Greenshift Corp – ‘10KSB’ for 12/31/05

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Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Form 10-Ksb December 31, 2005                         54    318K 
 2: EX-31       Exhibit 31.1 Certification                             2±     9K 
 3: EX-32       Exhibit 32.1 Certification                             1      6K 

10KSB   —   Form 10-Ksb December 31, 2005
Document Table of Contents

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================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 -----------------

 FORM 10-KSB
 -----------------

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

COMMISSION FILE NO.: 0-50469

VERIDIUM CORPORATION
--------------------------------------------------------------------------------
 Exact name of registrant as specified in its charter)

Delaware                                                              59-3764931
--------------------------------------------------------------------------------
(State of other jurisdiction of                                (IRS Employer    
incorporation or organization)                               Identification No.)

535 34th Street, Suite 203, New York, New York                             10001
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

(888) 870-9197
--------------------------------------------------------------------------------
 (Registrant's telephone number including area code)

Check whether the issuer is not required to file reports pursuant to Section 13 
or 15(d) of the Exchange Act__.                                                 

Securities registered pursuant to Section 12(b) of the Act: None.               

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001
par value.                                                                      

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form. (_____).                                                

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

State issuer's revenues for its most recent fiscal year: $13,962,113            

The  number of  outstanding  shares of  common  stock as of April 16,  2006 was:
243,256,317. Based on the average closing bid and ask price of the Registrant's 
common  stock,   the  aggregate  market  value  of  the  voting  stock  held  by
non-affiliates of the Registrant as of April 16, 2006 was $32,596,346.          

================================================================================

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VERIDIUM  CORPORATION  ANNUAL  REPORT ON FORM 10KSB  DECEMBER  31, 2005 TABLE OF
CONTENTS                                                                        

                                                        [Enlarge/Download Table]


                                                                                                         Page No
Part I                                                                                                          
                                                                                                                
Item 1      Description of Business .........................................................................3  
Item 2      Description of Properties........................................................................8  
Item 3      Legal Proceedings................................................................................9  
Item 4      Submission of Matters to a Vote of Security Holders .............................................9  

Part II                                                                                                         
Item 5      Market for Registrant's Common Equity and Related Stockholder Matters ..........................10  
Item 6      Management's Discussion and Analysis of Financial Condition and Results of Operations...........11  
Item 7      Financial Statements ...........................................................................15  
Item 8      Changes and Disagreements with Accountants on Accounting and Financial Disclosure ..............48  
Item 8A     Controls and Procedures ........................................................................48  

Part III                                                                                                        
Item 9      Directors, Executive Officers, Promoters and Control Persons; Compliance with                       
                  Section 16(a) of the Exchange Act   ......................................................49  
Item 10     Executive Compensation .........................................................................50  
Item 11     Security Ownership of Certain Beneficial Owners and Related Stockholder Matters ................51  
Item 12     Certain Relationships and Related Transactions .................................................52  

Part IV                                                                                                         
Item 13     Exhibits and Reports on Form 8K ................................................................53  
Item 14     Principal Accountant Fees and Services .........................................................54  

Signatures                                                                                                  55  

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Forward Looking Statements

In  addition  to   historical   information,   this   Annual   Report   contains
forward-looking statements, which are generally identifiable by use of the words
"believes,"  "expects,"  "intends,"   "anticipates,"  "plans  to,"  "estimates,"
"projects," or similar expressions. These forward-looking statements are subject
to certain  risks and  uncertainties  that could cause actual  results to differ
materially from those  reflected in these  forward-looking  statements.  Factors
that might  cause such a  difference  include,  but are not  limited  to,  those
discussed  in the section  entitled  "Description  of  Business - Business  Risk
Factors".   Readers  are  cautioned  not  to  place  undue   reliance  on  these
forward-looking  statements,  which reflect management's opinions only as of the
date  hereof.  We  undertake  no  obligation  to revise or publicly  release the
results of any  revision to these  forward-looking  statements.  Readers  should
carefully  review the risk factors  described in other documents  Veridium files
from time to time with the  Securities  and  Exchange  Commission  (the  "SEC"),
including  the  Quarterly  Reports on Form 10QSB to be filed by us in the fiscal
year 2006.                                                                      

PART I

ITEM 1.  DESCRIPTION OF BUSINESS                                                

SUMMARY                                                                         

Veridium  Corporation  ("we," "our," "us,"  "Veridium,"  or the "Company") is an
environmental  management  company  providing  a variety of  services to a broad
client  base in both  the  private  and  public  sectors.  We  conduct  business
throughout  the  northeastern  region  of the  United  States  and our  services
include:                                                                        

     o    Environmental  Services  - we  provide  transportation,  distribution,
          recycling  and  disposal   services  specific  to  the  materials  and
    processes of our clients, for a wide range of industrial wastes.

     o    Field Services - we provide  remedial,  industrial  cleaning and other
   related services for our clients at their sites and facilities.

Our business is roughly 85 percent distribution and 15 percent field services.  

COMPANY BACKGROUND                                                              

The Company was formed in 1984 as KBF Pollution  Management,  Inc.  ("KPMI") and
was merged with its wholly owned subsidiary,  Veridium Corporation in 2003 after
completing the acquisition of the former Environmental Services Division of R.M.
Jones & Co.,  Inc.  ("ESD"),  Enviro-Safe,  Corp.  ("ESC"),  and Metal  Recovery
Transportation,  Corp.,  ("MRTC").  These  acquisitions were completed to form a
full  service  environmental  company,  operating  throughout  the New  England,
Northeast and Mid-Atlantic States.                                              

As of December 31, 2005 we operated out of four service centers: our RCRA Part B
permitted  TSDF in  Lowell,  Massachusetts;  our  field  service  operations  in
Sandwich  and  Milford,  Massachusetts;  and our  technical  services  center in
Plainville, Connecticut.                                                        

Veridium  conducts all commercial  activities  through its subsidiary,  Veridium
Environmental  Corporation ("VEC").  VEC, in turn, is the sole owner of ESD, the
sole  owner  of  Jones   Environmental   Services   (North  East),   Inc.,   our
Massachusetts-based  RCRA  Part  B  Treatment,  Storage  and  Disposal  Facility
("TSDF") and Enviro-Safe  Corporation ("ESC") our field services company.  Until
September  2005  an  additional  subsidiary,  Veridium  Recovery  Systems,  Inc.
("VRS"),  carried on business  through  its two  subsidiaries:  American  Metals
Recovery,  Corp. ("AMRC"), our discontinued New Jersey recycling operation,  and
MRTC, our discontinued transportation company.                                  

On January 22, 2006, Veridium  Corporation (VRDM") acquired 100% of the stock of
GreenShift  Industrial Design Corporation  (GIDC") and Tornado Trash Corporation
("TTC")  from  GreenShift  Corporation  ("GreenShift")  in return for 10% of the
fully diluted stock in Veridium.  These  acquisitions are part of the Veridium's
plans to revitalize  its industrial  waste  recycling  business model  following
Veridium's discontinuance during 2005 of the AMRC and MRTC operations.          

GIDC  is a  development  stage  company  that  focuses  on the  engineering  and
marketing  of  green  innovations  and  processes  that  enhance   manufacturing
efficiencies improve resource utilization and minimize waste. GIDC's            

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ITEM 1.  DESCRIPTION OF BUSINESS (continued)                                    

mission is to deliver consumer  orientated Natural SolutionsTM based on an array
of green technologies and applied engineering expertise that reduce waste at the
source  and make it easier  for  people  and  businesses  to  recycle  and reuse
resources.  GIDC plans to initially  focus on the  acquisition,  development and
marketing of benchmark  green  technologies  and products  that  accomplish  the
following key goals:                                                            

     o    Reduce the volume of waste  generated by  residential  and  commercial
consumers;                                                  

     o    Increase  the  convenience  and  decrease  the  cost of  recycling  by
residential and commercial consumers; and,                  

     o    Increase the cost efficiency of processing certain types of industrial
wastes.                                                     

GIDC expects to leverage its  portfolio  of powerful new green  technologies  to
generate revenue  starting in 2006 from the provision of customized  engineering
services to third party clients.                                                

Tornado  Trash  Corporation  ("TTC") is a development  stage  company  formed to
deploy commercial  applications of GIDC's innovative green technologies with the
specific goal of minimizing and eliminating the practice of landfill disposal by
converting trash into valuable metals,  chemicals,  plastics,  fuels and energy.
TTC plans to focus on  centralized  applications  of its  technologies  at,  for
example,  landfills and transfer stations, and decentralized applications of its
technologies  in new green  appliances  positioned to residential and commercial
consumers.                                                                      

BUSINESS STRATEGY                                                               

Our  ambition is to  restructure  and  revitalize  Veridium's  industrial  waste
recycling  services on the basis of our planned  provision of industrial  design
and technology  transfer services based on the use of  environmentally  friendly
technologies and applied engineering expertise to reduce waste at its source and
to make it easier for people and businesses to recycle and reuse  resources.  As
part of this plan, we are exploring  options relative to the  restructuring  and
recapitalization of our environmental management business.                      

MARKET OVERVIEW                                                                 

For  many  years,  most  chemical  wastes  generated  in the  United  States  by
industrial  processes have been handled on-site at the  generators'  facilities.
Over the past 30 years,  increased  public  awareness of the harmful  effects of
unregulated  disposal of hazardous  wastes on the environment and health has led
to federal,  state and local  regulation  of waste  management  activities.  The
statutes  regulating  the  management  of chemical  wastes  include the Resource
Conservation  and  Recovery  Act,  the  Toxic  Substances  Control  Act  and the
Comprehensive  Environmental  Response,  Compensation and Liability Act of 1980.
These  statutes are primarily  administered  by the United States  Environmental
Protection Agency and often delegated to states.                                

Environmental laws and regulations impose stringent standards for the management
of hazardous wastes and provide penalties for violators.  In addition,  based on
these laws and  regulations,  generators  and others are  subject to  continuing
liability for past disposal and  environmental  degradation.  As a result of (1)
the increased  liability  exposure  associated  with chemical  waste  management
activities,  (2) a corresponding  decrease in the  availability of insurance and
significant  cost increases in  administering  compliance,  and (3) the need for
facility capital improvements, many generators of hazardous wastes have found it
uneconomical  to maintain  their own  treatment  and disposal  facilities  or to
develop and  maintain the  technical  expertise  necessary to assure  regulatory
compliance.  Accordingly,  many  generators  have sought to have their hazardous
wastes managed by firms that possess or have access to the appropriate treatment
and  disposal  facilities,  as well as the  expertise  and  financial  resources
necessary  to attain  and  maintain  compliance  with  applicable  environmental
regulatory requirements.                                                        

At the same time,  governmental  regulation  has  resulted in a reduction of the
number of  facilities  available  for  hazardous  waste  treatment,  storage  or
disposal,  as many  facilities  have been  unable to meet the  strict  standards
imposed by the  environmental  laws and  regulations.  It is in this market that
Veridium is growing,  offering  efficient  environmental  services and effective
recycling as an alternative to disposal of hazardous wastes.                    

ENVIRONMENTAL LAWS                                                              

Veridium by its very nature and purpose is an environmental company. As such, it
benefits  from  environmental  laws and  regulations  under which its  customers
produce wastes,  and is itself subject to many  environmental  requirements from
local, state and federal agencies.                                              

Veridium  must obtain and  maintain  federal,  state,  and local  approvals  and
permits for each of its facilities and  transportation  activities.  Permits are
required for air emissions, water discharges,  storm water management, solid and
hazardous  waste  management,  spill  prevention  and control,  and transport of
wastes.  These permits and approvals are complex and can be difficult to obtain,
and are therefore considered to be assets.                                      

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ITEM 1.  DESCRIPTION OF BUSINESS (continued)                                    

These  licenses and  permits,  without  which  Veridium  could not operate,  are
subject to periodic renewal. Veridium anticipates that, once a license or permit
is issued with  respect to a facility,  the license or permit will be renewed at
the end of its term if the  facility's  operations  are in  compliance  with the
applicable  regulatory  requirements.  At this time,  Veridium is in substantial
compliance  with all  requirements.  Other than the  unsettled  cases  described
below, for which a reserve has been established,  no known,  material compliance
issues exist.                                                                   

Veridium  has no known  requirements  for  capital  expenditures  to  remain  in
compliance  at any of its  facilities.  Operating  expenses  to meet  regulatory
requirements,  including  all  environmental  permits,  are an integral  part of
operating costs and are not segregated.                                         

Costs  for  compliance  with   environmental  laws  include  safety  and  health
protection  measures,  controls limiting air emissions and effluent  discharges,
emergency  response  capabilities,  storm water  management,  recordkeeping  and
training.                                                                       

OTHER CONTINGENCIES                                                             

Under  Veridium's  insurance  programs,  coverage is obtained  for  catastrophic
exposures, as well as those risks required to be insured by law or contract. The
deductible   per   occurrence   for   environmental   impairments   is  $25,000.
Environmental  liability  insurance is carried with policy  limits of $1,000,000
per occurrence and $2,000,000 aggregate with a $4,000,000 umbrella policy.      

COMPETITION                                                                     

The hazardous  waste industry is best  characterized  today as being  fragmented
with a limited number of companies having a national  presence.  Service quality
and type  differs  from region to region and thus pricing is subject to regional
variance. While our principal competition takes the form of disposal in landfill
or  incineration  in  general,  we  compete  for  market  share with a number of
regional companies.                                                             

CUSTOMERS                                                                       

We provide the services of  recycling  and  managing  private and public  sector
hazardous  and other  industrial  wastes.  This takes the form of  collection of
wastes from the point of  generation  and  shipment to  appropriate  third-party
destinations  (disposal and recycling  facilities).  We currently have more than
five  hundred  active  customers  that  generate  many  thousands  of  different
industrial wastes. Our customers range from small companies that generate only a
container a month to large industrial  operations that generate hazardous wastes
in bulk quantities on a weekly basis. Wastes of almost all classifications  pass
through our Lowell, Massachusetts TSDF.                                         

INTELLECTUAL PROPERTIES                                                         

Veridium  holds a number  of  patents.  Veridium,  Veridium  Environmental,  the
"Veridium  Logo" and the tagline "A Clear Vision for a Better  Environment"  are
the registered trademarks of Veridium Corporation.                              

EMPLOYEES                                                                       

Veridium  currently  has 49 full-time  employees  as of December  31,  2005.  In
addition to its executive  officers,  Veridium  employs sales  personnel,  staff
engineers, process managers, maintenance managers,  administrative personnel and
general facility  technicians.  There is no union  representation for any of our
employees.                                                                      

BUSINESS RISK FACTORS                                                           

There are many  important  factors that have  affected,  and in the future could
affect, Veridium's business, including, but not limited to the factors discussed
below,  which  should be  reviewed  carefully  together  with other  information
contained in this report.  Some of the factors are beyond our control and future
trends are difficult to predict.                                                

Our external  auditors have issued a going concern opinion  raising  substantial
doubt as to the  Company's  ability to  continue  as a going  concern due to the
Company's history of losses, working capital deficiency and cash position, which
conditions could impair the value of the Company's stock.                       

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  The Company  incurred a loss
of $5,697,858  for the year ended December 31, 2005. As of December 31, 2005 the
Company had $334,128 in cash, and current liabilities exceeded current assets by
$6,627,898. These matters raise substantial doubt about the Company's ability to
continue as a going concern.                                                    

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BUSINESS RISK FACTORS (continued)                                               

The conversion of our  convertible  debentures,  the exercise of our outstanding
warrants   and   options   and   the   Company's   various   anti-dilution   and
price-protection  agreements could cause the market price of our common stock to
fall, and may have dilutive and other effects on our existing stockholders.     

As of April 15, 2006, the conversion of our outstanding  convertible debentures,
and the exercise of our  outstanding  warrants  and options  could result in the
issuance of up to 261,288,190  shares of common stock,  assuming all outstanding
warrants and options are  currently  exercisable,  and taken with the  Company's
various anti-dilution and price-protection agreements, are subject to adjustment
pursuant  to  certain  anti-dilution  and  price-protection   provisions.   Such
issuances  would reduce the  percentage  of  ownership  of our  existing  common
stockholders  and could,  among  other  things,  depress the price of our common
stock.  This result could  detrimentally  affect our ability to raise additional
equity capital. In addition, the sale of these additional shares of common stock
may cause the market price of our stock to decrease.                            

Veridium is currently in default on some of its debt,  which could result in one
or more of the Company's creditors  exercising their rights upon default,  which
could in turn significantly impair the Company's ability to operate. Veridium is
currently  in default of its Laurus  Financing  agreement  due to its failure to
register certain securities. As of April 15, 2006 this amount totaled $1,497,201
and has not been  demanded.  If this amount is demanded,  Veridium would have to
find alternative  financing or liquidate assets to satisfy the demand and Laurus
may elect to assess  liquidating  damages.  The Company has accrued  liquidating
damages  of  $243,333  and  $116,667  in 2005  and 2004  respectively,  totaling
$360,000 as of December 31, 2005. Additionally, the Company is in default of its
various vendor credit program  accounts,  pursuant to which the accounts payable
due to several  vendors  was  termed out over a period of months.  The amount of
these two vendor accounts total $22,411 as of December 31, 2005.                

The Company received a Federal Grand Jury subpoena requesting documents relating
to an incident  occurring in February of 2004 relative to the  Company's  former
New Jersey operation;  while no additional information is available at this time
on this matter,  if the review of these  documents  leads to a successful  legal
action against the Company, substantial penalties may be imposed.               

The Company has received a federal grand jury subpoena from the Middle  District
of  Pennsylvania  requiring the production of original  records in regards to an
incident  that  occurred  in February  of 2004,  where a tanker  truck of liquid
wastes,  shipped from the Company's New Jersey  recycling  facility by a private
carrier to a destination in Pennsylvania,  overheated on the highway, causing no
injuries,  but requiring  emergency  response  services,  including  redirecting
traffic.  If this  investigation  leads to successful  legal action  against the
Company, substantial penalties may be imposed.                                  

Our industrial waste management  services subject us to potential  environmental
liability.                                                                      

Our business of  rendering  services in  connection  with  management  of waste,
including  certain types of hazardous  waste,  subjects us to risks of liability
for damages.  Such  liability  could  involve,  without  limitation,  claims for
clean-up  costs,  personal injury or damage to the environment in cases in which
we are held  responsible for the release of hazardous  materials;  and claims of
employees,  customers,  or third parties for personal  injury or property damage
occurring in the course of our operations.                                      

We could  also be  deemed a  responsible  party  for the  cost of  cleaning  any
property which may be contaminated by hazardous  substances  generated by us and
disposed  at  such  property  or  transported  by us to a site  selected  by us,
including properties we own or lease.                                           

If we cannot  maintain  our  government  permits or cannot  obtain any  required
permits, we may not be able to continue or expand our operations.               

Our  business is subject to  extensive,  evolving,  and  increasingly  stringent
federal,  state, and local  environmental  laws and  regulations.  Such federal,
state,  and local  environmental  laws and  regulations  govern  our  activities
regarding the treatment,  storage,  recycling,  disposal,  and transportation of
hazardous and non-hazardous waste. We must obtain and maintain permits, licenses
and/or  approvals to conduct these  activities in compliance  with such laws and
regulations.  Failure to obtain and  maintain  the  required  permits,  licenses
and/or  approvals  would result in an inability to operate certain of our assets
and significantly impair our financial  condition.  If we are unable to maintain
our currently held permits,  licenses, and/or approvals or obtain any additional
permits,  licenses  and/or  approvals  which may be  required  as we expand  our
operations, we may not be able to continue certain of our operations.           

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BUSINESS RISK FACTORS (continued)                                               

Changes in environmental  regulations and enforcement  policies could subject us
to  additional  liability  which could  impair our  ability to continue  certain
operations due to the regulated nature of our operations.                       

Because the  environmental  industry  continues  to develop  rapidly,  we cannot
predict the extent to which our operations may be affected by future enforcement
policies as applied to existing laws, by changes to current  environmental  laws
and regulations,  or by the enactment of new environmental laws and regulations.
Any  predictions  regarding  possible  liability under such laws are complicated
further by current  environmental  laws which  provide  that we could be liable,
jointly and severally, for certain activities of third parties over whom we have
limited or no control.                                                          

As our operations expand, we may be subject to increased  litigation which could
significantly  impair our ability to operate and our future financial results by
causing the Company to expend  significant  amounts of time,  effort,  money and
focus matters not directly related to our operations and expansion.             

Our  operations  are regulated by numerous laws  regarding  procedures for waste
treatment,  storage,  recycling,  transportation and disposal activities, all of
which may provide the basis for  litigation  against  us. In recent  years,  the
waste  treatment  industry has  experienced a significant  increase in so-called
"toxic-tort"  litigation as those injured by  contamination  seek to recover for
personal  injuries or property  damage.  We believe that as our  operations  and
activities  expand,  there  will be a  similar  increase  in the  potential  for
litigation  alleging  that we are  responsible  for  contamination  or pollution
caused  by  our  normal  operations,  negligence  or  other  misconduct,  or for
accidents which occur in the course of our business activities. Such litigation,
if significant and not adequately  insured against,  could impair our ability to
fund  our  operations.  Protracted  litigation  would  likely  cause us to spend
significant  amounts  of our time,  effort and money.  This  could  prevent  our
management from focusing on our operations and expansion.                       

If we cannot maintain adequate insurance coverage, we will be unable to continue
certain operations.                                                             

Our business exposes us to various risks, including claims for causing damage to
property and injuries to persons who may involve  allegations  of  negligence or
professional errors or omissions in the performance of our services. Such claims
could be  substantial.  We believe  that our  insurance  coverage  is  presently
adequate  and similar to, or greater  than,  the  coverage  maintained  by other
companies  in the industry of our size.  If we are unable to obtain  adequate or
required  insurance coverage in the future or, if our insurance is not available
at  affordable   rates,  we  would  violate  our  permit  conditions  and  other
requirements of the  environmental  laws,  rules and regulations  under which we
operate.  Such  violations  would  render us unable to  continue  certain of our
operations.  These events would result in an inability to operate certain of our
assets and significantly impair our financial condition.                        

Our operations will suffer if we are unable to manage our rapid growth.         

We are  currently  experiencing  a  period  of  rapid  growth  through  internal
expansion and strategic acquisitions. This growth has placed, and could continue
to place, a significant strain on our management, personnel and other resources.
Our  ability to grow will  require us to  effectively  manage our  collaborative
arrangements  and to  continue  to  improve  our  operational,  management,  and
financial systems and controls,  and to successfully train,  motivate and manage
our  employees.  If we are unable to effectively  manage our growth,  we may not
realize the expected  benefits of such growth,  and such failure could result in
lost sales opportunities,  lost business,  difficulties operating our assets and
could therefore significantly impair our financial condition.                   

