14, 2002 |  | By /s/ Sheldon C. Fenton                      
|                     |  |                                               
|                     |  | Sheldon C. Fenton
Chief Executive Officer     
|                    
|Date August 14, 2002 |  | By /s/ Rene A. Gareau                         
|                     |  |                                               
|                     |  | Rene A. Gareau
Exec.Vice President & Secretary

18