We may have  difficulty  integrating our recent  acquisitions  into our existing
operations.                                                                     

Acquisitions  will involve the  integration  of companies  that have  previously
operated independently from us, with focuses on different geographical areas. We
may not be able to fully  integrate the  operations of these  companies  without
encountering difficulties or experiencing the loss of key employees or customers
of such companies.  In addition,  we may not realize the benefits  expected from
such integration.                                                               

Key personnel are critical to our business and our future success depends on our
ability to retain them.                                                         

Our success depends on the  contributions  of our key management,  environmental
and engineering personnel. The loss of these officers could result in lost sales
opportunities,  lost business,  difficulties operating our assets,  difficulties
raising additional funds and could therefore  significantly impair our financial
condition.  Our future  success  depends on our ability to retain and expand our
staff  of  qualified  personnel,   including  environmental  technicians,  sales
personnel and engineers.  Without  qualified  personnel,  we may incur delays in
rendering our services or be unable to render  certain  services.  We may not be
successful  in our efforts to attract and retain  qualified  personnel  as their
availability is limited due to the demand of hazardous waste management services
and the highly competitive nature of the hazardous waste management industry. We
do not maintain key person                                                      

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insurance on any of our employees, officers or directors.                       

If  environmental  regulation  or  enforcement  is  relaxed,  the demand for our
services will decrease.                                                         

The demand for our services is substantially dependent upon the public's concern
with, the continuation and proliferation of, the laws and regulations  governing
the treatment,  storage,  recycling, and disposal of hazardous and non-hazardous
waste. A decrease in the level of public concern,  the repeal or modification of
these  laws,  or any  significant  relaxation  of  regulations  relating  to the
treatment,   storage,   recycling,   and  disposal  of  hazardous   waste  would
significantly  reduce the demand for our  services  which  could  result in lost
sales opportunities and lost business,  which could in turn significantly impair
our ability to operate as well as our financial  condition.  We are not aware of
any current federal or state  government or agency efforts in which a moratorium
or  limitation  has been,  or will be, placed upon the creation of new hazardous
waste regulations that would have an adverse effect on us.                      

Some of our  existing  stockholders  can exert  control over us and may not make
decisions that further the best interests of all stockholders.                  

Our   officers,   directors  and   principal   stockholders   (greater  that  5%
stockholders)  together  control  approximately  11% of our  outstanding  common
stock,  33% of our outstanding  Series A preferred stock, 49% of our outstanding
Series  B  preferred  stock  and  100% of  Series C  preferred  stock.  Series A
preferred  stock votes on an as  converted  basis as five shares of common stock
and Series B and C preferred  stock vote on an as converted basis as twenty-five
shares  of  common  stock.  As  a  result,  these  stockholders,   if  they  act
individually or together,  may exert a significant  degree of influence over our
management  and  affairs  and  over  matters  requiring   stockholder  approval,
including  the  election of  directors  and  approval of  significant  corporate
transactions.  In addition, this concentration of ownership may delay or prevent
a change in control of us and might affect the market price of our common stock,
even when a change in control may be in the best  interest of all  stockholders.
Furthermore,  the  interests of this  concentration  of ownership may not always
coincide  with  our  interests  or  the  interests  of  other  stockholders  and
accordingly,  they could cause us to enter into transactions or agreements which
we would not otherwise consider.                                                

Our common stock qualifies as a "penny stock" under SEC rules which may make it 
more difficult for our stockholders to resell their shares of our common stock. 

Our common stock trades on the OTC Bulletin Board.  As a result,  the holders of
our  common  stock  may find it more  difficult  to obtain  accurate  quotations
concerning  the market  value of the  stock.  Stockholders  also may  experience
greater difficulties in attempting to sell the stock than if it were listed on a
stock exchange or quoted on the NASDAQ National  Market or the NASDAQ  Small-Cap
Market.  Because our common  stock does not trade on a stock  exchange or on the
NASDAQ National Market or the NASDAQ Small-Cap  Market,  and the market price of
the common stock is less than $5.00 per share,  the common stock  qualifies as a
"penny stock." SEC Rule 15g-9 under the Securities  Exchange Act of 1934 imposes
additional  sales practice  requirements  on  broker-dealers  that recommend the
purchase or sale of penny  stocks to persons  other than those who qualify as an
"established   customer"  or  an  "accredited   investor."   This  includes  the
requirement   that  a   broker-dealer   must   make  a   determination   on  the
appropriateness  of  investments  in penny stocks for the customer and must make
special  disclosures  to the  customer  concerning  the  risks of penny  stocks.
Application  of the penny  stock  rules to our common  stock  affects the market
liquidity of the shares,  which in turn may affect the ability of holders of our
common stock to resell the stock.                                               

The  Company is subject  to various  lawsuits  which may affect the value of our
stock                                                                           

The Company is involved in a lawsuit with Kerns Manufacturing  Corporation which
could  substantially  dilute the value of the  Veridium  stock (see  description
below).                                                                         

ITEM 2.  DESCRIPTION OF PROPERTIES                                              

FACILITIES                                                                      

Veridium's  corporate  headquarters is located in New York, New York, in offices
provided  free-of-charge by GreenShift  Corporation,  a shareholder of Veridium.
There is no lease associated with this location.  The Company leases  properties
Sandwich and Milford,  Massachusetts  which house our field services  operations
and administrative offices. The lease in Sandwich,  Massachusetts  terminates in
July of 2009 with a five year option for renewal.  The monthly lease payment for
the  Sandwich  location  $1,575 per month.  The lease in Milford,  Massachusetts
terminates in October 2006 with a one year option for renewal. The monthly lease
payment for the  Milford  location  is $1800 per month.  Additionally,  we lease
office space in  Plainville,  Connecticut,  which houses our technical  services
group. The Plainville,  Connecticut lease terminates November 2006 with one year
option for renewal.  The monthly  lease payment for the  Plainville  location is
$1,796 per month. We own property in Lowell, Massachusetts,  the location of our
RCRA permitted Treatment, Storage and Disposal Facility (TSDF).                 

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ITEM 3.  LEGAL PROCEEDINGS                                                      

LEGAL PROCEEDINGS                                                               

Veridium  is party to the  matter  entitled  Kerns  Manufacturing  Corp.  v. KBF
Pollution Management Inc. The action was filed in the Supreme Court of the State
of New York,  August 14,  2003.  The verified  complaint  seeks  performance  of
certain agreements between the plaintiffs and KPMI and VEC, plus attorney's fees
and costs. The matter is ongoing and counsel is therefore unable to evaluate the
probability of an  unfavorable  outcome or range of potential loss at this time.
This matter relates to the acquisition of Vulcan Waste Systems,  Inc. from Kerns
Manufacturing  Corp.  and the breach by Kerns of the terms and conditions of the
relevant acquisition agreement. Veridium incurred a loss in December 31, 2003 on
its  write-off of $1,890,000 of idle  equipment  connected to this  transaction.
1,350,000  shares of restricted  common stock related to the Vulcan  acquisition
remain outstanding which shares Veridium is seeking to have cancelled.  Veridium
is currently pursuing the reversal of this acquisition and seeking the return of
the common stock issued.                                                        

Veridium is also  involved in various  collection  matters for which vendors are
seeking payment for services  rendered and goods provided.  The aggregate of the
claims in these collection matters total $150,000.                              

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                    

Veridium  convened  its  annual  meeting  on June 30,  2005,  at which  time the
shareholders  of Veridium  voted and  approved to appoint a new board  member to
Veridium's   board  of  directors.   Additional   information   regarding  these
transactions  can be  found  in  Veridium's  proxy  statement  for the  relevant
meeting. No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.                              

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 PART II

ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER    
MATTERS                           

Veridium's  Common Stock trades on the OTC Bulletin Board maintained by the NASD
under the symbol  "VRDM."  The  following  table  sets  forth,  for the  periods
indicated,  the range of high and low closing bid prices for  Veridium's  Common
Stock as reported by the National  Association of Securities  Dealers composite.
The reported bid quotations reflect  inter-dealer  prices without retail markup,
markdown or commissions, and may not necessarily represent actual transactions. 

                                                        [Enlarge/Download Table]


---------------------------------------- -------------------------------------- ----------------------
Period                                                   High                                    Low  
---------------------------------------- -------------------------------------- ----------------------
                                                                                                      
2004 First Quarter                                      0.47                                  0.33    
2004 Second Quarter                                     0.46                                  0.19    
2004 Third Quarter                                      0.30                                  0.12    
2004 Fourth Quarter                                     0.16                                  0.05    
2005 First Quarter                                      0.09                                  0.09    
2005 Second Quarter                                     0.06                                  0.05    
2005 Third Quarter                                      0.04                                  0.04    
2005 Fourth Quarter                                     0.03                                  0.02    

Title of Class                      Approximate Number of Holders of Record as of December 31, 2005   
Common Stock, 0.001 par value                                 2,309                                   

The number of holders  does not give effect to  beneficial  ownership  of shares
held in the street name of stock  brokerage  houses or clearing  agents and does
not necessarily reflect the actual ownership of the shares.                     

DIVIDENDS                                                                       

We have no present intention of paying dividends in the foreseeable  future. Our
policy  for the time  being is to  retain  earnings  and  utilize  the funds for
operations and growth.  The Board of Directors based on our earnings,  financial
condition,  capital  requirements  and other existing  conditions will determine
future dividend policies.                                                       

SALE OF UNREGISTERED SECURITIES                                                 

In December 2005 Veridium  issued 200,000 shares of common stock to Bill Connor.
The shares were issued in satisfaction of a contractual obligation to Mr. Connor
that Veridium  undertook in 2003.  The shares were valued at the market price on
the date of issuance,  which was $.02 per share. The sale was exempt pursuant to
Section 4(2) of the Act since the sale was not made in a public offering and was
made to an individual who had access to detailed  information about Veridium and
was acquiring the shares for his own account. There were no underwriters.       

In December 2005 Veridium issued 8,500,000 shares of common stock to the holders
of Veridium's  Series B Preferred  Stock. The shares were issued upon conversion
of 340,000 shares of Series B Preferred  Stock.  The sale was exempt pursuant to
Section 4(2) of the Act since the sale was not made in a public offering and was
made to individuals  who had access to detailed  information  about Veridium and
were acquiring the shares for their own accounts. There were no underwriters.   

REPURCHASE OF EQUITY SECURITES                                                  

The Company did not repurchase any of its equity securities that were registered
under Section 12 of the Securities Act during the 4th quarter of 2005.          

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ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                    

CONDITION AND RESULTS OF OPERATIONS         

FORWARD LOOKING STATEMENTS                                                      

In  addition  to   historical   information,   this   Annual   Report   contains
forward-looking statements, which are generally identifiable by use of the words
believes,"  "expects,"   "intends,"   "anticipates,"  "plans  to,"  "estimates,"
"projects," or similar expressions. These forward-looking statements are subject
to certain  risks and  uncertainties  that could cause actual  results to differ
materially from those  reflected in these  forward-looking  statements.  Factors
that might  cause such a  difference  include,  but are not  limited  to,  those
discussed  in the section  entitled  "Description  of  Business - Business  Risk
Factors".   Readers  are  cautioned  not  to  place  undue   reliance  on  these
forward-looking  statements,  which reflect management's opinions only as of the
date  hereof.  We  undertake  no  obligation  to revise or publicly  release the
results of any  revision to these  forward-looking  statements.  Readers  should
carefully  review the risk factors  described in other documents  Veridium files
from time to time with the  Securities  and  Exchange  Commission  (the  "SEC"),
including  the  Quarterly  Reports on Form 10QSB to be filed by us in the fiscal
year 2006.                                                                      

OVERVIEW                                                                        

Veridium is an environmental  management company providing a variety of services
to a broad  client  base in both the private and public  sectors.  Our  services
include collection and transportation of industrial wastes and site remediation.
Our focus is to provide our clients with value-added,  environmentally conscious
and  cost-effective  hazardous waste management  services based on our efficient
management of wastes.                                                           

Our efforts in 2005 were focused on the growth of our  environmental  management
business  and the  discontinuation  of our  former  industrial  waste  recycling
facility.   Our  ambition  moving  forward  is  to  restructure  and  revitalize
Veridium's  industrial  waste  recycling  services  on the basis of our  planned
provision of industrial design and technology transfer services based on the use
of environmentally  friendly  technologies and applied engineering  expertise to
reduce  waste at its source and to make it easier for people and  businesses  to
recycle and reuse  resources.  As part of this plan,  we are  exploring  options
relative  to  the  restructuring  and   recapitalization  of  our  environmental
management business.                                                            

CRITICAL ACCOUNTING POLICIES AND ESTIMATES                                      

The preparation of our  consolidated  financial  statements  requires us to make
estimates that affect the reported amounts of assets, liabilities,  revenues and
expenses.  The  following  are the areas that we believe  require  the  greatest
amount of estimates in the preparation of our financial  statements:  impairment
testing,  allowances for doubtful accounts and accruals for legal matters. Prior
to the filing of this Annual  Report on Form 10KSB,  the Audit  Committee of our
Board of Directors reviewed these critical accounting policies and estimates and
discussed them with our management.                                             

On an annual basis Veridium  retains the services of an independent  contractor,
to value its intangible  assets including the value of the Patents and Goodwill.
For long-lived  assets to be held and used, we recognize an impairment loss only
if its carrying amount is not recoverable  through its  undiscounted  cash flows
and measures the impairment  loss based on the  difference  between the carrying
amount and fair value                                                           

We establish an allowance  for doubtful  accounts to cover  accounts  receivable
that  may  not be  collectible.  In  establishing  the  allowance  for  doubtful
accounts,  we analyze the collectibility of accounts that are large or past due.
In addition,  we consider  historical bad debts and current  economic  trends in
evaluating the allowance for doubtful accounts.  Accounts receivable written off
in  subsequent  periods can differ  materially  from the  allowance for doubtful
accounts provided.                                                              

As described more fully in Item 3, Legal  Proceedings,  above, we are subject to
legal  proceedings.  Accruals are  established  for legal  matters  when, in our
opinion,  it is  probable  that a  liability  exists  and the  liability  can be
reasonably estimated.  Estimates of the costs associated with dispute settlement
are adjusted as facts emerge.  Actual  expenses  incurred in future  periods can
differ materially from accruals established.                                    

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ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                    
CONDITION AND RESULTS OF OPERATIONS         

YEAR ENDED DECEMBER 31, 2005 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2004    

REVENUES                                                                        

Total  revenues  were  $14.0  million  for the year  ended  December  31,  2005,
corresponding  to an increase of $3.3 million,  or 32.0%,  over 2004 revenues of
$10.6  million.  The  increase in revenues  realized  during 2005 was due to the
addition of operating  activities of a company  acquired during May of 2005 (see
part 6, acquisitions) increasing revenue in our field service operations by $1.3
million, a major soil transportation and disposal project with our TSDF facility
of $1.6 million, and growth in base business ($0.4 million).  Increased revenues
from the addition of  operating  activities  and  increase in base  business are
expected to continue in 2006.  Revenues from the discontinued  operations at the
New  Jersey  facility  of $1.3  million  and  $2.6  million  for  2005  and 2004
respectively have been removed from the above figures.                          

COST OF REVENUES                                                                

Cost of revenues  for the year ended  December 31, 2005 were $10.5  million,  or
75.5% of revenue,  as compared to $7.8 million, or 73.3% of revenue in 2004. The
change  in  cost  of  revenues  is  primarily  attributable  to the  major  soil
transportation  and  disposal  project  noted  above.  This  project was done at
margins considerably lower than our base business.  Cost of revenue without this
project was 73.0% in 2005. Cost of sales from the discontinued operations at the
New  Jersey  facility  of $1.9  million  and  $2.4  million  for  2005  and 2004
respectively have been removed from the above figures.                          

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                    

Selling,  general and  administrative  expenses for the year ended  December 31,
2005 were $4.6  million or 33.2% of revenue,  as compared  to $5.5  million,  or
51.7% of  revenue  in 2004.  The  primary  reason  this  decrease  is due to the
reduction in impairment  of goodwill.  Goodwill was impaired by $0.5 million and
$2.3  million in 2005 and 2004  respectively.  Net of  impairment  of  goodwill,
selling,  general and  administrative  expenses  overall have  increased by $0.8
million in 2005 due to the acquisition of the field service  operation  acquired
in May 2005.  We expect that the  percentage  of these costs will  decrease as a
percentage of revenue in future  periods.  Selling,  general and  administrative
expenses from the  discontinued  operations  at the New Jersey  facility of $0.4
million and $1.0 million for 2005 and 2004  respectively  have been removed from
the above figures.                                                              

DEPRECIATION AND AMORTIZATION                                                   

Depreciation and amortization expenses for the year ended December 31, 2005 were
$0.2  million,  or 1.2% of  revenue,  as compared  to $0.4  million,  or 0.4% of
revenue in 2004. Depreciation and amortization expenses from the discontinued of
operations  at the New Jersey  facility of $0.3 million and $0.4 million in 2005
and 2004 respectively have been removed from the above figures.                 

INTEREST EXPENSE                                                                

Interest  expenses for the year ended  December 31, 2005 were $0.8  million,  or
6.0% of  revenue,  as  compared  to $0.9  million,  or 9.0% of  revenue in 2004.
Decrease in interest is attributable to Veridium's various financings  completed
during 2005 and the elimination of Veridium's  factoring  facility with Prestige
Capital  Corporation  and a nine month  decrease in the interest rate charged by
GCS Investments.  The Prestige facility was paid off entirely in March 2004 upon
closing  of  the  Laurus  Financing.  Interest  expense  from  the  discontinued
operations at the New Jersey  facility of $0.04 million in 2004 has been removed
from the above figures.                                                         

LOSS ON IMPAIRMENT OF ASSETS - PATENTS                                          

During  2005,  Veridium  identified a number of long lived assets that have been
impaired by the closure of the recycling facility in Paterson, New Jersey. Based
on the  closure  of this  facility,  an  impairment  charge  to the value of the
patents of $1.7  million  along with an  additional  $0.1  million  for  permits
related to the facility were realized.  This compares with an impairment  charge
to the  patents of $1.3  million  which was  recorded  in 2004.  The 2005 charge
represents a complete write down of the patent values.                          

LOSS ON IMPAIRMENT OF ASSETS - EQUIPMENT                                        

Due to the closure of the recycling facility in Paterson, New Jersey a charge of
$1.1 million was recorded in 2005. This represents a write down of all equipment
associated with the recycling facility to zero.                                 

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ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION           
AND RESULTS OF OPERATIONS                   

LOSS ON IMPAIRMENT OF ASSETS - GOODWILL                                         

During 2005,  Veridium  realized an impairment to goodwill in the amount of $0.5
million.  This  impairment  is due to the closure of the  recycling  facility in
Paterson, New Jersey. This compares to an impairment to Goodwill of $2.3 million
in 2004 which was associated with the environmental services operations.        

FORGIVENESS OF ACCRUED INTEREST                                                 

There was no  forgiveness of interest  recorded in 2005.  Forgiveness of accrued
interest  was  recorded  in 2004  for  $408,207.  This  was  related  to the CCS
Debenture and Jones purchase.                                                   

NET LOSS                                                                        

Our total net loss from continuing  operations the year ended December 31, 2005,
was $1.9 million or 13.4% of revenue,  as compared to a loss of $3.1 million, or
29.0% of revenue in 2004. The majority of the loss in 2004 was attributable to a
write off of $2.2 million of goodwill associated with the environmental services
operations.  Losses of $3.8 million and $3.4  million  incurred in 2005 and 2004
respectively  from the  discontinued  operations at the New Jersey facility have
been removed from the above figures.                                            

LIQUIDITY AND CAPITAL RESOURCES                                                 

Veridium's  operating  activities used $700,569 of cash in 2005 as compared to a
$197,578 use of cash in 2004. Veridium's capital requirements consist of general
working  capital needs,  scheduled  principal and interest  payments on debt and
capital leases and planned capital  expenditures.  Veridium's  capital resources
consist  primarily of cash generated from  operations and proceeds from issuance
of debt and common  stock.  At December 31, 2005  Veridium had cash of $334,128.
This cash  represents a decrease of $0.8  million from the cash  available as of
December 31, 2004.                                                              

CASH FLOWS FOR 2005                                                             

Operating activities in 2005 used approximately $700,569 in cash flows. Non-cash
expenses  recorded for the year ended December 31, 2005 totaled $4.4 million and
consisted  primarily  of $3.4  million in  impairment  charges,  $0.5 million in
depreciation and amortization, and about $0.5 million in interest expense.      

Accounts  receivable  at  December  31,  2005,  net of  allowance  for  doubtful
accounts,  totaled $2.2  million,  an increase of $0.1 million from the December
31, 2004 balance of $2.1 million.  Net accounts receivable from the discontinued
operations at the New Jersey  facility of $0.03 million and $0.3 million in 2005
and 2004  respectively  have been removed from the  previous  figures.  Accounts
payable at December 31, 2005 totaled $2.0  million,  an increase of $0.1 million
from the December  31, 2004  balance of $1.9  million.  Accounts  payables  from
discontinued  operations  at the New Jersey  facility  of $0.5  million and $0.4
million in 2005 and 2004  respectively have been removed from the above figures.
Accrued expenses at December 31, 2005 totaled $1.6 million,  an increase of $0.1
million over the December 31, 2004  balance of $0.6  million.  Accrued  expenses
from the discontinued  operations at the New Jersey facility of $0.4 million and
$0.7  million in 2005 and 2004  respectively  have been  removed  from the above
figures.                                                                        

For the year ended  December  31, 2005,  we obtained net cash from  financing of
$1.0 million  verses $3.9 million for 2004.  We used these funds to complete our
recapitalization process and to provide working capital for operations.         

Veridium had a negative  working capital position of $6.6 million as of December
31, 2005 as compared to a negative  working capital  position of $2.1 million as
of December 31, 2004. The current  liabilities  that  contribute to the negative
position  include $1.9  million and $1.7  million,  respectively,  of the Laurus
financing arrangement. This convertible debenture is currently in default due to
the fact that the registration of the stock for the benefit of the Laurus Master
Fund has not been completed.                                                    

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ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION           
AND RESULTS OF OPERATIONS                   

CASH FLOWS FOR 2005                                                             

The  following  is a  summary  of the  Company's  significant  contractual  cash
obligations  for the periods  indicated  that  existed as of December  31, 2005.
Information  regarding these obligations is more fully disclosed in the Notes to
the  Consolidated  Financial  Statements (see Notes 8 and 10 to the Notes to the
Consolidated Financial Statements).                                             

                                                        [Enlarge/Download Table]


                                                              Years Ended December 31,                             
                                         2006           2007         2008          2009           2010        Total
                                   --------------------------------------------------------------------------------

                                                                                                                   
Long and short term debt and                                                                                       
  capital lease obligations        $  4,279,192  $  1,677,688  $ 1,238,330  $    84,394  $     29,500 $   7,309,104
Operating leases                         44,080        18,900       18,900        6,300            --        88,180
                                   ------------  ------------  -----------  -----------  ------------ -------------
Total contractual cash obligations $  4,323,272  $ 1,696,588   $ 1,257,230  $    90,694  $     29,500 $   7,397,284

GOING CONCERN                                                                   

Veridium incurred a loss of approximately $5.7 million during the year ended    
December 31, 2005. Also as of December 31, 2005, Veridium had current           
liabilities exceeding its current assets by $ 5.1 million. These matters caused 
the Company's auditors to add an explanatory paragraph in their auditors report 
which raises substantial doubt about Veridium's ability to continue as a going  
concern.                                                                        

Management's  plans  include  raising  additional  proceeds from debt and equity
transactions  to fund  operations  and to increase  revenue and cut  expenses to
reduce the loss from  operations.  The  closure  of the  recycling  facility  in
Paterson, New Jersey should help achieve these objectives. However, there can be
no assurances that Veridium will be successful in this regard or will be able to
eliminate  both its  working  capital  deficit  and its  operating  losses.  The
accompanying  financial  statements do not contain any adjustments  which may be
required as a result of this uncertainty.                                       

STOCKHOLDER MATTERS                                                             

Stockholders' equity was ($4.3) million at December 31, 2005 as compared to $1.3
million at December 31, 2004.                                                   

OFF BALANCE SHEET ARRANGEMENTS                                                  

Viridis  Capital,  LLC an  affiliate of Kevin  Kreisler,  Chairman of the Board,
purchased  a  $58,821  debt  payable  to  Lakeland  Bank  and  assigned  this to
GreenShift,  another affiliate of Kevin Kreisler. Lakeland Bank has not released
Veridium of the debt obligation.                                                

NEW ACCOUNTING PRONOUNCEMENTS                                                   

In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs - an amendment
of ARB No. 43, Chapter 4," which  clarifies the accounting for abnormal  amounts
of  idle  facility  expense,   freight,  handling  costs,  and  wasted  material
(spoilage) and also requires that the allocation of fixed production overhead be
based on the  normal  capacity  of the  production  facilities.  SFAS No. 151 is
effective for inventory  costs incurred during fiscal years beginning after June
15,  2005.  The Company is  currently  evaluating  the impact of  adopting  this
statement.                                                                      

In December 2004, the FASB issued FASB statement No. 153 ("SFAS 153"). SFAS 153 
addresses accounting for non-monetary transactions.                             

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 123R "Share  Based  Payment."  This  statement is a revision to SFAS 123 and
supersedes  Accounting  Principles  Board (APB) Opinion No. 25,  "Accounting for
Stock Issued to Employees," and amends FASB Statement No. 95, "Statement of Cash
Flows".  This statement requires a public entity to expense the cost of employee
services received in exchange for an award of equity instruments. This statement
also  provides  guidance  on valuing  and  expensing  these  awards,  as well as
disclosure  requirements  of  these  equity  arrangements.   This  statement  is
effective as of the  beginning of the first interim or annual  reporting  period
that  begins  after  December  15,  2005.  The  revised  SFAS No. 123 may have a
material effect on the Company's  results of operations but not on the Company's
financial position.                                                             

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ITEM 7.          FINANCIAL STATEMENTS                                           

                                                        [Enlarge/Download Table]


                                                                                                     Page No
FINANCIAL STATEMENTS                                                                                        

                                                                                                            
Report of Independent Registered Public Accounting Firm (2005)............................................16

Report of Independent Registered Public Accounting Firm (2004)............................................17

Consolidated Balance Sheets ..............................................................................18

Consolidated Statements of Operations ....................................................................19

Consolidated Statements of Stockholders' Equity........................................................20-21

Consolidated Statements of Cash Flows.....................................................................22

Notes to Consolidated Financial Statements ............................................................23-47

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ITEM 7.  FINANCIAL STATEMENTS (continued)                                       

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                         

To the Board of Directors and Stockholders,                                     
Veridium Corporation and Subsidiaries:                                          

We  have  audited  the  accompanying  consolidated  balance  sheet  of  Veridium
Corporation  and   Subsidiaries  as  of  December  31,  2005,  and  the  related
consolidated  statement of operations,  stockholders'  equity and cash flows for
the year then  ended.  These  financial  statements  are the  responsibility  of
Veridium's  management.  Our  responsibility  is to  express an opinion on these
financial statements based on our audit.                                        

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.                                               

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated   financial  position  of  Veridium
Corporation  and  Subsidiaries  as of December  31, 2005,  and the  consolidated
results  of their  operations  and their  cash  flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.                                                                        

The accompanying  consolidated  financial statements have been prepared assuming
that Veridium  Corporation and Subsidiaries will continue as a going concern. As
more fully discussed in Note 2 to the financial statements, Veridium Corporation
and Subsidiaries has suffered recurring losses from operations and has a working
capital deficiency of $6,627,898 and an accumulated deficit of $46,012,242 as of
December 31, 2005. These conditions raise  substantial doubt about the Company's
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note 2. The consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.                                                                    

/s/ Rosenberg Rich Baker Berman & Company                                       

Bridgewater, New Jersey                                                         
April 14, 2006                                                                  

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ITEM 7.  FINANCIAL STATEMENTS (continued)                                       

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                         

To the Board of Directors and Stockholders,                                     
Veridium Corporation and Subsidiaries:                                          

We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders' equity and cash flows of Veridium Corporation and Subsidiaries for
the  year  ended December  31,  2004.   These  financial  statements  are  the  
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.                       

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.                                               

In our opinion, the financial statements referred to above, revised as described
in note 17, present fairly, in all material respects,  the consolidated  results
of operations and cash flows of Veridium  Corporation and  Subsidiaries  for the
year ended December 31, 2004 in conformity with accounting  principles generally
accepted in the United States of America.                                       

As discussed in Note 17 to the consolidated financial statements,  the Company's
financial  statements  for 2004 have been restated to correct for errors arising
primarily from an embedded beneficial conversion feature in the Company's Series
B  Preferred  stock  and  additional   debt  discounts   arising  from  embedded
derivatives and options associated with such debt.                              

The accompanying  consolidated  financial statements have been prepared assuming
that Veridium  Corporation and Subsidiaries will continue as a going concern. As
more fully discussed in Note 2 to the financial statements, Veridium Corporation
and  Subsidiaries  has  suffered  recurring  losses  from  operations  and had a
significant working capital deficiency as of December 31, 2004. These conditions
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 2. The  consolidated  financial  statements do not include any  adjustments
that might result from the outcome of this uncertainty.                         

/s/ WithumSmith+Brown, P.C.                                                     
New Brunswick, New Jersey                                                       
February 17, 2005, except for note 17 for                                       
which the date is  April 15, 2006                                               

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                      VERIDIUM CORPORATION AND SUBSIDIARIES                     
                           CONSOLIDATED BALANCE SHEET                           

                                DECEMBER 31, 2005                               

ASSETS:                                                                         
Current assets:                                                                 
                                                                                
   Cash .......................................................    $    334,128 
   Restricted cash ............................................          29,254 
   Accounts receivable, net ...................................       2,176,383 
Net current assets                                                              
of discontinuance of operations ...............................          34,562 

Prepaid expenses and other current assets .....................            --   
                                                                        172,382 
       Total current assets ...................................       2,746,709 

Property and equipment, net ...................................       1,392,079 

Other Assets:                                                                   
   Net non-current assets of discontinuance of operations .....          10,552 
   Deposits ...................................................         104,498 

   Permits, net ...............................................         189,523 
   Goodwill, net ..............................................       4,010,303 
                                                                   ------------ 
       Total other assets .....................................       4,314,876 
                                                                   ------------ 

TOTAL ASSETS ..................................................    $  8,453,664 
                                                                   ============ 

LIABILITIES AND STOCKHOLDERS' EQUITY:                                           
Current liabilities:                                                            
   Short term borrowings - related party ......................    $    716,190 
 Short term borrowings - other ................................          22,411 
   Accounts payable ...........................................       1,923,830 
   Accrued expenses ...........................................       1,618,084 
   Discontinuance of operations current .......................         909,447 
   Current maturities of long-term debt .......................         259,532 
   Liability for derivative instruments .......................         668,779 
   Current portion of convertible debentures ..................       2,991,261 
   Current portion of convertible debentures - related party ..         265,073 
                                                                   ------------ 
       Total current liabilities ..............................       9,374,607 

Long-term debt, net of current maturities .....................       1,891,441 
Convertible debentures, net of current portion ................         626,911 
Discontinuance of operations, net of current ..................           1,163 
                                                                   ------------ 

       Total long term liabilities ............................       2,519,515 
                                                                   ------------ 

       Total liabilities: .....................................      11,894,122 

Minority interest in consolidated subsidiary ..................         825,000 

Stockholders' equity:                                                           
   Convertible preferred stock, $0.001 par value,                               
     5,000,000 shares authorized:                                               
     Series A: 1,881,366 shares issued and outstanding ........           1,881 
     Series B: 1,646,218 shares issued and outstanding ........           1,646 
   Series C: 750,000 shares issued and outstanding ............             750 
   Common stock, $0.001 par value, 250,000,000 authorized;                      
   76,777,778 shares issued and outstanding ...................          76,778 
   Additional paid-in capital .................................      41,729,483 
   Accumulated deficit ........................................     (46,012,242)
   Treasury stock at cost, 161,266 shares of common stock .....         (63,754)
                                                                   ------------ 

Total stockholders' equity (deficit) ..........................            --   
                                                                     (4,265,458)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................    $  8,453,664 
                                                                   ============ 

 The notes to the Consolidated Financial Statements are an
integral part of these statements.

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                      VERIDIUM CORPORATION AND SUBSIDIARIES                          
                      CONSOLIDATED STATEMENTS OF OPERATIONS                          
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004                      


                                                                (Restated)           
                                                          12/31/05        12/31/04   
                                                        ---------------------------- 
                                                                                     
Revenues ............................................   $ 13,962,113    $ 10,627,940 
   Cost of revenues .................................     10,543,944       7,793,397 
                                                        ------------    ------------ 
     Gross profit ...................................   $  3,418,169    $  2,834,543 

Operating expenses:                                                                  

   Selling expenses .................................   $  1,015,135    $    999,659 
   General and administrative expenses ..............      3,089,197       2,257,828 
   Impairment of goodwill ...........................        532,088       2,254,000 
                                                        ------------    ------------ 
Total operating expenses ............................      4,636,420       5,511,487 
                                                        ------------    ------------ 

Operating loss ......................................   $ (1,218,251)   $ (2,676,944)

Other income (expense):                                                              
   Amortization of deferred financing costs .........           --          (858,873)
   Write off of deposit .............................           --          (100,000)
   Miscellaneous income (expense) ...................         22,202         (20,098)
   Change in fair value of derivative instruments ...         66,200         954,925 
   Forgiveness of accrued interest ..................           --           408,207 
   Gain on equipment disposal .......................         38,530           8,500 
   Interest expense and amortization of debt discount       (744,295)       (881,696)
    Interest expense - related party ................        (17,697)           --   
   Gain on extinguishment of debt ...................          7,248          82,316 
                                                        ------------    ------------ 
     Total other expense, net .......................       (627,812)       (406,719)
                                                        ------------    ------------ 

Loss before provision for income taxes ..............     (1,846,063)     (3,083,663)
Provision for income taxes ..........................         19,165          15,218 
                                                        ------------    ------------ 

Net loss from continuing operations .................   $ (1,865,228)   $ (3,098,881)
                                                        ------------    ------------ 

Discontinued operations:                                                             

   Loss from discontinued operations ................   $ (3,877,671)   $ (3,357,119)

   Gain on disposal of discontinued operations ......         45,041            --   

             Total discontinued operations ..........   $ (3,832,630)   $ (3,357,119)
                                                        ------------    ------------ 

Net loss ............................................   $ (5,697,858)   $ (6,456,000)

Preferred dividends .................................     (3,647,083)     (2,608,453)
                                                        ------------    ------------ 

Net loss applicable to common shareholders ..........   $ (9,344,941)   $ (9,064,453)

Loss per common share, basic and diluted                                             
  - continuing operations ...........................   $      (0.04)   $      (0.12)

Loss per common share, basic and diluted                                             
  - discontinued operations .........................   $      (0.08)   $      (0.13)

Loss per common share, basic and diluted                                             
  - preferred dividends .............................   $      (0.08)   $      (0.10)
                                                        ------------    ------------ 

Net loss per common share, basic and diluted ........   $      (0.20)   $      (0.35)
                                                        ============    ============ 

Weighted average shares of common stock                                              
  outstanding, basic and diluted ....................     46,364,515      26,231,883 
                                                        ============    ============ 

 The notes to the Consolidated Financial Statements are an
integral part of these statements.

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                      VERIDIUM CORPORATION AND SUBSIDIARIES                                                                         
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                                                    
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004                                                                     
                                  (AS RESTATED)                                                                                     


                                               Series A Preferred     Series B Preferred    Series C Preferred       Common Stock   
                                                       Stock               Stock                    Stock                           
                                           -----------------------------------------------------------------------------------------
                                             Shares     Amount     Shares     Amount      Shares     Amount    Shares     Amount    
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                                    
Balance at 1/1/04 (as restated)             1,881,366  $  1,881     945,992    $  946        --       $ --     23,379,916  $ 23,380 
   Settlement of debt and payables              --         --          --           --       --         --      1,599,682     1,600 
   Antidilution and price protection            --         --         24,000        24       --         --      3,589,583     3,589 
   Shares issued for cash                       --         --         46,875        47       --         --         70,000        70 
   Settlement of debt - payables                                                                                                    
      - rel. party                              --         --        516,968       516       --         --      3,331,803     3,332 
   Antidilution  price protection                                                                                                   
      - rel. party                              --         --        180,000       180       --         --        225,000       225 
   Shares issued for cash - rel. party          --         --          --           --    750,000      750      1,500,000     1,500 
   Exchange for services                        --         --          --           --       --         --         25,000        25 
   Exchange for services - rel. party           --         --         47,383        48       --         --          --          --  
   Conversion of minority interest              --         --          --           --       --         --        500,000       500 
   Cancellation or redemption - rel. party      --         --          --           --       --         --     (1,168,266)   (1,169)
   Stock for settlement                         --         --          --           --       --         --        604,554       605 
   Issuance of warrants and options             --         --          --           --       --         --          --          --  
   Exchange for services                        --         --          --           --       --         --        191,860       192 
   Value of beneficial conversion feature       --         --          --           --       --         --          --          --  
   on convertible debt                          --         --          --           --       --         --          --          --  
   Amortization of beneficial conversion                                                                                            
     feature on convertible preferred stock     --         --          --           --       --         --          --          --  
   Net loss                                     --         --          --           --       --         --          --          --  
                                           ----------  ---------   ---------  ---------  ---------  ---------  ---------   -------- 

Balance at 12/31/04 (as restated)          1,881,366   $  1,881    1,761,218  $   1,761   750,000    $  750    33,849,132 $  33,849 
                                           ==========  =========   =========  =========  =========  =========  ==========  =========

   Settlement of debt and payables              --         --          --           --       --         --        727,500      728  
   Anti dilution and price protection           --         --          --           --       --         --      4,662,025    4,662  
   Shares issued for cash                       --         --          --           --       --         --          --          --  
   Settlement of debt - payables                                                                                                    
      - rel. party                              --         --          --           --       --         --     11,181,607   11,182  
   Anti dilution price protection                                                                                                   
      - rel. party                              --         --          --           --       --         --      6,651,084    6,651  
   Exchange for services                        --         --       225,000        225       --         --      6,075,478    6,075  
   Exchange for services - rel. party           --         --          --           --       --         --      8,910,498    8,910  
   Consideration for business combination       --         --          --           --       --         --        982,759      983  
   Cancellation or redemption                   --         --          --           --       --         --     (2,906,244)   (2,906)
   Cancellation or redemption                                                                                                       
      - related party                           --         --          --           --       --         --     (1,856,061)   (1,856)
   Value of beneficial conversion feature                                                                                           
     on convertible debt                        --         --          --           --       --         --          --           -- 
   Conversion of Series B Preferred to Common   --         --      (340,000)      (340)      --         --      8,500,000    8,500  
   Record liability for derivatives             --         --          --           --       --         --          --           -- 
   Amortization of beneficial conversion                                                                                            
     feature on convertible preferred stock     --         --          --           --       --         --          --           -- 
Net loss                                                                                                                            
                                          ----------  ---------   ---------    ---------  ---------  ---------  ---------   --------

Balance at 12/31/05                        1,881,366  $ 1,881     1,646,218   $   1,646    750,000   $  750    76,777,778  $ 76,778 
                                          ==========  =========   =========    =========  =========  =======   ==========  ======== 

            The notes to the Consolidated Financial Statements are an                                                               
                       integral part of these statements.                                                                           

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                      VERIDIUM CORPORATION AND SUBSIDIARIES                                                                         
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                                                    
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004                                                                     
                                 (AS RESTATED)                                                                                      


                                        Common Stock Subscribed   Additional    Accumulated        Treasury Stock         Total     
                                                                    Paid-in       Deficit                              Stockholders'
                                                                    Capital                                               Equity    
                                       -------------------------                                 --------------------               
                                         Shares       Amount                                       Shares       Amount              
                                       ---------------------------------------------------------------------------------------------

                                                                                                                                    
Balance at 1/1/04 .......................     --         --       31,505,431    (27,602,848)      5,000     (12,828)     3,915.962  
   Settlement of debt and payables ......     --         --          517,134           --          --          --          518,734  
   Antidilution and price protection ....     --         --            1,555           --          --          --            5,168  
   Shares issued for cash ...............     --         --          259,883           --          --          --          260,000  
   Settlement of debt and payables                                                                                                  
       - rel. party ......................    --         --        1,292,773           --          --          --        1,296,921  
   Antidilution price protection                                                                                                    
       - rel. party ......................    --         --             (405)          --          --          --            --     
   Shares issued for cash                                                                                                           
       - rel. party ..................... 2,078,533  (175,000)     1,122,750           --          --          --          950,000  
   Exchange for services ................     --         --            4,975           --          --          --            5,000  
   Exchange for services - rel. party ...     --         --           59,182           --          --          --           59,230  
   Conversion of minority interest ......     --         --           40,950           --          --          --           41,450  
   Cancellation or redemption -                                                                                                     
     related party ......................     --         --         (104,403)          --       156,266     (50,926)      (156,498) 
   Stock for settlement .................     --         --             (605)          --          --          --             --    
   Issuance of warrants and options .....     --         --             --             --          --          --             --    
   Exchange for services ................     --         --          480,805           --          --          --          480,997  
   Value of beneficial conversion feature     --         --             --             --          --          --             --    
   on convertible debt ..................     --         --           98,000           --          --          --           98,000  
   Amortization of beneficial                                                                                                       
      conversion feature                                                                                                            
   On convertible preferred stock .......     --         --        2,608,453     (2,608,453)       --          --            --     
   Net loss .............................     --         --             --       (6,456,000)       --          --       (6,456,000) 
                                         ----------  ---------    ----------   ------------   ----------    ----------  ----------  
Balance at 12/31/04 ..................... 2,078,533 $(175,000)    37,886,478   $(36,667,301)    161,266     $ (63,754)  $1,018,664  
                                         ==========  =========    ==========   ============   ==========    ==========  ==========  

   Settlement of debt and payables            --        --            41,022           --          --          --           41,750  
   Anti dilution and price protection         --        --            (4,662)          --          --          --            --     
   Shares issued for cash                (2,078,533)  175,000          --              --          --          --          175,000  
   Settlement of debt and payables                                                                                                  
       - rel. party                           --        --           212,450           --          --          --          223,632  
     Anti dilution price protection                                                                                                 
       - rel.  party                          --        --            (6,651)          --          --          --            --     
   Exchange for services                      --        --           187,794           --          --          --          194,094  
   Exchange for services - rel. party         --        --           233,590           --          --          --          242,500  
   Consideration for business combination     --        --            74,017           --          --          --           75,000  
   Cancellation or redemption -               --        --          (287,718)          --          --          --         (290,624) 
   Cancellation or redemption                                                                                                       
        -  rel. party                         --        --          (114,811)          --          --          --         (116,667) 
   Value of beneficial conversion                                                                                                   
     feature on convertible debt              --        --            20,165           --          --          --           20,165  
   Conversion of Series B Preferred to Common --        --            (8,160)          --          --          --            --     
   Record liability for derivatives           --        --          (151,114)          --          --          --         (151,114) 
   Amortization of beneficial conversion      --        --             --              --          --          --            --     
   feature on convertible preferred stock     --        --         3,647,083     (3,647,083)       --          --            --     
   Net loss                                   --        --            --         (5,697,858)       --          --      $(5,697,858) 
                                         ---------  --------     -----------   ------------    ---------   ---------  -----------   
Balance at 12/31/05                           --        --       $41,729,483   $(46,012,242)    161,266     $ (63,754) $(4,265,458) 
                                         ========== ========     ===========   ============    =========    =========  ===========  

            The notes to the Consolidated Financial Statements are an                                                               
                       integral part of these statements.                                                                           

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                      VERIDIUM CORPORATION AND SUBSIDIARIES                     
                      CONSOLIDATED STATEMENTS OF CASH FLOWS                     
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004                 

                                                      12/31/05       12/31/04   
                                                    --------------------------  
                                                                   (as restated)
CASH FLOWS FROM OPERATING ACTIVITIES                                            
                                                                                
Continuing Operations                                                           
Net loss from continuing operations...............  $(1,865,228)  $(3,098,881)  
Adjustments to reconcile net loss to net cash                                   
  used in operating activities:                                                 
   Depreciation and amortization .................      192,927       396,714   
   Amortization of deferred financing  costs .....         --         722,873   
   Accretion of debt discount ....................      229,461       307,620   
   Impairment of goodwill ........................      532,088     2,254,000   
   Bad debt expense (recovery) ...................       83,270        (5,569)  
   Write off of deposits .........................         --         100,000   
 Write off of idle                                                              
equipment and patents ............................         --       1,021,211   
   Write down of inventories .....................        3,627          --     
   Interest paid direct from lender ..............         --          37,917   
   Stock based compensation ......................      436,644          --     
   Stock issued for services rendered ............         --          64,182   
Change in fair value of derivatives ..............      (66,200)     (954,925)  
 Severance expense ...............................         --         382,480   
   Forgiveness of accrued interest ...............         --        (408,207)  
   Gain of sale of fixed assets ..................      (38,530)       (8,500)  
   Gain of extinguishment of debt ................         --         (82,316)  
   Repayments to factor, net .....................         --         (11,772)  
   Deferred income taxes .........................      (18,485)         --     
Changes in assets and liabilities,                                              
  net of acquisitions                                                           
     Accounts receivable .........................       84,923        24,806   
Prepaid expenses .................................       (8,724)       30,054   
     Deposits ....................................      (88,799)         --     
     Permits .....................................      (16,795)         --     
     Accounts payable ............................     (162,083)      199,872   
     Accrued expenses ............................      821,163     1,032,423   
                                                    -----------   -----------   
       Net cash provided by continuing operations.      119,259     2,003,982   
                                                    -----------   -----------   
Discontinued Operations                                                         
Net loss from discontinued operations                (3,832,630)   (3,357,119)  
Change in net assets of discontinued operations..     3,012,802     1,155,559   
                                                    -----------   -----------   
       Net cash used in discontinue operations...      (819,828)   (2,201,560)  

       Net cash used in operating activities.....      (700,569)     (197,578)  

CASH FLOWS FROM INVESTING ACTIVITIES                                            

Acquisition of NCES ..............................     (371,948)         --     
Decrease (increase) in deposits ..................         --          (3,450)  
Additions to and acquisition of property,                                       
  plant and equipment ............................       (2,174)      (17,048)  
Proceeds from sale of fixed assets ...............       38,530         8,500   
                                                    -----------   -----------   

       Net used in investing activities ..........     (335,592)      (11,998)  
                                                    -----------   -----------   
CASH FLOWS FROM FINANCING ACTIVITIES                                            

   Increase in restricted cash ...................      (29,254)         --     
   Short term borrowings - related party .........      599,523          --     

   Repayment of short-term borrowings - other ....     (225,292)     (218,877)  
 Proceeds from collection of stock subscription ..      175,000          --     
   Purchase of Treasury Stock ....................         --         (50,926)  
   Issuance of (repayment of) long-term debt .....     (317,219)      478,036   
  Proceeds from (repayment of) officer loans, net          --        (185,893)  
   Proceeds from (repayment of) issuance                                        
  of convertible debentures ......................      361,828       (65,829)  
   Redemption of common stock ....................     (290,624)         --     
   Proceeds from the exercise of stock options                                  
  and purchase of stock, net .....................         --       1,260,000   
                                                    -----------   -----------   
       Net cash provided by financing activities .      273,962     1,216,511   

Increase (decrease) in cash ......................     (762,199)    1,006,935   

Cash at beginning of year ........................    1,096,327        89,392   
                                                    -----------   -----------   
Cash at end of year ..............................  $   334,128   $ 1,096,327   
                                                    ===========   ===========   

              The Notes to Consolidated Financial Statements are an             
                       integral part of these statements.                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1         DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION                     

Veridium  Corporation  ("we," "our," "us,"  "Veridium,"  or the "Company") is an
environmental  management  company  providing  a variety of  services to a broad
client  base in both  the  private  and  public  sectors.  We  conduct  business
throughout  the  northeastern  region  of the  United  States  and our  services
include:                                                                        

     o    Environmental  Services  - we  provide  transportation,  distribution,
          recycling  and  disposal   services  specific  to  the  materials  and
    processes of our clients, for a wide range of industrial wastes.

     o    Field Services - we provide  remedial,  industrial  cleaning and other
   related services for our clients at their sites and facilities.

Our business is roughly 85 percent distribution and 15 percent field services.  

COMPANY BACKGROUND                                                              

The Company was formed in 1984 as KBF Pollution  Management,  Inc.  ("KPMI") and
was merged with its wholly owned subsidiary,  Veridium Corporation in 2003 after
completing the acquisition of the former Environmental Services Division of R.M.
Jones & Co.,  Inc.  ("ESD"),  Enviro-Safe,  Corp.  ("ESC"),  and Metal  Recovery
Transportation,  Corp.,  ("MRTC").  These  acquisitions were completed to form a
full  service  environmental  company,  operating  throughout  the New  England,
Northeast and Mid-Atlantic States.                                              

As of December 31, 2005 we operated out of four service centers: our RCRA Part B
permitted  TSDF in  Lowell,  Massachusetts,  our  field  service  operations  in
Sandwich  and  Milford,  Massachusetts;  and our  technical  services  center in
Plainville, Connecticut.                                                        

Veridium conducts all commercial  activities  through its various  subsidiaries,
Veridium  Environmental  Corporation ("VEC") and Veridium Recovery Systems, Inc.
("VRS").  VEC,  in turn,  is the  sole  owner  of ESD,  the sole  owner of Jones
Environmental Services (North East), Inc., our  Massachusetts-based  RCRA Part B
Treatment,  Storage and Disposal Facility  ("TSDF") and Enviro-Safe  Corporation
("ESC") our field  services  company.  VRS is the sole owner of American  Metals
Recovery,  Corp. ("AMRC"), our discontinued New Jersey recycling operation,  and
MRTC, our discontinued transportation company (see Note 4).                     

On January 23, 2006, Veridium acquired GreenShift  Industrial Design Corporation
("GIDC") and Tornado Trash Corporation ("TTC"). GIDC was subsequently renamed to
Veridium Industrial Design Corporation ("VIDC").  These acquisitions are part of
the Veridium's plans to revitalize its industrial waste recycling business model
following  Veridium's  the  discontinuance  during  2005 of the  AMRC  and  MRTC
operations.                                                                     

BUSINESS STRATEGY                                                               

Our  ambition is to  restructure  and  revitalize  Veridium's  industrial  waste
recycling  services on the basis of our planned  provision of industrial  design
and technology  transfer services based on the use of  environmentally  friendly
technologies and applied engineering expertise to reduce waste at its source and
to make it easier for people and businesses to recycle and reuse  resources.  As
part of this plan, we are exploring  options relative to the  restructuring  and
recapitalization of our environmental management business.                      

2         GOING CONCERN                                                         

Veridium  incurred a loss from  continuing  operations  of  approximately  $1.9 
million  during the year ended  December  31, 2005,  which  excludes a loss from
discontinued  operations of $3.8 million at Veridium's New Jersey facility. Also
as of December 31, 2005, Veridium had current liabilities  exceeding its current
assets by $6.6 million.  These matters  caused the Company's  auditors to add an
explanatory  paragraph in their auditors report which raises  substantial  doubt
about Veridium's ability to continue as a going concern.                        

Management's  plans  include  raising  additional  proceeds from debt and equity
transactions  to fund  operations  and to increase  revenue and cut  expenses to
reduce the loss from  operations.  Management  believes  that the closure of the
recycling  facility in Paterson,  New Jersey should  achieve  these  objectives.
However,  there can be no  assurances  that  Veridium will be successful in this
regard or will be able to  eliminate  both its working  capital  deficit and its
operating losses.                                                               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2         GOING CONCERN (continued)                                             

The accompanying  financial  statements do not contain any adjustments which may
be required as a result of this uncertainty.                                    

3         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                            

References  to the  "FASB",  "SFAS"  and "SAB"  herein  refer to the  "Financial
Accounting Standards Board," "Statements of Financial Accounting Standards," and
the "SEC Staff Accounting Bulletin," respectively.                              

PRINCIPLES OF CONSOLIDATION                                                     

The  accompanying  consolidated  financial  statements  include all  accounts of
Veridium  Corporation  and  its  subsidiaries.   All  significant  inter-company
accounts and transactions have been eliminated in consolidation.                

REVENUE RECOGNITION                                                             

Revenue and related costs are  recognized  during the month wastes are collected
from our customers at Veridium's permitted facilities.  The cost associated with
proper  recycling  or disposal of the  materials is accrued at the time of sale.
Revenue  from metals  recovered  from  treated  waste are accrued when an actual
statement is received from a smelter.                                           

Veridium also ships  material  directly  from a client  location to a processing
facility.  The revenue is  recognized  the day of the  shipment and accruals for
costs are done monthly.  Field services  revenues and costs are recognized based
upon the terms of the  underlying  contract as the  services are rendered to the
customer.                                                                       

The basis of Veridium's  recycling program produces a product that is acceptable
to a  secondary  processor,  primarily  smelters.  Smelters  charge  Veridium  a
processing fee and credit against this fee based on  metal-bearing  content.  In
most  instances,   the  processing  charge  in  conjunction  with  the  cost  of
transportation  to  the  smelter  is  greater  than  the  metal-bearing  credit.
Therefore,  Veridium's sales of commodities is  insignificant  and in accordance
with EITF 02-16 is recorded as a decrease in cost of operations when a credit is
received.                                                                       

RECEIVABLES AND CREDIT CONCENTRATION                                            

Accounts   receivable  are   uncollateralized,   non-interest-bearing   customer
obligations due under normal trade terms  requiring  payment within 30 days from
the invoice  date.  Accounts  receivable  are stated at the amount billed to the
customer.   Accounts  receivable  in  excess  of  90  days  old  are  considered
delinquent.  Payments of  accounts  receivable  are  allocated  to the  specific
invoices identified on the customer's remittance advice or, if unspecified,  are
applied to the oldest unpaid invoices.                                          

The carrying amount of accounts  receivable is reduced by a valuation  allowance
that reflects Veridium's best estimate of the amounts that may not be collected.
This  estimate is based on reviews of all balances in excess of 90 days from the
invoice date.  Based on this assessment of current credit  worthiness,  Veridium
estimates  the  portion,  if any,  of the  balance  that will not be  collected.
Management also considers the need for additional  general  reserves and reviews
its valuation allowance on a quarterly basis.                                   

Accounts receivable at December 31, 2005 are approximated as follows:           

Accounts receivable  (excluding $40,000 from discontinued  operations) 2,346,000
Less:  allowance for doubtful  accounts  (excluding  ($5,000) from  discontinued
ops.) (170,000) Accounts receivable, net $ 2,176,000 The Company has a revolving
line of credit  which is secured with a  percentage  of the accounts  receivable
presented  above.  This  collateral  as of December  31, 2005 was  approximately
$1,913,000.                                                                     

CASH AND EQUIVALENTS                                                            

The Company considers cash and equivalents to be cash and short-term investments
with original maturities of three months or less from the date of acquisition.  

Veridium  maintains cash balances with financial  institutions that at times may
exceed the limits insured by the Federal  Deposit  Insurance  Corporation.  Cash
balances in excess of these limits at December 31, 2005 amounted to $225,176.   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)               

CASH AN EQUIVALENTS (continued)                                                 

At  12/31/04,  the  Company  pledged  cash in the  amount of  $17,500 to satisfy
potential site clean-up of the Lowell location.  In 2005, the Company  deposited
$90,000 to satisfy this  environmental  bond obligation.  In accordance with the
agreement,  the  trustee  is Bank  North and  beneficiary  is the  Massachusetts
Department of Environmental Protection.  The total amount on deposit at December
31, 2005 is approximately  $96,000,  and these restricted short term investments
are classified under Deposits on the accompanying Balance Sheet.                

As of December 31, 2005, the Company maintained $29,254 in an account restricted
for use under the credit facility with Laurus Fund (see Note 8 below).          

NET LOSS PER COMMON SHARE                                                       

Veridium  computes its net income or loss per common share under the  provisions
of SFAS No.  128,  "Earnings  per Share",  whereby  basic net income or loss per
share  is   computed   by   dividing   the  net  loss  for  the  period  by  the
weighted-average number of shares of common stock outstanding during the period.
Dilutive net loss per share  excludes  potential  common shares if the effect is
anti-dilutive.  For the years ended  December  31, 2005 and 2004,  common  stock
equivalent  shares  arising from the assumed  exercise of options,  warrants and
debt  conversions  of  convertible  debt  instruments  were  excluded  from  the
computation of diluted net loss per share.                                      

PROPERTY AND EQUIPMENT                                                          

Property and equipment are depreciated using the  straight-line  method over the
estimated useful lives of the assets.  Leasehold improvements are amortized over
the lesser of the life of the lease or their useful  lives.  Gains and losses on
depreciable assets retired or sold are recognized in the statement of operations
in the year of disposal, and repair and maintenance expenditures are expensed as
incurred.  Property,  plant and equipment are stated at cost and include amounts
capitalized under capital lease obligations. Expenditures for major renewals and
improvements  which extend the life or usefulness of the asset, are capitalized.
Items of an ordinary  repair or  maintenance  nature,  are  charged  directly to
operating  expense as incurred.  Once an asset has been  completed and placed in
service,  it  is  transferred  to  the  appropriate  category  and  depreciation
commences.  Veridium leases certain  equipment under capital lease  obligations,
which  consist  primarily  of  processing  equipment,   trucking  equipment  and
laboratory equipment.                                                           

GOODWILL AND INTANGIBLE ASSETS                                                  

Veridium  accounts for its goodwill and intangible  assets  pursuant to SFAS No.
142,  Goodwill and Other  Intangible  Assets.  Under SFAS 142,  intangibles with
definite lives continue to be amortized on a straight-line basis over the lesser
of their estimated useful lives or contractual  terms.  Goodwill and intangibles
with  indefinite  lives  are  evaluated  at least  annually  for  impairment  by
comparing the asset's  estimated  fair value with its carrying  value,  based on
cash flow methodology.                                                          

Intangibles with definite lives consist primarily of patents,  which have useful
lives and are subject to impairment testing in the event of certain  indicators.
An  impairment  in  the  carrying  value  of an  asset  is  recognized  whenever
anticipated future cash flows  (undiscounted)  from an asset are estimated to be
less than its carrying  value.  The amount of the  impairment  recognized is the
difference between the carrying value of the asset and its fair value.          

DEFERRED FINANCING CHARGES AND DEBT DISCOUNTS                                   

Deferred finance costs represent costs which may include direct costs paid to or
warrants issued to third parties in order to obtain long-term financing and have
been  reflected as other assets.  Costs  incurred with parties who are providing
the actual long-term  financing,  which generally include the value of warrants,
fair value of the  derivative  conversion  feature,  or the  intrinsic  value of
beneficial   conversion  features  associated  with  the  underlying  debt,  are
reflected as a debt discount.  These costs and discounts are generally amortized
over the life of the related debt.  Amortization  expense related to these costs
and discounts  were  approximately  $229,400 and  $1,030,000 for the years ended
December 31, 2005 and 2004, respectively.                                       

DERIVATIVE FINANCIAL INSTRUMENTS                                                

Certain  of  the  Company's  debt  and  equity   instruments   include  embedded
derivatives that require bifurcation from the host contract under the provisions
of SFAS No. 133. Under the provisions of this statement, the Company records the
related derivative  liabilities at fair value and records the accounting gain or
loss  resulting  from the  change in fair  values  at the end of each  reporting
period.                                                                         

ENVIRONMENTAL LIABILITIES                                                       

Environmental  liabilities  include  accruals for the  estimates  of  Veridium's
obligations   associated  with  remedial  environmental  matters  at  Veridium's
facilities  and pending  administrative  matters  assumed in Veridium's  various
acquisitions.  Accruals are adjusted if and as further  information  relative to
the underlying obligations develop or circumstances change.                     

INCOME TAXES                                                                    

Income taxes are  accounted for under the asset and  liability  method,  whereby
deferred income taxes are recorded for temporary  differences  between financial
statement carrying amounts and the tax basis of assets and liabilities.         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)                     

Deferred  tax assets and  liabilities  reflect  the tax rates  expected to be in
effect  for the  years in which the  differences  are  expected  to  reverse.  A
valuation  allowance  is provided if it is more likely than not that some or all
of the  deferred  tax asset will not be  realized.  Deferred  income tax assets,
which relate primarily to net operating loss carry-forwards, have been offset by
a valuation  allowance for the same amount for all financial  statement  periods
presented and  differences  in the basis in property,  equipment and  intangible
assets.                                                                         

USE OF ESTIMATES                                                                

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America 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 dates of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting periods. Actual results could differ from those estimates. 

STOCK BASED COMPENSATION                                                        

The Company  accounts for employee  stock-based  compensation in accordance with
Accounting  Principles Board (APB) Opinion No. 25,  "Accounting for Stock Issued
to  Employees",  using an  intrinsic  value  approach  to  measure  compensation
expense,  if any.  Under this  method,  compensation  expense is recorded on the
grant date only if the current market price of the underlying  stock exceeds its
exercise price.  Options and warrants issued to non-employees  are accounted for
in accordance with SFAS No. 123,  (Accounting for Stock-Based  Compensation" and
EITF Issue No.  96-18,  "Accounting  for Equity  Instruments  That Are Issued to
Other Than Employees for Acquiring,  or in Conjunction  with Selling,  Goods and
Services" using a fair value approach.                                          

SFAS No. 123  established  accounting and disclosure  requirements  using a fair
value-based method of accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, Veridium has elected to continue to apply the intrinsic
value-based  method of  accounting  described  above,  and has adopted  only the
disclosure  requirement of SFAS No. 123 for employee  issued  options.  No stock
option based employee  compensation  costs are reflected in Veridium's net loss,
as all options granted had an exercise price equal to or greater than the market
value of Veridium's  underlying  common stock at the date of grant. Had Veridium
elected  to  recognize  compensation  cost  based on fair value of the stock and
stock  options at the date of grant  under SFAS 123,  such costs would have been
recognized  ratably over the service  period of the  underlying  instrument  and
Veridium's  net loss and net loss per common  share would have  decreased to the
amounts indicated in the table below (which are not intended to be indicative of
or a projection of future results):                                             

                                                        [Enlarge/Download Table]

                                                                      Restated          
                                                                12/31/05      12/31/04  
                                                            ----------------------------
                                                                                        
Net loss .................................................  $  (5,697,858)  $(6,456,000)

Less: stock based employee compensation expense determined                              
under the fair value method for all awards ...............          (--)       (595,868)

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                      VERIDIUM CORPORATION AND SUBSIDIARIES                             
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           

3         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)                        

                                                            -------------   ----------- 
Pro forma net loss .......................................  $  (5,697,858)  $(7,051,868)
                                                            =============   =========== 

Pro form net loss applicable to common shareholders ......  $  (9,344,941)  $(9,660,321)
                                                            =============   =========== 

Basic and diluted net loss per common share, as reported .  $       (0.20)  $     (0.35)
                                                            =============   =========== 

Pro forma basic and diluted net loss per common share ....  $       (0.20)  $     (0.37)
                                                            =============   =========== 

RECLASSIFICATIONS                                                               

Certain reclassifications have been made to conform to the 2005 presentation.   

FINANCIAL INSTRUMENTS                                                           

The carrying values of accounts receivable, other receivables, accounts payable,
and  accrued  expenses  approximate  their fair  values due to their  short term
maturities.  The carrying values of Veridium's  long-term debt and capital lease
obligations  approximate  their  fair  values  based  upon a  comparison  of the
interest  rate and terms of such  debt to the rates and terms of debt  currently
available  to Veridium.  It was not  practical to estimate the fair value of the
convertible  debt due to the nature of these  items.  These  estimates  would be
based  on  the  carrying  amounts,  maturities,  effective  interest  rates  and
volatility of the Company's  stock. The Company does not believe it is practical
due to the significant volatility of the Company's stock.                       

NEW ACCOUNTING PRONOUNCEMENTS                                                   

In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs - an amendment
of ARB No. 43, Chapter 4," which  clarifies the accounting for abnormal  amounts
of  idle  facility  expense,   freight,  handling  costs,  and  wasted  material
(spoilage) and also requires that the allocation of fixed production overhead be
based on the  normal  capacity  of the  production  facilities.  SFAS No. 151 is
effective for inventory  costs incurred during fiscal years beginning after June
15,  2005.  The Company is  currently  evaluating  the impact of  adopting  this
statement.                                                                      

In December 2004, the FASB issued FASB statement No. 153 ("SFAS 153").  SFAS 153
addresses  accounting  for  non-monetary  transactions.  This  statement  is not
anticipated to have a material effect on the Company's results of operations.   

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 123R "Share  Based  Payment."  This  statement is a revision to SFAS 123 and
supersedes  Accounting  Principles  Board (APB) Opinion No. 25,  "Accounting for
Stock Issued to Employees," and amends FASB Statement No. 95, "Statement of Cash
Flows".  This statement requires a public entity to expense the cost of employee
services received in exchange for an award of equity instruments. This statement
also  provides  guidance  on valuing  and  expensing  these  awards,  as well as
disclosure  requirements  of  these  equity  arrangements.   This  statement  is
effective as of the  beginning of the first interim or annual  reporting  period
that begins after  December 15, 2005. The adoption of SFAS No. 123(R) may have a
material effect on the Company's  results of operations but not on the Company's
financial position.                                                             

In June,  2005,  the  Financial  Accounting  Standards  Board  (FASB) has issued
Statement No. 154,  Accounting Changes and Error  Corrections,  a replacement of
APB  Opinion  No. 20 and FASB  Statement  No. 3. The  Statement  applies  to all
voluntary  changes in accounting  principle,  and changes the  requirements  for
accounting for and reporting of a change in accounting principle. This statement
will  improve  financial  reporting  because its  requirements  will enhance the
consistency of financial information between periods.                           

4         DISCONTINUED OPERATIONS                                               

On October 24, 2005, the Veridium Board of Directors adopted a plan to close the
Paterson, New Jersey recycling facility operated by American Metal Recovery     
Corporation ("AMRC"). The plan included the discontinuation of the operations of
MRTC during 2005, as well. The decision to terminate operations at the Paterson 
facility was made due to overall economic factors, in particular the decreasing 
volume of inorganic, metal bearing wastes suitable for recycling. AMRC has      
ceased accepting waste and has removed all hazardous waste from the facility.   
AMRC has disposed of all of the equipment and cleaned the facility as required  
by regulation and surrendered the premises on December 31, 2005. The results of 
the recycling business are recorded as discontinued operations, of which the    
components are as follows:                                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4         DISCONTINUED OPERATIONS (continued)                                   

                                                        [Enlarge/Download Table]

                                                                    2005         2004     
                                                                    ----         ----     
                                                                                          
Net revenues .................................................  $ 1,287,091   $ 2,567,227 
Cost of revenues .............................................    1,908,321     2,390,639 
                                                                -----------   ----------- 
           Gross profit ......................................     (621,230)      176,588 

Selling, general and administrative expense ..................      366,673       928,992 
Impairment of assets .........................................    2,872,140     2,505,978 
                                                                -----------   ----------- 
           Total .............................................  $ 3,238,813   $ 3,434,970 

Loss from operations .........................................   (3,860,043)   (3,258,382)

Interest expense                                                                          
$ ............................................................         --     $   (39,123)
Other income and expenses ....................................      (16,127)      (59,144)
                                                                -----------   ----------- 
           Loss before provision for income taxes ............  $(3,876,170)  $(3,356,649)

Total provision for tax ......................................        1,501           470 
                                                                -----------   ----------- 
           Net loss from discontinued operations .............  $(3,877,671)  $(3,357,119)
                   Gain on disposal of discontinued operations       45,041          --   
                                                                -----------   ----------- 
                   Total - discontinued operations ...........  $(3,832,630)  $(3,357,119)

The results presented above for 2005 and 2004 include the operating activity for
the recycling  operation for the 12 month period.  Assets and liabilities of the
recycling business were reported as net assets and net liabilities  (current and
net of current) of  discontinued  operations at December 31, 2005. The net fixed
assets and the net intangible  assets  totaling  $2,958,876 were written down to
zero based upon the assets and intangibles  site-specific  to our Paterson,  New
Jersey facility.                                                                

Assets and liabilities of discontinued operations as of December 31, 2005 are as
follows:                                                                        

                                                                [Download Table]


Current assets of discontinued operations:                        
                                                                  
     Accounts receivable, net ......................  $    34,562 
                                                      ----------- 
Total current assets of discontinued operations ....  $    34,562 

Net non-current assets of discontinued operations                 
     Net fixed assets ..............................  $ 1,187,333 
     Intangible assets .............................    1,771,543 
     Other assets ..................................       10,552 
     Less: recognition of impairment ...............   (2,958,876)
                                                      ----------- 
Total non current assets of discontinued operations   $    10,552 
Total assets of discontinued operations ............  $    45,114 

Current liabilities of discontinued operations:                   
     Accounts payable ..............................  $   525,663 
     Accrued and other liabilities .................      383,784 
                                                      ----------- 
Total current liabilities of discontinued operations  $   909,447 

Non-current liabilities of discontinued operations .  $     1,163 

Net assets of discontinued operations ..............  $  (865,496)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5         PROPERTY AND EQUIPMENT                                                
Property and equipment at December 31, 2005 are summarized as follows:          

Land .......................................................... $275,000        

Buildings .....................................................  400,000        

Machinery  and  equipment .....................................   22,460        

Office equipment, computers and fixtures ......................   60,283        

Leasehold improvements 169,803 Vehicles .......................  795,762        
                                                      ----------
Total property and equipment ................................ $1,723,308        

Accumulated  depreciation  and amortization .................   (331,229)       
                                                      ----------
Property and equipment,  net ................................ $1,392,079        
                                                      ==========

In May  2003,  and in  connection  with its two  acquisitions  of ESD,  Veridium
assumed certain  non-interest-bearing  term financing. The outstanding principal
balance of  $100,000  is  secured by a first  mortgage  interest  in  Veridium's
Lowell, MA property (see buildings above).                                      
All  property  and  equipment  serves  as  collateral  for the debt  held by GCS
Investments (see Note 8).                                                       

Depreciation charged to operations,  which includes amortization of assets under
capital  lease,  was $182,290 and $128,549 for the years ended December 31, 2005
and 2004,  respectively.  Depreciation  expense from discontinued  operations of
$219,925  and  $248,636  for  the  years  ended  December  31,  2005  and  2004,
respectively have been excluded from these figures.                             

Discontinuance  of operations at Veridium's  recycling  facility resulted in the
impairment of assets  located at this facility  during the year 2005. Net assets
of $1,187,333 (per above) were written down to zero as of September 30, 2005.   

Due to market and economic factors, the Calciner equipment, which was to be used
to process solids,  included in construction in process at December 31, 2003 was
written  off  in  2004.  The  project  was  never  completed  and a  substantial
investment  would have been  needed to move the  project  from pilot  testing to
operational  status.  In addition,  market conditions have changed and alternate
processors have been located to the point where the Calciner could not have been
operated cost-effectively. The total impairment charge in 2004 was $1,273,528.  

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6         ACQUISITIONS                                                          

Veridium  follows SFAS No. 141,  "Business  Combinations."  Under this standard,
business  acquisitions  are accounted for under the purchase method and goodwill
represents the excess of the purchase price of a business  acquisition  over the
fair market  value of the net assets  acquired at the date of  acquisition.  The
statement also requires the recognition of acquired intangible assets apart from
goodwill if it arises from contractual and other legal rights.  If an intangible
does not arise from contractual or other legal rights, it shall be recognized as
an asset apart from goodwill only if it is capable of being separated or divided
from the acquired entity and sold, transferred, licensed, rented, or exchanged. 

In May of 2005, the Company  acquired all of the assets and certain  liabilities
of North Country Environmental Services located in Milford, Massachusetts. These
operations  were  integrated  with the Company's field services group located in
Sandwich,  Massachusetts.  Veridium recorded  approximately $522,000 in goodwill
including  $50,000  for a  customer  listing  relating  to the  engineering  and
training portion of business. This acquisition provided Veridium with additional
volume in the Field Service Area to maximize potential of existing structure, as
well as to add Engineering and Training to the service offerings.  Operations of
this  acquisition  from the date of acquisition  through  December 31, 2005 have
been  included  in the  Company's  consolidated  statement  of  operations.  The
following  table  summarizes the fair value of assets  acquired and  liabilities
assumed for the acquisition detailed above.                                     

                                                                [Download Table]


Purchase Price:                                                          

Cash paid to sellers                                                     
                                                                         
     Cash paid directly to lending facility on Line of Credit  $ 358,750 
     Cash paid directly to seller ...........................     50,000 
                                                               --------- 
          Total cash payments to seller .....................  $ 408,750 

Fair value of debt issued to sellers, per agreement .........  $ 128,000 
Fair value of equity issued on date of                                   
  acquisition (982,759 shares of common stock) ..............  $  75,000 

Total Purchase Price ........................................  $ 611,750 
Allocation of purchase price:                                            
Fair value of assets acquired                                            
     Current assets .........................................  $ 233,853 
     Property and equipment .................................    175,280 
     Goodwill ...............................................    521,629 
                                                               --------- 

Total assets acquired .......................................  $ 930,762 
Less: liabilities assumed                                                
     Current liabilities ....................................  $(242,880)
     Long term debt .........................................    (76,132)
                                                               --------- 
          Total liabilities assumed .........................  $(319,012)

ACQUISITIONS - SUBSEQUENT EVENTS                                                

On January 22, 2006, Veridium  Corporation (VRDM") acquired 100% of the stock of
GreenShift  Industrial Design Corporation  (GIDC") and Tornado Trash Corporation
("TTC")  from  GreenShift  Corporation  ("GreenShift")  in return for 10% of the
fully diluted stock in Veridium.                                                

GIDC  is a  development  stage  company  that  focuses  on the  engineering  and
marketing  of  green  innovations  and  processes  that  enhance   manufacturing
efficiencies  improve resource utilization and minimize waste. GIDC's mission is
to deliver consumer  orientated  Natural  SolutionsTM based on an array of green
technologies and applied  engineering  expertise that reduce waste at the source
and make it easier for people and  businesses  to recycle  and reuse  resources.
GIDC plans to initially focus on the  acquisition,  development and marketing of
benchmark  green  technologies  and products that  accomplish  the following key
goals:                                                                          

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     o    Reduce the volume of waste  generated by  residential  and  commercial
consumers;                                                  

     o    Increase  the  convenience  and  decrease  the  cost of  recycling  by
residential and commercial consumers; and,                  

     o    Increase the cost efficiency of processing certain types of industrial
wastes.                                                     

GIDC expects to leverage its  portfolio  of powerful new green  technologies  to
generate revenue  starting in 2006 from the provision of customized  engineering
services to third party clients.                                                

Tornado  Trash  Corporation  ("TTC") is a development  stage  company  formed to
deploy commercial  applications of GIDC's innovative green technologies with the
specific goal of minimizing and eliminating the practice of landfill disposal by
converting trash into valuable metals,  chemicals,  plastics,  fuels and energy.
TTC plans to focus on  centralized  applications  of its  technologies  at,  for
example,  landfills and transfer stations, and decentralized applications of its
technologies  in new green  appliances  positioned to residential and commercial
consumers.                                                                      

7         LONG-LIVED ASSETS                                                     

GOODWILL AND INTANGIBLE ASSETS                                                  
Amortizable, intangible assets at December 31, 2005 include the following:      

Permits ......................................................      $   216,795 
Accumulated amortization .....................................          (27,272)
                                                                   -----------
      Permits, net ..........................................      $   189,523
                                                                   ===========
Goodwill at December 31, 2005 includes the following:                           
Beginning balance, net ......................................      $ 4,020,762
Acquisition of NCES ..........................................          521,629 
Impairment  charge ...........................................         (532,088)
                                                                   -----------
Ending balance,  net .........................................      $ 4,010,304 

Veridium holds US patents relative to our technologies.  Our patented           
and  proprietary  technologies  are  engineered  to  chemically  and  physically
transform  inorganic  industrial wastes into commodities that can be returned to
commerce.  Our patents  cover many of the  processes by which this  recycling is
accomplished.                                                                   

We had  designed  our  recycling  operations  to  administer  our  patented  and
proprietary  technologies.  With  the  closure  of  our  recycling  facility  in
Paterson, New Jersey, we have written down the value of these patents to zero.  

Veridium also  completed  their annual  impairment  test for goodwill.  Veridium
performed an impairment test by comparing the fair value of their reporting unit
with the carrying  value of the unit. As a result of impairment  test,  Veridium
determined  that  there was no  goodwill  impairment  adjustment  necessary  for
Veridium's  continuing operations in 2005. Goodwill was adjusted by $532,088 for
the  discontinued  operations at the New Jersey  facility in 2005.  Goodwill was
impaired by $2,254,000 in 2004.                                                 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8         FINANCING ARRANGEMENTS                                                

                                                                [Download Table]


The following is a summary of Veridium's financing arrangements as of December
31, 2005:                                                                     

Short-term borrowings                                                         
                                                                              
     Vendor composition plans ..................................  $    22,411 
     Short term loans - GreenShift .............................      716,190 
                                                                  ----------- 
             Total short-term borrowings .......................  $   738,601 

Current maturities of long-term debt:                                         
     Term financing ............................................      100,000 
 Vehicle loans and                                                            
other current obligations ......................................      159,532 
Total  current maturities of long-term debt ....................         --   
                                                                  $   259,532 

Current portion of convertible debentures:                                    
     Laurus Master Fund, secured minimum borrowing note ........  $ 1,000,000 
     Laurus Master Fund, secured revolving note ................      913,260 
     GCS demand note ...........................................    1,000,000 
Related party convertible note .................................      265,073 
  Convertible promissory note - Berger .........................       78,000 
Total ..........................................................         --   
current portion of convertible debentures ......................  $ 3,256,333 
Long-term debt:                                                               
     GCS subordinate balloon note, 12%, due April 2007 .........  $ 1,547,500 
  Vehicle loans and other current obligations ..................      343,941 
 Total                                                                        
                                                                  ----------- 
long-term debt, net of current maturities ......................  $ 1,891,441 
Convertible debt, net of current portion:                                     
     GCS debenture, 10% convertible debenture, due December 2008  $ 1,138,471 
     Less: debt discount .......................................     (511,560)
                                                                  ----------- 
         Total convertible debentures, net of current maturities  $   626,911 

The following chart is presented to assist the reader in analyzing Veridium's   
ability to fulfill its fixed debt service requirements of December 31, 2005 and 
Veridium's ability to meet such obligations:                                    

Year                                                                   Amount   
2006  ...........................................................  $4,245,838   
2007  ...........................................................   1,677,688   
2008  ...........................................................   1,238,330   
2009  ...........................................................      84,394   
2010 and thereafter ..............................................      29,500  
                                                                  ----------
Total minimum payments due under current and long-term obligations  $7,275,750  
                                                                  ==========

SHORT TERM BORROWINGS:                                                          

During 2005, Veridium borrowed $716,190 from GreenShift Corporation at a rate of
8%.  These  loans are  payable  on  demand.  GreenShift  is an  approximate  70%
shareholder of Veridium and is controlled by Kevin Kreisler,  Chairman and Chief
Executive Officer of Veridium.                                                  

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8         FINANCING ARRANGEMENTS (continued)                                    

TERM FINANCING                                                                  

In May  2003,  and in  connection  with its two  acquisitions  of ESD,  Veridium
assumed  certain   non-interest-bearing  term  financing,  with  an  outstanding
principal  balance  of  $100,000  as  of  December  31,  2005,  payable  in  one
installment  in March 2006.  The  obligation  continues to be secured by a first
mortgage interest in Veridium's Lowell, MA property.                            

DEMAND NOTE - GCS                                                               

On December 19, 2003,  Veridium closed on the first installment of a Convertible
Demand Note with GCS  Investments,  LLC  ("GCS").  The note is payable on demand
with a  principal  balance  of $1.0  million at  December  31,  2005,  and bears
interest  at the  greater  of 10% per year or 6%  above  prime  rate  per  year.
Payments are of interest only and are payable monthly.  The note is secured by a
blanket subordinate security position on substantially all of Veridium's assets.
GCS's  security  position  has been  subordinated  to  Laurus's  first  priority
security position (see below).  Conditions  precedent of this financing included
the  conversion of the majority of Veridium's  pre-consolidation  debt and other
liabilities  into various  forms of equity,  including  all  obligations  due to
Veridium's  officers  and its related  parties for loans  extended to  Veridium,
deferred salaries, price-protection agreements in relation to previous loans and
deferred  salaries and any other and all liabilities due to Veridium's  officers
and  related   parties.   Additionally   required  were  cash-based   management
contributions,  the  unconditional  personal  guarantee of Veridium's  chairman.
Kevin  Kreisler,  and the conversion by GCS' affiliate of $1.184 million in debt
into the GCS  Convertible  Preferred  Debenture  (see  below).  The note and any
accrued  interest thereon are convertible into common stock of Veridium based on
the  average  closing  price  for the ten  days  prior to such  conversion.  GCS
additionally  received  detachable warrants to purchase 500,000 shares of common
stock that are  exercisable  at $0.40 per share and expire on December 19, 2008.
The  warrants  are  redeemable  at the  option  of the  holder if at the time of
exercise the market price is at or above $0.40 per share. The warrants have been
recorded at fair value as a discount to the Convertible Preferred Debenture (see
below).Veridium  received  $1.2  million of the funds under the note in 2003 and
the balance of $0.3 million in January 2004. The note was modified in March 2004
in connection with the Laurus Financing. In April 2004, This note was reduced by
$500,000  in  conjunction  with  the  acquisition  and  amendment  by GCS of the
Company's subordinated balloon note previously payable to R. M. Jones & Company,
Inc. ("Jones")(see below). Approximately four months of interest under this loan
in the amount of  $42,500  and the  Subordinated  Balloon  Note (see  below) was
purchased and  converted  into equity by Viridis  Capital,  LLC, an affiliate of
Kevin Kreisler,  and assigned to GreenShift another affiliate of Kevin Kreisler,
in December 2004 (see Note 12, Shareholders'  Equity,  below).  During 2005, the
note was modified to reduce the interest rate to 3% effective for the first nine
months of the year, which was determined not to be a material debt modification.
In addition,  during 2005,  based on the terms of the conversion  option and the
redemption feature of the warrants,  the Company determined that this conversion
option and the warrants required reclassification as derivative liabilities (see
Note 17 - RESTATEMENT).                                                         

SUBORDINATED BALLOON NOTE - GCS                                                 

In April 2004,  Veridium's  various  outstanding notes issued in connection with
the purchase of the  Environmental  Services  Division of R.M. Jones & Co., Inc.
("Jones") were  consolidated  and adjusted in compliance  with the provisions of
Letter  Agreements with Jones,  which resulted in the repurchase of the debt for
$500,000 and 1.25 million  common shares.  For the  consideration  given,  Jones
agreed to the  assignment  of the debt to GCS,  consisting  of  $1,517,000  plus
accrued  interest for a total balance of $1,547,500  (see above).  This new note
bears interest at the rate of 12% per year,  payable  monthly.  The principal of
the loan is due and payable on April 5, 2007.  This note is secured by the stock
of two of Veridium's subsidiaries: JES-LLC and ESC. Approximately four months of
interest  under  this loan in the amount of  $57,931  and the  Demand  Note (see
above) was  purchased  and  converted  into equity by Viridis  Capital,  LLC, an
affiliate of Kevin  Kreisler,  and assigned to GreenShift  another  affiliate of
Kevin Kreisler, in December 2004 (see Note 12, Shareholders' Equity, below).    

CONVERTIBLE PREFERRED DEBENTURE - GCS                                           

In December  2003,  and in connection  with the  requirements  of the GCS Demand
Note,  GCS'  affiliates  converted  $1.184  million  in  debt  into  convertible
preferred debt securities of Veridium (the "GCS Debenture").  This instrument is
to be paid  at a rate  equal  to 2% of  Veridium's  gross  annual  revenue  on a
quarterly  basis,  provided  that  such  payments,  together  with the  interest
payments  paid to GCS on the GCS Demand  Note,  do not exceed 30% of  Veridium's
EBITDA for such year.  These payments shall continue to be made until the sum of

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all such payments is equal to $1.184 million, at which time this instrument will
automatically  convert into 30,000  shares of Subsidiary  Preferred  Equity (see
Note 8,  Minority  Interest,  below).  During  2005 and 2004,  Veridium  accrued
$52,777 and $76,000  interest  respectively  under this debenture.  Interest was
accrued at a rate of 10% during the year 2005.  None of the contingent  payments
were required to be made during this period.  During 2005, the note was modified
to reduce the  interest  rate to 3%  effective  for the first nine months of the
year and  payments of $45,594 were made  reducing  the  principal of the note to
$1,138,471.  Detachable options issued concurrently with the financing have been
recorded as a discount to the debt,  amortizable  over the term of the note (see
Note 17 - RESTATEMENT).  The maturity date of this note is December 13, 2008. In
addition,  during  2005,  based on the terms of the  conversion  option  and the
redemption  feature of the options,  the Company determined that this conversion
option  required  reclassification  as a  derivative  liability  (see  Note 17 -
RESTATEMENT).                                                                   

CONVERTIBLE NOTES - LAURUS MASTER FUND                                          

On March 31,  2004,  Veridium  closed on a  revolving  fixed  price  convertible
facility in the amount of $1.75 million with the Laurus Master Fund (the "Laurus
Financing").  Total financing available with this facility is $2.5 million which
consists  of  the  Secured  Revolving  Note  of  $1.5  million  (the  "Revolving
Facility") and a Minimum  Borrowing Note for $1.0 million (the "Minimum  Note").
All advances  evidenced by these notes are made in accordance with the terms and
provisions  of the  Security  Agreement  with Laurus  Fund.  Under the  Security
Agreement,  the Minimum Note includes the requirement to maintain a $1.0 million
minimum balance by automatic transfer of funds, if necessary, from the Revolving
Facility. The Revolving Facility is structured like a standard receivables based
line of credit.  The Security  Agreement  provides that outstanding  loans under
this  facility  cannot  exceed  the  lesser  of  (a)  $2,500,000  less  reserves
determined by Laurus, (b) 90% of eligible Accounts Receivable  ("Accounts") less
the above  reserves and (c) Accounts plus $500,000 less  subordinated  accounts.
The notes bear  interest at prime plus 5%,  subject to a floor of 9%, and a term
of three  years.  Veridium  may convert  debt into equity at a fixed  conversion
price equal to $0.43 per share,  which price is subject to  adjustment  based on
reset to a lower conversion price based on offer prices, which may result in the
issuance of additional shares of the Company's common stock. The proceeds of the
Laurus Financing were used to complete Veridium's  recapitalization  process and
to  stimulate  increased  cash flows from  operations.  Veridium is currently in
default of this  agreement  due to its  failure to  register  certain  stock and
debentures.  Based on this default the Company has accrued  to-date  $360,000 in
liquidating  damages,  which have been calculated based on the period of default
through that date.  Of this amount,  $116,667 has been accrued in the prior year
(see Note 17 -  RESTATEMENT).  The debt is also  subject  to  certain  covenants
related  to  incurrence  of  additional   non-trade  debt  or   restrictions  on
disposition and protection of collateral.                                       

RELATED PARTY CONVERTIBLE NOTE                                                  

During 2005, Veridium borrowed $280,196 from GreenShift Corporation in the form 
of a convertible promissory note at a rate of 8%. The note is due on September  
30, 2006. Based on the terms of the conversion option, the debt was determined  
to contain a beneficial conversion feature, recorded as a discount on the debt  
of $20,165, amortizable over the term of the debt. Interest expense of $5,041   
has been recorded based on the amortization of the discount in 2005. GreenShift 
is an approximate 70% shareholder of Veridium and is controlled by Kevin        
Kreisler, Chairman and Chief Executive Officer of Veridium.                     

CONVERTIBLE PROMISSORY NOTE - BERGER                                            

In May 2005,  Veridium acquired the assets of NCES. As part of this acquisition,
Veridium assumed a convertible promissory note in the amount of $128,000 payable
to Robert Berger. This note was due and payable November 10, 2005. The payee may
elect at any time to convert any or all of the outstanding principal into common
stock  equal to the amount  due  divided by the  average  closing  price of such
common  stock for the (30) day prior  period to the date of the exercise of this
conversion.  In November  2005,  the Company made a payment of $50,000  reducing
this note to $78,000.  The balance of the note is in default and is  immediately
due and  payable.  Based on the terms of the note,  it was  determined  that the
conversion option was an embedded derivative  conversion  feature.  Accordingly,
the company  recognized a liability for this  derivative  conversion  feature of
$52,800,  recorded as a debt discount which was fully amortized over the term of
this short term debt in 2005. The derivative  liability was marked to fair value
at December 31, 2005,  resulting  in an  accounting  gain for the change in fair
value.                                                                          

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VEHICLE LOANS                                                                   

The Company has vehicle  loans with  varying  interest  rates from 0% to 11.45%.
These loans have maturity dates that range from May 2006 to December 2010. As of
December 31, 2005,  vehicle notes totaled $503,473 with $159,532  currently due,
secured by assets with a net book value of $493,205.                            

9         MINORITY INTEREST                                                     

As a condition  precedent to Veridium's  closing of the Senior Loan,  Veridium's
pre-consolidation  New World Recycling ("NWR") notes totaling $925,000 ("the NWR
Debt") were, on December 19, 2003,  converted into 92,500 shares of a non-voting
class of preferred equity in Veridium's American Metals Recovery, Corp. ("AMRC")
subsidiary,  the  Subsidiary  Preferred  Equity,  with a par  value  of  $0.001.
Subsidiary Preferred Equity holders were to receive a quarterly dividend ranging
from 3% to 5% of AMRC's annualized  revenue,  limited to 30% of AMRC's operating
income. AMRC failed to generate operating income in 2005 and 2004,  therefore no
dividends  were  payable in  December  2005 and 2004.  The  shares  could not be
liquidated  or  transferred.  Shares of  Subsidiary  Preferred  Equity  could be
converted  at the  holder's  option at fixed  conversion  price based on average
closing price for the 60 day trading period prior to April 2, 1999. There was no
expiration  date  associated  with the  conversion  option.  In  December  2004,
$100,000  of  the  Minority  Interest  was  converted  into  500,000  shares  of
Veridium's                                                                      

10        RELATED PARTY TRANSACTIONS                                            

common stock and a five-year  option to purchase  250,000  shares of  Veridium's
common stock at $0.10 per share.                                                

With the closing of the AMRC  facility in Paterson,  New Jersey,  the  remaining
balance of the NWR debt totaling  $825,000 is due to be converted into 8,250,000
shares of Veridium's common stock.                                              

In addition  to those  related  party  transactions  disclosed  above in Note 7,
Financing Arrangements,  and below in Note 12, Stockholders' Equity, the Company
had the  following  significant  related party  transactions  during the periods
reported in the financial statements:                                           

CERTAIN INVESTMENTS RECEIVED DURING 2005                                        

TRANSACTION  WITH THE COMPANY'S  CHAIRMAN,  KEVIN  KREISLER,  AND COMPANIES OVER
WHICH KEVIN KREISLER EXERCISES VOTING CONTROL                                   

During 2005, Veridium borrowed $981,263 from GreenShift Corporation at a rate of
8%. The $716,190 short term loan is payable upon demand. The $265,073 short term
convertible demand note is due and payable September 2006.  Proceeds of $116,667
of these were used to redeem some James Green  shares  under his ESC  redemption
agreement.  GreenShift  is an  approximate  70%  shareholder  of Veridium and is
controlled by Kevin Kreisler, Chairman and Chief Executive Officer of Veridium. 

On  December  22,  2004,  the  Company  closed on the sale of equity to  Viridis
Capital,  LLC  ("Viridis"),  an  affiliate  of Kevin  Kreisler.  This equity was
assigned to GreenShift  Corporation  ("GreenShift"),  another affiliate of Kevin
Kreisler, in connection with Green Shift's initial  capitalization and its plans
to file to become public as a business  development  company regulated under the
Investment Company Act of 1940. The initial sale of equity,  however, to Viridis
was relative to purchase and  conversion of (a) $755,202 of  principal,  accrued
interest,  fees and penalties under the CCS Debentures,  (b) the AMRC Debentures
in the approximate amount of $104,491, (c) short term borrowings of $75,000, and
(d) interest due on the Senior Loan and  Subordinate  Loan of $100,431 (see Note
7, Financing Arrangements) In consideration of these amounts, the Company issued
to  GreenShift  516,968  shares  of the  Company's  Series  B  Preferred  Stock,
1,960,954  shares of the  Company's  common  stock and an option to  purchase an
additional  187,500 shares of the Company's  Series B Preferred  Stock for $4.00
per share.  Shares of Series B Preferred  Stock cannot be converted  into common
stock  until  December  31,  2005 in the absence of a change of control or other
merger or  acquisition  event.  Each  share of Series B  Preferred  Stock may be
converted  by the holder  into  twenty-five  shares of common  stock  subject to
certain anti-dilution  adjustments.  There is no expiration date associated with
the conversion option. At all times prior to conversion,  each share of Series B
Preferred  Stock has the equivalent  voting power of  twenty-five  shares of the
Company's  common  stock.  Each share of Series B Preferred  Stock  entitles its
holder to receive  cumulative  annual cash or stock  dividends as defined in the
relevant  Certificate  of  Designations.  The  transaction  between  Viridis and
GreenShift Corp. was a stock transfer outside of Veridium Corporation's control,
between two entities that are controlled by Kevin Kreisler, Veridium's chairman.
Mr.  Kreisler has informed  Veridium that this transfer was done for the purpose
of consolidating his holdings.                                                  

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10        RELATED PARTY TRANSACTIONS (continued)                                

On December  30,  2004,  the Company  closed on a $1.5 million sale of equity to
GreenShift,  an affiliate of Kevin Kreisler. In consideration of $1,500,000 less
$200,000  in costs  associated  with the  transaction,  the  Company  issued  to
GreenShift  750,000 shares of the Company's Series C preferred stock,  1,500,000
shares of the  Company's  common  stock and an option to purchase an  additional
375,000  shares of the Company's  Series C Preferred  Stock for $4.00 per share.
The Series C Preferred Stock acquired by GreenShift may be converted into common
stock at any point from and after  December 31, 2005, in the absence of a change
of control or other merger or acquisition  event prior to that date.  Each share
of Series C Preferred  Stock may then be converted  into  twenty-five  shares of
common stock, subject to certain anti-dilution and price-protection  adjustments
that are specified in the  Certificate of Designations of the Series C Preferred
Stock.  Based on the anti dilution and price  protection  adjustment on December
31, 2005,  there was an increase in a number of shares due to Series C preferred
stock holders,  resulting in a deemed dividend  totaling  $1,038,630 at December
31, 2005. There is no expiration date associated with the conversion  option. At
all times prior to conversion, each share of Series C Preferred Stock has voting
power equivalent to twenty-five shares of the Company's common stock. Each share
of Series C Preferred  Stock  entitles its holder to receive  cumulative  annual
cash or stock  dividends  on a pro rated  basis with  holders  of the  Company's
common  stock.  Also, as a result of this  transaction,  175,000 of common stock
subscription was created and still  outstanding at December 31, 2004. The entire
cash amount of $175,000 was received on February 28, 2005.                      

Viridis  Capital,  LLC, an affiliate of Kevin  Kreisler,  the company  chairman,
purchased a $75,000 debt payable to Lakeland Bank and subsequently assigned this
debt to GreenShift,  another affiliate of Kevin Kreisler.  Lakeland Bank has not
released  Veridium of this debt  obligation.  The balance due as of December 31,
3005 was $58,828.                                                               

In July of 2005, Viridis Capital, LLC received 1,979,849 of the company's common
stock pursuant to its prior anti dilution agreements with the company           

Compensation During 2005 and 2004                                               

During 2005 and 2004, Kevin Kreisler received $103,462 and $129,807 respectively
in  salaries  under his  employment  agreement  which  called for an annual base
salary of $150,000.  Kevin Kreisler  waived his right to receive unpaid salaries
for services rendered in 2005 in December 2005.                                 

TRANSACTIONS  WITH THE COMPANY'S  FORMER  VICE-CHAIRMAN  AND EMPLOYEE,  LAWRENCE
KREISLER, AND COMPANIES OVER WHICH LAWRENCE KREISLER EXERCISES VOTING CONTROL   

During 2004,  Lawrence  Kreisler  received  $142,308 in salaries under his prior
employment  agreement which called for an annual base salary of $150,000,  prior
to his termination in July 2004.                                                

Lawrence   Kreisler's   employment   was   terminated   due  to   irreconcilable
philosophical  differences  in  how to  best  operate  and  grow  the  company's
Paterson,  New  Jersey  recycling  facility,  and the  extent  of the  company's
resources that should be allocated to implementation of the company's  recycling
technologies,  specifically  including the company's  previously planned thermal
oxidation recycling process.                                                    

The company  negotiated a severance package with Lawrence Kreisler that included
the  following  salient  terms:  100 percent of his salary of  $150,000  through
December  31, 2004,  50 percent of his salary  through  December  31, 2006,  and
medical benefits until the age of 65.                                           

In December of 2005,  Lawrence Kreisler received  7,374,796 shares of Veridium's
stock to satisfy these obligations in full.                                     

TRANSACTIONS  WITH THE COMPANY'S FORMER  PRESIDENT AND CHIEF EXECUTIVE  OFFICER,
JAMES GREEN                                                                     

During  September of 2005, Mr. Green  resigned as President and Chief  Executive
Officer of the Company.  He also  resigned  from the Board of  Directors  during
September of 2005. He is currently an employee of a subsidiary in the Company.  

During 2005,  James Green received  $156,000 in salaries and 5,000,000 shares of
the Company's common stock as a stock based performance bonus.                  

In November 2003, and in connection with a required  management  contribution of
the Senior Loan, James Green retired 92,500 shares of common stock.             

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10        RELATED PARTY TRANSACTIONS (continued)                                

TRANSACTIONS WITH THE COMPANY'S FORMER CHIEF COMPLIANCE OFFICER, RICHARD KRABLIN

Richard  Krablin  resigned as a member of the Board of Directors in September of
2005. He resigned as Chief Compliance  Officer in December of 2005. He currently
is retained as a consultant by the Company.                                     

Compensation During 2005 and 2004                                               

During 2005 and 2004,  Mr. Krablin  received  $131,134 and $154,419 in salaries,
respectively  under his  employment  agreement  which  called for an annual base
salary of $150,000.  Mr.  Krablin  also  received a bonus in December of 2005 of
$25,000 paid by the receipt of 1,250,000 shares of Veridium Common Stock.       

TRANSACTIONS WITH THE COMPANY'S INDEPENDENT BOARD MEMBERS                       

In September of 2005,  Stephen Lewen and James  Hanrahan  resigned as members of
the Board of Directors.                                                         

Compensation During 2005 and 2004                                               

During  2005,  Stephen  Lewen and James  Hanrahan  received  109,166 and 149,734
shares, respectively, for their services as members of the Board of Directors.  

During 2004, Stephen Lewen and James Hanrahan received 258,900 five year options
exercisable at $0.05 per share.                                                 

for their services as members of the board of directors.                        

OTHER RELATED PARTY TRANSACTIONS                                                

Additional Transactions with Immediate Family Members of Kevin Kreisler         

During 2005 and 2004, the Company  utilized the services of Candent  Corporation
for  development  and  administration  of  its  various  management  information
systems.  Candent is  majority-owned by Kevin Kreisler's  spouse.  Such services
approximated  $44,000  and  $87,000  for 2005 and 2004,  respectively,  based on
prevailing  market  rates  for  services,  some  amounts  were paid in part with
2,016,578 shares of the Company's common stock.                                 

During  2005 and 2004,  Scott  Kreisler,  brother  of Kevin  Kreisler,  received
salaries of $72,700 and $78,700 respectively.                                   

During  2005 and  2004,  Kathi  Kreisler,  mother  of Kevin  Kreisler,  received
salaries of $33,750 and $70,593  respectively.  During  December of 2005,  Kathi
Kreisler  received  3,806,811 shares of Veridium common stock as a settlement of
all severance liabilities.                                                      

In July 2005,  Serenity Capital,  LLC received 1,139,248 shares of the Company's
common stock  pursuant to its prior anti dilution  agreements  with the company.
Lawrence  Kreisler,  father of Kevin  Kreisler,  is the sole  member of Serenity
Capital, LLC.                                                                   

11    COMMITMENTS AND CONTINGENCIES                                             

EMPLOYMENT AGREEMENTS                                                           

Veridium is party an employment  agreement with Kevin Kreisler,  which agreement
calls for an annual base salary of $150,000,  and reimbursement of expenses, use
of a Company automobile, periodic bonuses, four weeks vacation and participation
in any employee benefits provided to all employees of Veridium.                 

OPERATING LEASES                                                                

Veridium  maintained  its  recycling  operations  and  corporate  offices at its
facility located in Paterson, New Jersey, its technical services offices located
in  Plainville,  Connecticut,  and its Field  Services  offices in Sandwich  and
Milford,  Massachusetts.  Due to the  discontinuance  of  operations  at the New
Jersey  facility,  Veridium  is  negotiating  the  terms of the  lease  with the
landlord.  Management believes there will be no future liability due for the New
Jersey  operation.  The Plainville lease is year to year currently  through June
2006, with annual options through June 2008, payable in the amount of $1,797 per
month. The Sandwich lease is a five-year term through June 2008 with a five-year
option with a monthly  payment of $1,575.  The Milford  lease is a monthly lease
through  October 2005 with a one year option and a monthly payment in the amount
of $1,800. The lease obligations are as follows:                                

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11        COMMITMENTS AND CONTINGENCIES (continued)                             

Year                            Operating Leases                                
-----                           ----------------                                
2006                             $  44,080                                      
2007                                18,900                                      
2008                                18,900                                      
2009                                 6,300                                      
2010                                  --                                        
Thereafter                            --                                        
-------   
Total minimum lease payments       $88,180                                      

In  December  2002,  Veridium  entered  into  discussions  with its  landlord to
exercise  its option  under its lease  agreement  to  purchase  the  building it
currently occupies as well as the property adjacent to its current building.  In
conjunction  with these  discussions,  $100,000 was held in escrow by Veridium's
attorney. In 2004 Veridium did not exercise its option to purchase the building.
Management  did not plan to  exercise  this  option in 2005 and the  deposit was
forfeited in that year. Accordingly,  the deposit was expensed in December 2004.
Veridium is also liable for its pro rated  portion of real  estate  taxes.  Rent
expenses,  including real estate taxes, were approximately $346,294 and $316,291
for 2005 and 2004, respectively.                                                

CAPITAL LEASES                                                                  

Veridium is obligated  under  capital  leases for  machinery  and  equipment and
office equipment, computers and fixtures that expire in three to five years, and
bear  interest  ranging  from 6% to 14%.  The  following  is a summary of future
minimum payments under capital leases that have remaining  non-cancelable  lease
terms in excess of one year at December 31, 2005:                               

2005                                                            Capital Leases  
----                                                            -------------   
Total minimum lease payments .....................................  $33,353     

Less imputed interest at interest rates ranging from 6.0% to 14.0%  $   991     
                                                               -------
Present value of future minimum lease payments ..............   32,362

Less: current portion of capitalized lease obligations ...........   32,632     
                                                               -------
Long-term capitalized lease obligations ..........................  $  --       
                                                               =======

Assets  capitalized  under  the above  leases  were  written  down to zero as of
September 30, 2005 as part of the  discontinuance of operations at the Paterson,
New Jersey recycling facility.  These obligations have been classified under net
liabilities  of  discontinued  operations.  The  underlying  collateral  for the
obligations  have been sold or  disposed  of during the year 2005.  The terms of
settlement of the obligations with the respective  leasing  companies or vendors
are being  negotiated.  The value of this property and equipment written down to
zero is as follows:                                                             
              2005
              ----
Equipment ..............................  $394,000                              
Less: accumulated amortization .........   238,389                              
Less: Discontinuance of operations .....   155,255                              
            --------
Equipment under capital leases, net  $   --                           

LEGAL PROCEEDINGS                                                               

Veridium  is party to the  matter  entitled  Kerns  Manufacturing  Corp.  v. KBF
Pollution Management Inc. The action was filed in the Supreme Court of the State
of New York,  August 14,  2003.  The verified  complaint  seeks  performance  of
certain agreements between the plaintiffs and KPMI and VEC, plus attorney's fees
and costs. The matter is ongoing and counsel is therefore unable to evaluate the
probability of an  unfavorable  outcome or range of potential loss at this time.
This matter relates to the acquisition of Vulcan Waste Systems,  Inc. from Kerns
Manufacturing  Corp.  and the breach by Kerns of the terms and conditions of the
relevant acquisition agreement. Veridium incurred a loss in December 31, 2003 on
its  write-off of $1,890,000 of idle  equipment  connected to this  transaction.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11        COMMITMENTS AND CONTINGENCIES  (continued)                            

1,350,000  shares of restricted  common stock related to the Vulcan  acquisition
remain outstanding which shares Veridium is seeking to have cancelled.  Veridium
is currently pursuing the reversal of this acquisition and seeking the return of
the common stock issued.                                                        

Veridium  assumed  and is party to various  material  administrative  compliance
proceedings  for which  Veridium  has accrued  $307,693 in  potential  expenses.
Veridium is also  involved in various  collection  matters for which vendors are
seeking  payment for services  rendered  and goods  provided.  These  collection
matters total $150,000.                                                         

OTHER CONTINGENCIES                                                             

Veridium  is  subject  to  various   regulatory   requirements,   including  the
procurement of requisite licenses and permits at its facilities.  These licenses
and permits without which Veridium's  operations would be adversely affected are
subject to periodic renewal. Veridium anticipates that, once a license or permit
is issued with  respect to a facility,  the license or permit will be renewed at
the end of its term if the  facility's  operations  are in  compliance  with the
applicable regulatory requirements.                                             

Per FASB 143, Veridium has established a remediation  accrual for the closure of
its leased  hazardous waste recycling and storage facility located at One Jasper
Street in Paterson, NJ. The closure associated with these estimates are based on
and  represent  costs that would be incurred by a third party being  retained to
conduct the closure. This amount was determined to be approximately  $108,000 as
of December 31, 2004.  During 2005,  accretion of the liability was $9,725,  and
costs settled during the year were $57,243. This facility was                   

closed in December of 2005 and the remaining asset and  corresponding  liability
were written off. No further liabilities are anticipated by the company.        

The Company  owns  property in Lowell,  Massachusetts,  the location of our RCRA
permitted Treatment,  Storage and Disposal Facility (TSDF). Per the requirements
of the permit  associated  with the  operation of this  facility,  a third party
evaluation is conducted on a yearly basis to evaluate the costs  associated with
the retirement of this asset.  Per the outcome of this  evaluation,  $90,000 has
been  placed  in a trust  with the  Massachusetts  Department  of  Environmental
Protection  listed as beneficiary.  The Company has included the $90,000 in this
trust as part of deposits in other assets.                                      

Under  Veridium's  insurance  programs,  coverage is obtained  for  catastrophic
exposures, as well as those risks required to be insured by law or contract. The
deductible   per   occurrence   for   environmental   impairments   is  $25,000.
Environmental  liability  insurance is carried with policy  limits of $1,000,000
per occurrence and $2,000,000 aggregate.                                        

Viridis Capital,  LLC, an affiliate of Kevin Kreisler,  purchased a $58,828 debt
payable to Lakeland Bank and assigned this debt to GreenShift, another affiliate
of  Kevin  Kreisler.  Lakeland  Bank  has not  released  Veridium  of this  debt
obligation.                                                                     

The Company  has failed to comply with  certain  registration  requirements  for
stock issued to certain debt holders.  The Company accrued $243,333 and $116,667
in 2005 and 2004  respectively  for  liquidating  damages  associated  with this
default.                                                                        

12        INCOME TAXES                                                          

Veridium has incurred  losses,  which have  generated net  operating  loss carry
forwards for Veridium.  As of December 31, 2005,  these loss carry  forwards are
subject to limitation in future years should  certain  ownership  changes occur.
For the years ended  December 31, 2005 and 2004,  Veridium's  effective tax rate
differs from the federal  statutory rate principally due to net operating losses
and other temporary differences for which no benefit was recorded. The provision
for income  taxes for the years ended  December  31, 2005 and 2004  consisted of
state income tax provisions. Deferred tax assets are as follows:                

                  2005
                   -------------
Deferred Tax Assets:                                                            
Net operating loss carry forwards .......  $  6,106,000                         
Allowance for doubtful accounts .........       101,000                         
Severance ...............................          --                           
Property, equipment and intangible assets     5,210,000                         
                  ------------
Total deferred tax assets ...............    11,417,000                         
Less: Valuation allowance ...............   (11,417,000)                        
                  ------------
Net deferred tax assets .................  $       --                           
                  ============

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12        INCOME TAXES (continued)                                              

Veridium  has  federal  and  state  net   operating   loss   carry-forwards   of
approximately $16,965,000, which expire through December 31, 2025.              

AUTHORIZATION                                                                   

In October  2005,  Veridium's  shareholders  authorized  the  issuance  of up to
250,000,000  shares of common stock and 5,000,000  shares of preferred stock. As
of December 31, 2005, the Company did not have sufficient shares of common stock
authorized to accommodate  conversion of all  outstanding  shares of convertible
preferred stock, convertible debt and other contingently issuable shares.       

ANTI-DILUTION AND PRICE PROTECTION AGREEMENTS                                   

During 2003,  in  consideration  for certain  equity  transactions,  one lender,
various vendors and  stockholders,  and Kevin Kreisler received price protection
benefits and/or anti-dilution coverage as part of their equity instruments. As a
result of these agreements, the Company issued approximately 11.3 million shares
and 3.8 million  shares common stock during 2005 and 2004  respectively,  for no
consideration.  In connection with the issuance of these shares, the Company has
adjusted the par value and paid in capital.                                     

13        STOCKHOLDERS' EQUITY                                                  

At  December  31,  2005,  GCS  Investments,  LLC  ("GCS")  one of the  Company's
creditors,  has an  anti-dilution  agreement  in place to  maintain  its current
ownership  percentage  of common  stock at 4.95% of the issued  and  outstanding
common  stock.  No shares were issued  during 2005 and 2004.  As of December 31,
2005, 2,261,161 additional shares were due under this agreement,  but additional
shares may be due under this  agreement  upon any  conversion  of the  Company's
various  debentures  with GCS and Laurus  Master Fund,  or in the event that the
Company's   preferred   share  are  converted  into  common  stock.   GreenShift
Corporation ("GreenShift"), an affiliate of Kevin Kreisler, has an anti-dilution
agreement  in  place to  maintain  its  ownership  percentage  (relative  to the
acquisition by GreenShift of 750,000 shares of the Company's  Series C Preferred
Stock for $1.5 million in December 2004) at about 25% of the outstanding capital
stock of the Company; the terms of the December 2004 GreenShift  investment also
provide  for  price  protection  in  the  amount  of  $1.5  million.  GreenShift
additionally has price protection rights relative to his purchase and conversion
into restricted  preferred stock of approximately  $1.0 million of the Company's
debt in December  2004. As of December 31, 2005,  no additional  shares were due
under these agreements.                                                         

James Green has an  anti-dilution  agreement in place to maintain his  ownership
percentage at 10% of the outstanding capital stock of the Company until December
31, 2005,  provided that Mr. Green is not permitted to effect  conversions  into
shares of common  stock  equal to more than 4.99% of the  Company's  outstanding
common stock at any given time.  Mr. Green holds 380,000 shares of the Company's
Series  B  Preferred  Stock  per  this  agreement.  He  additionally  has  price
protection  rights relative to the Company's May 2003 acquisition from Mr. Green
of EnviroSafe Corp., in the approximate amount of $167,000 at December 31, 2005.
Mr. Green  received 1.8 million  shares and 3.6 million  shares in 2005 and 2004
respectively,  pursuant  to  these  agreements.  As of  December  31,  2005,  no
additional shares were due under these agreements. Additional shares will be due
in May 2006 to satisfy this  obligation.  In connection with the future issuance
and redemption of these shares, the Company has recorded a derivative  liability
at December 31, 2005 for the price-protected feature, fair valued at $108,550.  

Richard  Krablin  had an  anti-dilution  agreement  in  place  to  maintain  his
ownership  percentage  at 3% of the  outstanding  capital  stock of the Company.
During  December  2005,  this  agreement was satisfied by the  conversion of his
Series B preferred  stock into  2,875,000  shares of Veridium  common stock.  RM
Jones & Co., Inc. ("Jones") was provided with  price-protection  rights relative
to the Company's various acquisition agreements with Jones. The price protection
agreement was  terminated in January 2005 after the Company  redeemed  2,906,244
shares of issued common stock under the equity due under the relevant  agreement
for about $260,000 in cash.                                                     

At December 31, 2005, a consultant  was owed  $64,250,  payable in common stock,
which is price protected so that the ultimate  proceeds will equal the remaining

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13    STOCKHOLDERS' EQUITY (continued)                                          

contract  obligation.  The accrued  obligation would require 3,212,500 shares if
settled at December 31, 2005. In addition, the Company has recorded a derivative
liability at December 31, 2005 for the price-protected  feature,  fair valued at
$29,102.                                                                        

In addition to the agreements  detailed above,  several  shareholders  had price
protection   agreements  totaling  about  $165,000  as  of  December  31,  2005,
corresponding to an expected  additional  8,250,000 shares of common stock. This
amount depends on a variety of factors  including market price for the Company's
common stock and whether any cash payments are made.  The Company has recorded a
derivative  liability  for  other  agreements  at  December  31,  2005  for  the
price-protected features, fair valued at $13,464.                               

STOCK OPTIONS AND WARRANTS                                                      

The Company  issued no options or  warrants  during  2005.  In  connection  with
Veridium's   completion  of  the  Laurus   Financing   (see  Note  8,  Financing
Arrangements,  above),  Veridium issued Laurus seven-year detachable warrants to
purchase shares of Veridium's common stock as follows:  450,000 shares at $0.49,
400,000  shares at $0.54,  and  250,000  shares at $0.58.  Additionally,  and in
further  connection  with the Laurus  Financing,  Veridium  issued an additional
250,000  warrants at an exercise  price of $0.50 per share to the holders of the
debentures  that were assigned to a related party in December  2004. The Company
has recorded a Black-Scholes value for these warrants of $310,305.  During 2004,
Veridium  issued  options  to  purchase   Veridium's  common  stock  to  various
individuals  as follows:  1,750,000  five year options  exercisable at $0.12 per
share were purchased for $100,000;  1,000,000  five year options  exercisable at
$0.20  per  share  were  issued  to  an  accredited  investor  incidental  to an
investment  transaction  (see below);  250,000 five year options  exercisable at
$0.05 per share were issued to GCS  Investments  relative to the renewal of GCS'
Senior Loan to  Veridium;  258,900 five year  options  exercisable  at $0.05 per
share were issued to the  Company's  independent  directors;  775,000  five year
options  exercisable  at $0.10 per share were  issued to the  former  holders of
Veridium's Minority Interest (see Note 8, Minority Interest,  above);  1,770,000
five year  options  exercisable  at $0.05 per share  were  issued to a number of
employees;  100,000 five year options exercisable at $0.50 per share were issued
to a former  holder of  Veridium's  AMRC  Debentures;  500,000 five year options
exercisable at $0.10 per share were issued to two  employees;  887,500 five year
options were issued to various investors exercisable at $0.50 - $0.60 per share;
and, 187,500 five year options  exercisable  into Veridium's  Series B Preferred
Stock at $4.00 per  share,  and  375,000  five  year  options  exercisable  into
Veridium's Series C Preferred Stock at $4.00 per share were issued to GreenShift
Corporation relative to its December 2004 investment transactions (see below).  

STOCK OPTION AND ISSUANCE PLANS                                                 

In September 2003, the Company's  shareholders approved the Company's 2003 Stock
Option/Stock  Issuance  Plan (the  "Plan").  The Plan  consists of two  separate
equity programs:  (i) the Discretionary  Option Grant Program and (ii) the Stock
Issuance  Program.  An  aggregate  of  5,322,652  shares  of Common  Stock  were
initially  reserved for  issuance  over the term of the Plan.  In addition,  the
number  of  shares  of  Common  Stock  reserved  for  issuance  under  the  Plan
automatically  increases on the first trading day of January each calendar year,
by an amount equal to eight percent (8%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the preceding  calendar
year.  Shares subject to any outstanding  options under the Plan which expire or
otherwise terminate prior to exercise will be available for subsequent issuance.
However,  any shares subject to stock  appreciation  rights  exercised under the
Plan will not be  available  for  reissuance.  Should the  exercise  price of an
option  under the Plan be paid with shares of Common  Stock or should  shares of
Common Stock  otherwise  issuable under the Plan be withheld in  satisfaction of
the  withholding  taxes incurred in connection with the exercise of an option or
the  vesting of a stock  issuance  under the Plan,  then the number of shares of
Common Stock  available for issuance  under the Plan will be reduced only by the
gross number of shares for which the option is exercised or which vest under the
stock issuance and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance.  The Company's  officers and employees,
non-employee Board members and independent  consultants in the Company's service
or  the  service  of  the  Company's   subsidiaries  (whether  now  existing  or
subsequently  established)  are eligible to  participate  in the Plan.  The fair
market value per share of Common Stock on any relevant  date under the Plan will
be deemed to be equal to the closing  bid price per share on that date.  Options
granted under the Plan may be either  incentive  stock options which satisfy the
requirements  of  Section  422 of the  Internal  Revenue  Code or  non-statutory
options which are not intended to meet such requirements.                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13    STOCKHOLDERS' EQUITY (continued)                                          

SUPPLEMENTAL DISCLOSURE FOR STOCK-BASED COMPENSATION                            

Veridium  applies APB Opinion No. 25 and related  Interpretations  in accounting
for its Plans and the analogous plans of Veridium. SFAS No. 123, "Accounting for
Stock-Based  Compensation",  defined a fair value method of accounting for stock
options and other equity instruments.  Under the fair value method, compensation
cost is  measured  at the grant date based on the fair value of the award and is
recognized  over the  service  period,  which is  usually  the  vesting  period.
Veridium  elected to continue to apply the accounting  provisions of APB Opinion
No. 25 for stock  options.  Activity under the Plan and issuances of warrants to
non employees for the years ended December 31, 2005 and 2004 is as follows:     

                                           Number of Shares Weighted Average
                                                          Exercise Price
                                           ---------------------------------

Outstanding at December 31, 2003                3,814,027   $   0.88            
Granted at fair value .......                8,953,900       0.60         
Forfeited ...................               (2,930,000)      0.63         
Exercised ...................                     (--)         --         
                                   ----------      -----
Outstanding at December 31, 2004                9,700,427   $   0.47            
Granted at fair value .......                      --          --         
Forfeited ...................                      --          --         
Exercised ...................                      --          --         
                                   ----------      -----
Outstanding at December 31, 2005                9,700,427   $   0.47            

Summarized information about Veridium's stock options outstanding at December   
31, 2004 is as follows:                                                         

                                                        [Enlarge/Download Table]


   Range of Exercise Prices       Number of        Weighted          Weighted              Exercisable              
                                    Options         Average          Average         Number of    Weighted Average  
                                   Outstanding     Remaining       Exercise Price     Options      Exercise Price   
                                                 Contractual Life                                                   
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
$0.40 to $0.99                       8,953,900            5.90           0.27        6,408,900                 0.30 
$1.00 to $8.00                         746,527            3.89           2.39          746,527                 2.39 
                                ---------------                               -----------------                     
                                     9,700,427                                       7,155,427                      
--------------------------------------------------------------------------------------------------------------------

Summarized information about Veridium's stock options outstanding at December   
31, 2005 is as follows:                                                         

                                                        [Enlarge/Download Table]


   Range of Exercise Prices       Number of        Weighted          Weighted              Exercisable              
                                    Options         Average          Average         Number of    Weighted Average  
                                   Outstanding     Remaining       Exercise Price     Options      Exercise Price   
                                                 Contractual Life                                                   
--------------------------------------------------------------------------------------------------------------------
                                                                              Number of Options  Weighted Average   
                                                                                                  Exercise Price    
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
$0.40 to $0.99                       8,953,900            5.90           0.27         6,408,900                0.30 
$1.00 to $8.00                         746,527            3.89           2.39           746,527                2.39 
                                ---------------                               ------------------                    
                                     9,700,427                                        7,155,427                     

Options  exercisable  at  December  31,  2005 and 2004  were  7,155,427,  with a
weighted average exercise price of $0.47 per share, respectively. No new options
were issued or exercised in 2005.  The fair value of each option  granted during
2005  and  2004 is  estimated  on the  date of  grant  using  the  Black-Scholes
option-pricing model with the following assumptions:                            

   2005         2004
   -------------------
Dividend yield ........           --          --                                
Expected volatility ...           --          69%                               
Risk-free interest rate           --           2%                               
Expected life .........           --         5.9                                

There were no options  granted  in 2005.  There were no options  granted at less
than fair value during the periods presented. The weighted average fair value of
options and warrants  granted at fair value during 2005 and 2004 was  calculated
using  the  Black-Scholes  valuation  model  to be  $0.07  per  share,  totaling
$595,868.                                                                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13    STOCKHOLDERS' EQUITY (continued)                                          

DEBT AND OTHER LIABILITIES SETTLED WITH COMMON STOCK                            

During 2005,  Veridium issued a total of 11,909,107  shares of common stock upon
the  settlement of $265,382 in accounts  payable and other  liabilities  due. Of
these  amounts,  11,181,607  shares were issued for  settlement of related party
debt of $223,632.                                                               

On December 22, 2004,  the Company closed on the sale of $1,035,124 of equity to
Viridis,  an affiliate of Kevin Kreisler,  the Company's  chairman,  relative to
Viridis' purchase and conversion of (a) $755,202 of principal, accrued interest,
fees and  penalties  under the CCS  Debentures,  (b) the AMRC  Debentures in the
approximate  amount of $109,000,  (c) short term borrowings of $75,000,  and (d)
interest due on the Senior Loan and  Subordinate  Loan of $100,431  (see Note 7,
Financing Arrangements,  above). Viridis assigned its rights on this transaction
to  GreenShift,  another  affiliate of Kevin  Kreisler,  contemporaneously  with
closing.  In  consideration  of these amounts,  the Company issued to GreenShift
516,968 shares of the Company's  Series B preferred  stock,  1,960,954 shares of
the  Company's  common  stock and an option to  purchase an  additional  187,500
shares of the Company's Series B preferred stock for $4.00 per share.           

STOCK AND OPTIONS ISSUED FOR SERVICES                                           

During 2005,  Veridium issued  14,985,976 shares of common stock with a value of
$436,594, in exchange for services rendered. Of these amounts,  8,910,498 shares
were issued for services provided by related parties of $242,500.               

EXERCISE OF STOCK OPTIONS                                                       

No options were exercised during 2005 and 2004.                                 

INVESTMENT ACTIVITY                                                             

In the year 2005, there were no investment activities.                          

On November 2, 2004,  the Company closed on the sale of $150,000 of equity to an
accredited  investor.  In  consideration  of this amount,  the Company issued to
46,875  shares  of the  Company's  Series B  preferred  stock  and an  option to
purchase an additional  1,000,000 shares of the Company's common stock for $0.10
per share.                                                                      

On December  30,  2004,  the Company  closed on a $1.5 million sale of equity to
GreenShift.  In  consideration  of $1,500,000,  the Company issued to GreenShift
750,000 shares of the Company's  Series C preferred  stock,  1,500,000 shares of
the  Company's  common  stock and an option to  purchase an  additional  375,000
shares of the Company's Series C preferred stock for $4.00 per share.           

During 2004, the Company additionally closed on the sale of 50,000 shares of the
Company's  stock for $5,000 to an  accredited  investor,  a five year  option to
purchase  1,750,000  shares of the Company's common stock at $0.12 per share for
$100,000 to an accredited investor, and $100,000 shares of the Minority Interest
(see Note 8,  Minority  Interest,  above) was converted  into 500,000  shares of
Veridium's  common  stock and a five year option to purchase  250,000  shares of
Veridium's common stock at $0.10 per share.                                     

SERIES A PREFERRED STOCK                                                        

Series A convertible  preferred  shares could not be converted into common stock
until  September  30,  2005.  Each  share of Series A  Preferred  Equity  may be
converted  by the  holder  into one share of common  stock  and are  subject  to
customary anti-dilution  adjustments.  The holders would be entitled to dividend
rights equal to that of twenty-five common  shareholders upon the declaration of
dividends on common stock, and have voting privileges of five votes to every one
common share.                                                                   

SERIES B PREFERRED STOCK                                                        

In December 2003, various parties converted shares of common stock into Series B
Preferred  Stock at the rate of twenty shares of common to one share of Series B
Preferred Equity.  The conversions  included Kevin Kreisler  (450,000  preferred
shares),  James  Green  (200,000  preferred  shares),  Richard  Krablin  (67,617
preferred shares),  board members (42,125 preferred shares),  Lawrence Kreisler,
Veridium's former  Vice-Chairman,  a current employee (130,000 preferred shares)
and other parties (56,250 preferred shares).  Approximately 12,550,000 shares of
common stock were exchanged in connection these  agreements.  Based on the terms
of the Series B Preferred stock, the Company recognized a beneficial  conversion
feature totaling  $2,608,453 and $2,608,453 in both 2005 and 2004.  During 2004,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13        STOCKHOLDERS' EQUITY (continued)                                      

an  additional  815,226  shares  of  Series B  Preferred  Stock  were  issued in
connection with the  transactions  detailed above.  During 2005,  225,000 shares
were issued for  services  and  subsequently  converted  into common  stock (see
below).  The  preferred  shares could not be  converted  into common stock until
December  31,  2005 in the  absence of a change of  control  or other  merger or
acquisition  event.  Each share of Series B Preferred Equity may be converted by
the holder into twenty-five  shares of common stock and are subject to customary
anti-dilution adjustments.  The holders would be entitled to cumulative dividend
rights equal to that of twenty-five common  shareholders upon the declaration of
dividends on common stock, and have voting privileges of five votes to every one
common  share.  Certain of the  series B shares  owned by  Greenshift  are price
protected  in the amount of  $516,968.  Shares owned by James Green are dilution
protected in the amount  equivalent to 10% of the fully diluted  capital  stock.
There is no expiration date associated with the conversion  option. At all times
prior to conversion,  each share of Series B Preferred Equity has the equivalent
voting power of  twenty-five  shares of Veridium's  common stock.  Each share of
Series B Preferred Equity entitles its holder to receive  cumulative annual cash
or stock dividends as defined in the agreement.                                 

In December of 2005,  340,000 shares of series B preferred  stock converted into
Veridium common stock. The amounts and individuals  receiving the stock included
Richard  Krablin  (2,875,000  common  shares),  Steven  Powers  (500,000  common
shares),  Thomas O'Leary (500,000 common shares),  and Robert Ruggeiro  (500,000
common shares).                                                                 

During 2005,  the Company  determined  that the initial terms of the  conversion
option on Series B  preferred  shares  issued in  exchange  for common  stock in
December 2003 represented a beneficial conversion feature at inception (see Note
17 - RESTATEMENT).                                                              

SERIES C PREFERRED STOCK                                                        

The Series C Preferred Stock acquired by GreenShift (see above) in December 2004
could not be converted  into common stock until December 31, 2005 in the absence
of a change of  control  or other  merger or  acquisition  event.  Each share of
Series                                                                          

C Preferred Stock may then be converted into twenty-five shares of common stock,
subject to  certain  anti-dilution  and  price-protection  adjustments  that are
specified in the Certificate of Designation of the Series C Preferred Stock. The
adjustments to contingently  convertible shares are determined  annually at each
"Adjustment  Date" on December 31, 2005 and 2006.  There is no  expiration  date
associated with the conversion option.  Based on the anti dilution provisions of
the Series C Preferred Stock the Company  measured the  potentially  convertible
shares at the initial  Adjustment  Date of December 31, 2005 and,  consequently,
the company recognized a beneficial  conversion feature of $1,038,630 due to the
incremental  intrinsic  value of the additional  issuable shares at December 31,
2005. At all times prior to conversion,  each share of Series C Preferred  Stock
has voting power  equivalent  to  twenty-five  shares of all  Veridium's  common
stock. The holders would be entitled to cumulative dividend rights equal to that
of twenty-five  common  shareholders upon the declaration of dividends on common
stock, and have voting privileges of five votes to every one common share.      

STOCK REDEMPTIONS                                                               

During 2005, Veridium redeemed 1,856,061 shares of common stock from James Green
per the Purchase and Sales  agreement  for ESC.  These shares were  subsequently
canceled and recorded against paid in capital.  Veridium also redeemed 2,906,244
shares of common  stock for the Jones  redemption  agreement.  These shares were
subsequently canceled and recorded against paid in capital.                     

BENEFICIAL CONVERSION FEATURE                                                   

In addition to the beneficial  conversion features recognized on preferred stock
(as indicated above), the Company recognized the value of beneficial  conversion
features as follows:                                                            

In 2005,  based on the terms of the  conversion  option on a related  party note
(see  Note 8),  the debt was  determined  to  contain  a  beneficial  conversion
feature,  recorded as a discount on the debt of  $20,165,  amortizable  over the
term of the debt.  Interest  expense  of $5,041 has been  recorded  based on the
amortization of the discount in 2005.                                           

In 2004,  due to the terms and  conditions of the Laurus  Master Fund  financing
arrangement,  it had been  determined  to have a beneficial  conversion  feature
because the fair market value of the common stock at the time of issuance was in
excess of it's conversion price.                                                

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14       SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                       

The following is a summary of supplemental disclosures of cash flow information:

                                                        [Enlarge/Download Table]


                                                                     2005          2004   
                                                                   -----------------------
Cash paid during the year for the following:                                              
                                                                                          
     Interest ...................................................  $  542,144  $   339,914
     Income Taxes                                                                         
Supplemental Schedule of Non-Cash Investing                                               
  and Financing Activities:                                                               

Minority interest converted into common stock ...................        --        100,000

     Common stock issued upon settlement of payables ............      41,750         --  
     Common stock issued upon conversion of preferred stock .....       8,500         --  
     Settlement of related party accounts payable                                         
       and debt with the issuance of stock ......................     223,632      105,107
     Redemption of related party stock via related party loan ...     116,667         --  

Value of warrants issued for deferred financing costs in                                  
connection with senior loan .....................................        --          7,268
     Value of beneficial conversion feature on convertible debt .      20,165         --  
        Value of beneficial conversion feature                                            
          on convertible preferred stock ........................   3,647,083    2,608,453
        Recognition of liabilities on derivative instruments                              
                                                                      151,114         --  
     Equity issued for deferred financing costs .................        --         82,500
     Conversion of subordinate loan into equity .................        --        454,171
     Deferred financing costs associated with stock issuance ....        --         50,000
     Issuance of warrants for deferred financing costs ..........        --        489,229
     Settlement of accounts payable with short term notes .......        --        603,814
     Debt issued in connection with deferred financing costs ....        --         30,500
     Acquisition of equipment and/or vehicles with long-term debt     306,565      120,998
     Asset capitalized as part of asset retirement cost .........        --         99,130
In connection with the NCES acquisition:                                                  
        Net assets acquired including goodwill,                                           
         excluding cash equivalents .............................  $  574,978         --  
        Less: Short term note payable issued                         (128,000)        --  
                  Fair value of common stock issued                   (75,000)        --  
                                                                   -----------            

 Net cash paid at acquisition ...................................  $  371,948         --  
In connection with the Laurus transaction:                                                
     Debenture paid .............................................        --        250,000
     Payment of subordinate loan ................................        --        500,000
     Payment of term financing ..................................        --        100,000
     Payment of accounts receivable due factor ..................        --        470,762
     Prepaid expenses paid ......................................        --         16,945
     Deferred financing costs paid ..............................        --        179,376

In connection with the Viridis Capital, LLC debt assumption for stock:                    
     Accrued interest                                                    --        271,124
     Settlement of convertible debenture - AMRC                          --         89,000
     Settlement of convertible debenture - CCS Debenture                 --        600,000
     Settlement of short term borrowings - line of credit                --         75,000

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15                 RETIREMENT PLAN                                              

Veridium  maintains a retirement plan pursuant to Section 401(k) of the Internal
Revenue Code for its employees.  Veridium contributed $102,877 and $5,200 during
2005 and 2004, respectively.                                                    

16                SUBSEQUENT EVENTS                                             

ACQUISITION                                                                     

On January 23, 2006, Veridium acquired GreenShift  Industrial Design Corporation
("GIDC")  and  Tornado  Trash  Corporation  ("TTC")  from  GreenShift.  GIDC was
subsequently  renamed to  Veridium  Industrial  Design  Corporation  ("VIDC") in
return for 10% of the Company's fully diluted  capital stock,  which was paid by
way of amending the Company's Series C Preferred Stock to provide for conversion
rights into 35% of the Company's fully diluted capital stock instead of 25%.    

VIDC  is a  development  stage  company  that  focuses  on the  engineering  and
marketing  of  green  innovations  and  processes  that  enhance   manufacturing
efficiencies, improve resource utilization and minimize waste. VIDC's mission is
to  deliver  Natural  SolutionsTM  based on an array of green  technologies  and
applied engineering expertise that reduce waste at the source and make it easier
for people and businesses to recycle and reuse resources. Due to the pre-revenue
stage of both VIDC and TTC and the fact that their assets are entirely comprised
of a number of  intellectual  properties  from which  neither  VIDC nor TTC were
generating  revenue as of the closing date, these acquisitions were deemed to be
immaterial.                                                                     

SHARE ISSUANCES                                                                 

In February 2006,  Veridium issued a total of 75,346,825  shares of common stock
to the  shareholders of Veridium's  Series B Preferred Stock, and 627,122 shares
of common stock to the holders of Veridium's  Series A Preferred  Stock upon the
conversion of all outstanding  shares of the Series A Preferred  Stock.  Further
information  about the Series A and B Preferred Stock is available in Veridium's
Annual Report on Form 10-KSB for the year ended December 31, 2004.              

In a series of  transactions  taking place between  October,  2005 and March 14,
2006,  Veridium issued a total 55,901,085  shares of common stock to the holders
of the Convertible  Secured  Promissory  Notes Due to GCS Investments  that were
issued by Veridium in December 2003.  The shares were issued upon  conversion of
$1,285,000 in principal amount and accrued interest.  Further  information about
the Convertible Secured Notes is included in Note 8, Financing Arrangements.    

17        RESTATEMENT                                                           

The Company has restated its financial  statements  for the years ended December
31,  2003  and  2004.  The  restated  financial  results  reflect  prior  period
adjustments to correct accounting treatment and other errors, as follows:       

During 2005, the Company  determined that certain of its debt instruments issued
in December 2003 contained embedded derivative conversion features that required
bifurcation under the provisions of SFAS No. 133 as derivative  liabilities (see
Note 8).  These  conversion  features  were  measured at fair value based on the
issuance date,  with the  corresponding  discount on the debt amortized over the
term of the respective debt instruments (immediately for demand instruments). In
addition, redeemable options issued in connection with this debt were determined
to require  treatment as  liabilities  under the provisions of SFAS No. 150, and
the fair value  determined was recorded as a discount on the related debt and is
being  amortized  over the term of the debt  (five  years).  The total  discount
recorded was $1,694,609, upon which interest expense for the amortization of the
discount  was  $839,808  and  $171,620  for 2003  and  2004,  respectively.  The
derivative  liabilities  recorded  were  marked  to fair  value  for  subsequent
periods,  resulting in accounting  income of $208,621 and $954,925 for the years
ended December 31, 2003 and 2004, respectively.                                 

During  2005,  the  Company  determined  that there was an  embedded  beneficial
conversion feature related to issuances of Series B preferred stock in late 2003
due to the excess of the market  price of the  Company's  common  stock over the
effective  conversion  price of the preferred stock at the time of issuance (see
Note 13). The beneficial  conversion  feature was amortized  through the date of
earliest conversion,  which is December 31, 2005. As a result of the recognition
of this beneficial conversion feature and the related amortization,  the Company
recognized  $2,608,453  in  implied  preferred  dividends  during the year ended
December 31, 2004.                                                              

During 2005, the Company determined it had not accrued an obligation for        
liquidating damages due to the lack of registration of the underlying shares of 
convertible debt and warrants issued to Laurus Fund (see Note 8). The amount to 
be accrued in 2004 was determined to be $116,667.                               

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17        RESTATEMENT (continued)                                               

In addition,  the Company  noted during 2005 that an error was made in recording
an accrual in 2004, resulting in an under-accrual of $151,556.                  

The impact of these adjustments of the Company's financial results as originally
reported is summarized below:                                                   

Year Ended December 31, 2004:                                   
                                    As Reported    As Restated
                                    -----------    -----------
Accumulated deficit ......................  $(33,942,795)  $(36,667,301)        
Additional paid-in capital ...............    35,278,025     37,886,478         
Total stockholders' equity ............ ..     1,134,717      1,018,664         
Net loss .................................    (6,971,082)    (6,456,000)        
Net loss applicable to common shareholders    (6,971,082)    (9,064,453)        
Net loss per common share ................  $      (0.26)  $      (0.35)        

Year Ended December 31, 2003                                          
                                   As Reported   As Restated
                                   -----------   -----------
Accumulated deficit ....... ...........     $(26,971,713)  $(27,602,848)        
Total stockholders' equity                     4,547,097      3,915,962         

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ITEM 8.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND  
FINANCIAL DISCLOSURE                        
None.                                                                           

ITEM 8A.     CONTROLS AND PROCEDURES                                            

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES                                

Our principal  executive officer and principal  financial and accounting officer
participated  in and supervised  the  evaluation of our disclosure  controls and
procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities
Exchange  Act of 1934,  as amended  (the  "Exchange  Act") that are  designed to
ensure that  information  required to be  disclosed by us in the reports that we
file is recorded,  processed,  summarized  and reported  within the time periods
specified  in  the  Securities  and  Exchange   Commission's  rules  and  forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that the information  required to be disclosed by
us in the reports that we file or submit  under the Exchange Act is  accumulated
and communicated to                                                             

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 VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 8A.     CONTROLS AND PROCEDURES (continued)                                

our  management,  including  our  principal  executive  officer or officers  and
principal  financial  officer,  to allow  timely  decisions  regarding  required
disclosure.  Veridium's  chief  executive  officer and chief  financial  officer
determined  that,  as of the end of the  period  covered by this  report,  these
controls and  procedures  are adequate and effective in alerting him in a timely
manner to material  information  relating to Veridium required to be included in
Veridium's periodic SEC filings.                                                

CHANGES IN INTERNAL CONTROLS                                                    

None.                                                                           

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PART III

ITEM 9.      DIRECTORS AND EXECUTIVE OFFICERS                                   

Name                      Age      Position                                     
--------------------------------------------------------------------------------
Kevin Kreisler               33  Chairman of the Board of Directors,            
          Chief Executive Officer,
         Chief Financial Officer
James Green                  51  President of Enviro-Safe Corporation           

Kevin Kreisler, Veridium's current Chairman of the Board of Directors, President
and Chief Executive Officer.  Mr. Kreisler is also currently the Chairman of the
Board and Chief Executive  Officer of GreenShift  Corporation,  and he serves as
Chairman  of the Board and Chief  Executive  Officer  of INSEQ  Corporation  and
General   Ultrasonics   Corporation.   Mr.   Kreisler   is  also   Chairman   of
Enviro-Sciences  Corporation,  and a member of the board of directors of Ovation
Products  Corporation,  Aerogel  Composite,  Inc.,  Sterling  Planet,  Inc., and
TerraPass,  Inc. Mr. Kreisler served as Veridium's  vice-president  from 1998 to
2000,  president  from 2000 to 2002,  and chief  executive  officer from 2002 to
February  2005.  From  February  2005  until  September  2005 Mr.  Kreisler  was
Veridium's Chief Technology  Officer. He resumed the position of Chief Executive
Officer in  September  2005.  Mr.  Kreisler is a graduate of Rutgers  University
College  of  Engineering  (B.S.,  Civil and  Environmental  Engineering,  1994),
Rutgers  University  Graduate School of Management  (M.B.A.,  1995), and Rutgers
University School of Law (J.D.,  1997). Mr. Kreisler is admitted to practice law
in New Jersey and the  United  States  District  Court for the  District  of New
Jersey. His current term as a director expires in 2006.                         

James Green, the President of Veridium's  subsidiary,  Enviro-Safe  Corporation,
was Veridium's  President and Chief  Executive  Officer from February 2005 until
September 2005. From 2003 until February 2005 Mr. Green was the Chief Operations
Officer for Veridium.  Until it was acquired by Veridium in 2003,  Mr. Green was
the vice president and an owner of the  environmental  services division of R.M.
Jones & Co.,  Inc.  ("Jones").  Mr.  Green was  formerly  employed  as the Chief
Operations Officer for Heritage  Environmental  Services,  and as Vice President
for  Laidlaw,  Inc.,  where  he was  responsible  for  what is now the  chemical
services  division of Clean Harbors,  with 24 operations in North America,  over
1500  employees and $200 million in revenue.  He has also served as president of
North  East  Solvents,  where he grew a $40  million  company  from  sales of $4
million within four years before being acquired by Laidlaw, Inc. Mr. Green holds
undergraduate  and advanced degrees in biochemistry and medicinal  chemistry and
has participated in executive MBA programs.                                     

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ITEM 9.      DIRECTORS AND EXECUTIVE OFFICERS (continued)                       

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
officers and directors, and persons who own more than 10 percent of a registered
class of the  Company's  equity  securities,  to file reports of  ownership  and
changes in  ownership  with the  Securities  and  Exchange  Commission  ("SEC").
Officers,  directors,  and greater than 10 percent  stockholders are required by
SEC  regulation  to furnish the Company  with copies of all Section  16(a) forms
they file.                                                                      

Based  solely on the  Company's  review of copies of such forms  received by the
Company,  the Company believes that during the year ended December 31, 2005, all
filing requirements applicable to all officers,  directors, and greater than 10%
beneficial stockholders were complied with.                                     

INDEMNIFICATION OF DIRECTORS AND OFFICERS.                                      

We shall  indemnify  to the  fullest  extent  permitted  by,  and in the  manner
permissible  under  the laws of the  State of  Delaware,  any  person  made,  or
threatened  to be made, a party to an action or  proceeding,  whether  criminal,
civil, administrative or investigative,  by reason of the fact that he is or was
a director or officer,  or served any other  enterprise as director,  officer or
employee at our request.  The board of  directors,  in its  discretion,  has the
power on behalf of our behalf to indemnify any person,  other than a director or
officer,  made a party to any action,  suit or  proceeding by reason of the fact
that he/she is or was one of our employees.                                     

Insofar  as  indemnification  for  liabilities  arising  under  the  Act  may be
permitted  to  directors,  officers  and  controlling  persons  pursuant  to the
foregoing provisions,  or otherwise, we have been advised that in the opinion of
the Securities and Exchange  Commission,  such indemnification is against public
policy as expressed in the Act, and is therefore, unenforceable.                

AUDIT COMMITTEE                                                                 

The Audit Committee,  which held 4 meetings during fiscal year 2005,  recommends
the selection of independent  public accounts,  reviews the scope of approach to
audit work,  meets with and reviews the  activities  of the  Company's  internal
accountants and the independent  public  accountants,  makes  recommendations to
management or to the Board of Directors as to any changes to such  practices and
procedures deemed necessary from time to time to comply with applicable auditing
rules,  regulations and practices, and reviews all Form 10-KSB Annual and 10-QSB
interim reports.                                                                

Code of Conduct and Ethics                                                      

The Company has adopted a written code of conduct and ethics that applies to all
directors,  and employees,  including the Company's principal executive officer,
principal financial officer,  principal accounting officer or controller and any
persons  performing  similar  functions.  The Company will provide a copy of its
code of ethics to any person  without charge upon written  request  addressed to
Veridium Corporation, 535 West 34th Street, Suite 203, New York, NY 10001.      

ITEM 10.    EXECUTIVE COMPENSATION                                              

The following table sets forth compensation information for Veridium's executive
officers  during the years  indicated as relevant.  As of December 31, 2005,  no
executive  officer  held shares of  exercisable  options for  Veridium's  Common
Stock.                                                                          

                                                        [Enlarge/Download Table]

Name and Principal Position       Annual Compensation              Long-term Compensation               All Other    
                                                                                                        Compensation 
---------------------------------------------------------------------------------------------------------------------
                                   Year     Salary     Bonus       Other      Securities Underlying                  
                                                                            Options Granted (shares)                 
---------------------------------------------------------------------------------------------------------------------
                                                                                                                     
Kevin Kreisler                      2005  $ 103,462  $      --    $    --             --                  $ --       
Chairman, President  & CEO          2004    129,807         --         --             --                    --       
                                    2003     78,211         --         --             --                    --       

James Green                         2005    156,923    100,000         --             --                    --       
Former President & CEO              2004    146,537         --         --             --                    --       
                                    2003     82,952         --         --             --                    --       

Richard Krablin                     2005    131,154     25,000         --             --                    --       
Former Chief Compliance Officer     2004    154,419         --         --             --                    --       
                                    2003     34,569         --         --             --                    --       

Option  Grants  in Last  Fiscal  Year to Named  Executive  Officers.  The  named
executive  officers of  Veridium  do not hold any option to  purchase  shares of
Veridium's common stock.                                                        

EMPLOYMENT AGREEMENTS                                                           

Veridium is party an employment  agreement with Kevin Kreisler,  which agreement
calls for an annual base salary of $150,000,  and reimbursement of expenses, use
of a Company automobile, periodic bonuses, four weeks vacation and participation
in any employee benefits provided to all employees of Veridium.                 

COMPENSATION OF DIRECTORS                                                       

According to  Veridium's  2003 Stock  Option/Stock  Issuance  Plan,  approved by
stockholders at the 2003 Annual Meeting, each director who is not an employee of
Veridium receives, at the discretion of the Board of Directors, an annual fee of
$20,000,  paid quarterly in the form of a five-year,  non-qualified stock option
to purchase  that number of shares of  Veridium's  Common Stock as determined by
dividing such quarterly  compensation by the trailing  ninety-day average market
price for Veridium's Common Stock.  Non-employee  Board Members that participate
on the  executive  compensation  committee to the Board of Directors  receive an
additional fee of $5,000 per year,  paid on the same basis;  participants on the
audit  committee to the Board of Directors  receive an additional fee of $10,000
per year, paid on the same basis. Directors are reimbursed for expenses incurred
in connection with service on the Board. Total fees paid on the  above-described
basis to outside directors in 2005 and 2004 were as follows:  Mr. Hanrahan,  $ 0
and $30,000, respectively, and Mr. Lewen, $ 0 and $20,000, respectively.        

STOCK OPTION AND ISSUANCE PLANS                                                 

In  September  2003,  Veridium's  shareholders  approved  Veridium's  2003 Stock
Option/Stock  Issuance  Plan (the  "Plan").  The Plan  consists of two  separate
equity programs:  (i) the Discretionary  Option Grant Program and (ii) the Stock
Issuance Program.  An aggregate of 5,322,652 shares of Common Stock are reserved
for issuance  over the term of the Plan.  In  addition,  the number of shares of
Common Stock reserved for issuance under the Plan automatically increases on the
first  trading day of January each  calendar  year,  by an amount equal to eight
percent (8%) of the total number of shares of Common  Stock  outstanding  on the
last trading day in December of the preceding  calendar year.  Shares subject to
any  outstanding  options  under the Plan,  which expire or otherwise  terminate
prior to exercise will be available for subsequent issuance. However, any shares
subject  to stock  appreciation  rights  exercised  under  the Plan  will not be
available for reissuance.  Should the exercise price of an option under the Plan
be paid with shares of Common Stock or should  shares of Common Stock  otherwise
issuable                                                                        

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ITEM 10. EXECUTIVE COMPENSATION (continued)                                     

under the Plan be withheld in satisfaction of the withholding  taxes incurred in
connection  with the  exercise of an option or the  vesting of a stock  issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan will be reduced  only by the gross number of shares for which the
option is  exercised  or which vest under the stock  issuance and not by the net
number of shares of Common  Stock  issued to the holder of such  option or stock
issuance.  Veridium's  officers and  employees,  non-employee  Board members and
independent  consultants  in  Veridium's  service or the  service of  Veridium's
subsidiaries (whether now existing or subsequently  established) are eligible to
participate  in the Plan. The fair market value per share of Common Stock on any
relevant date under the Plan will be deemed to be equal to the closing bid price
per share on that date.  Options granted under the Plan may be either  incentive
stock  options  which  satisfy the  requirements  of Section 422 of the Internal
Revenue  Code or  non-statutory  options  which  are not  intended  to meet such
requirements.                                                                   

EQUITY COMPENSATION PLAN INFORMATION                                            

The following table provides information with respect to the equity securities  
that are authorized for issuance under our compensation plan as of December 31, 
2005:                                                                           

                                                        [Enlarge/Download Table]


                                                                                       Number of securities    
                                                                                      remaining available for  
                                  Number of securities to   Weighted average exercise  issuance under equity   
                                 be issued upon exercise      price of outstanding       compensation plans    
                                 of outstanding options,     options, warrants and     (excluding securities   
                                 warrants and rights (a)             rights           reflected in column (a)  
---------------------------------------------------------------------------------------------------------------
                                                                                                               
Equity compensation plans               9,700,427                    $0.47                   5,322,652         
approved by security holders                                                                                   
Equity compensation plans not               --                         --                        --            
approved by security holders                                                                                   
Total                                   9,700,427                    $0.47                   5,322,652         

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT      

The  following  table  sets  forth   information   regarding  the  voting  stock
beneficially owned by any person who, to our knowledge,  owned beneficially more
than 5% of any class of voting stock . Mr.  Kreisler is the only officer and the
only member of the Board of Directors of Veridium.                              

                                                        [Enlarge/Download Table]


                   Amount and Nature of Beneficial Ownership                                               
Name and Address                                  Percentage       Series D      Percentage   Percentage of
of Beneficial Owner(1)             Common            of Class     Preferred       of Class    Voting Power 
-------------------              ---------        -----------     ---------      -----------  ------------ 
                                                                                                           
Kevin Kreisler(2)                        -               0%       1,000,000          100%          70%     
<FN>                                                                                                       
(1)  The address of each shareholder is c/o Veridium Corporation,  535 West 34th                           
     Street,  Suite 203,  New York,  NY 10001.  (2) All shares  listed for Kevin                           
     Kreisler  are  owned of  record  by  GreenShift  Corporation,  of which Mr.                           
     Kreisler is Chairman and majority shareholder.                                                        
</FN>                                                                                                      

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                      

During 2005 and 2004, and in connection with the Company's various acquisitions 
and the requirements of financings, the Company was party to the following      
significant related party transactions:                                         

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (continued)          

CERTAIN INVESTMENTS RECEIVED DURING 2004                                        

In  December  22,  2004,  the  Company  closed on the sale of equity to  Viridis
Capital,  LLC  ("Viridis"),  an  affiliate  of Kevin  Kreisler.  This equity was
assigned to GreenShift Corporation ("GreenShift"), another affiliate of Kevin   

Kreisler,  in connection with GreenShift's initial  capitalization and its plans
to file to become public as a business  development  company regulated under the
Investment Company Act of 1940. The initial sale of equity,  however, to Viridis
was relative to purchase and  conversion of (a) $755,202 of  principal,  accrued
interest,  fees and penalties under the CCS Debentures,  (b) the AMRC Debentures
in the approximate amount of $104,491, (c) short term borrowings of $75,000, and
(d) interest due on the Senior Loan and  Subordinate  Loan of $100,431 (see Note
7, Financing Arrangements) In consideration of these amounts, the Company issued
to  GreenShift  516,968  shares  of the  Company's  Series  B  Preferred  Stock,
1,960,954  shares of the  Company's  common  stock and an option to  purchase an
additional  187,500 shares of the Company's  Series B Preferred  Stock for $4.00
per share.  Shares of Series B Preferred  Stock cannot be converted  into common
stock  until  December  31,  2005 in the absence of a change of control or other
merger or  acquisition  event.  Each  share of Series B  Preferred  Stock may be
converted by the holder into  twenty-five  shares of common  stock.  There is no
expiration  date associated  with the conversion  option.  At all times prior to
conversion,  each share of Series B Preferred  Stock has the  equivalent  voting
power of twenty-five  shares of the Company's common stock. Each share of Series
B Preferred Stock entitles its holder to receive cumulative annual cash or stock
dividends  as  defined  in  the  relevant   Certificate  of  Designations.   The
transaction between Viridis and GreenShift Corp. was a stock transfer outside of
Veridium  Corporation's  control,  between two entities  that are  controlled by
Kevin Kreisler,  Veridium's  chairman.  Mr. Kreisler has informed  Veridium that
this transfer was done for the purpose of consolidating his holdings.           

On December  30,  2004,  the Company  closed on a $1.5 million sale of equity to
GreenShift,  an affiliate of Kevin Kreisler. In consideration of $1,500,000 less
$200,000  in costs  associated  with the  transaction,  the  Company  issued  to
GreenShift  750,000 shares of the Company's Series C preferred stock,  1,500,000
shares of the  Company's  common  stock and an option to purchase an  additional
375,000  shares of the Company's  Series C Preferred  Stock for $4.00 per share.
The Series C Preferred  Stock  acquired by GreenShift  may not be converted into
common stock until  December 31, 2006,  in the absence of a change of control or
other merger or acquisition  event.  Each share of Series C Preferred  Stock may
then be converted into  twenty-five  shares of common stock,  subject to certain
anti-dilution  and  price-protection  adjustments  that  are  specified  in  the
Certificate  of  Designations  of the  Series  C  Preferred  Stock.  There is no
expiration  date associated  with the conversion  option.  At all times prior to
conversion,  each share of Series C Preferred Stock has voting power  equivalent
to  twenty-five  shares of the Company's  common  stock.  Each share of Series C
Preferred Stock entitles its holder to receive  cumulative  annual cash or stock
dividends on a pro rated basis with holders of the Company's common stock. Also,
as a result of this  transaction,  175,000  of  common  stock  subscription  was
created and still  outstanding  at December 31, 2004.  The entire cash amount of
$175,000 was received on February 28, 2005.                                     

OTHER RELATED PARTY TRANSACTIONS                                                

During 2005 and 2004, the Company  utilized the services of Candent  Corporation
for  development  and  administration  of  its  various  management  information
systems.  Candent is  majority-owned by Kevin Kreisler's  spouse.  Such services
approximated $25,000 and $187,000 for 2005 and 2004, respectively.              

10KSB
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 PART IV
ITEM 13.    EXHIBITS                                                            

The following are exhibits filed as part of Veridium's Form 10KSB for the year  
ended December 31, 2005:                                                        

EXHIBITS                                                                        

     Exhibits to this Form 10-KSB Annual Report have been included only with the
     copies  of  the  Form  10-KSB  filed  with  the   Securities  and  Exchange
     Commission.  Upon  request to  Veridium  and payment of a  reasonable  fee,
copies of the individual exhibits will be furnished.                  

Index to Exhibits                                                               

Exhibit Number          Description                                             

3.1*    Certificate of Incorporation *                                          

3.1(a)* Certificate of Designation for Series A Preferred Stock *               

3.1(b)* Certificate of Designation for Series B Preferred Stock *               

3.1(c)* Certificate of Designation for Series C Preferred Stock *               

3.1(d)  Certificate of Designation  for Series D Preferred  Stock - filed as    
      an  exhibit  to Current  Report on Form 8-K dated  March 24,  2006 and
incorporated herein by reference 3.2 * Bylaws *                 

10.1*   Acquisition  Agreement and  Amendment,  dated as of December 11, 2002,  
     and May 2, 2003, by   and between R.M. Jones & Co., Inc. and Veridium
Environmental Corporation.                                      

10.2*   Revised  Purchase  Agreement,  dated May 2, 2002,  by and between James 
F. Green and Veridium Environmental Corporation                 

10.4**  Convertible Debenture issued to CCS *                                   

10.5**  Warrants issued to CCS *                                                

10.6*   Convertible Debenture issued to Laurus *                                

10.7*   Security Agreement with Laurus *                                        

10.8*   Registration Rights Agreement with Laurus *                             

10.9*   Warrant issued to Laurus *                                              

10.10***GCS Debenture                                                           

10.11***GCS Warrants                                                            

10.12***Veridium and GreenShift Equity Financing                                

31      Certification of Chief Executive Officer and Chief Financial Officer    
     pursuant to Rule 13a-14(a)/15d- 14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                          

32      Certification of Chief Executive Officer and Chief Financial Officer    
        pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-
Oxley Act of 2002.                                              

99      On March 15, 2006 Veridium sent a letter to its shareholders.  The      
       letter was republished in a press release as an exhibit to this report.

     *    Exhibits  incorporated by reference from Veridium  Corporation's  2004
Form 10KSB filing on March 31, 2005.                        

     **   Exhibits  incorporated by reference from Veridium  Corporation's  SB-2
Amendment 2 filing on April 12, 2005.                       

     ***  Exhibits  incorporated by reference from Veridium  Corporation's  SB-2
Amendment 3 filing on July 18, 2005.                        

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES                              

INDEPENDENT AUDITOR FEES                                                        

     Fees for professional services provided by Veridium's independent auditors,
     Rosenburg,  Rich, Baker Berman and Company for the years ended December 31,
2005 and WithumSmith & Brown, PC 2004 are as follows:                 

                                                        [Enlarge/Download Table]

                                                                2005             2004
                                                      -------------------------------
                                                                                     
Audit fees                                            $       80,000    $      80,000
Audit-related fees                                            30,000           30,000
Tax fees                                                      10,000           10,000
Fees associated  with an SB-2 registration statement              --           40,000
                                                      --------------    -------------
       Total fees                                     $      120,000    $     160,000
                                                      ==============    =============

Audit fees consist of fees related to Veridium's  year end financial  statements
and review of  Veridium's  quarterly  reports on Form 10QSB.  Audit related fees
principally include accounting  consultations.  Tax fees consist of fees related
to analysis of Veridium's net operating  loss carry forwards and  preparation of
Veridium's United States federal, state, and local tax returns in 2005 and 2004.

It is the policy of Veridium's audit committee to approve all engagements of    
Veridium's independent auditors to render audit or non-audit services prior to  
the initiation of such services.                                                

10KSB
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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the date indicated.     

VERIDIUM CORPORATION                                                            

By:           /S/       KEVIN KREISLER                                          
------------------------                            
KEVIN KREISLER                  
               Chairman of the Board, Chief Executive Officer,
Chief Financial Officer         

Date:                   April 16, 2006                                          

          In accordance with the Exchange Act, this Report has been signed
below on March 31, 2006 by the following persons, on behalf of the Registrant   
and in the capacities and on the dates indicated.                               

/S/       KEVIN KREISLER                            
------------------------                            
KEVIN KREISLER                  
               Chairman of the Board, Chief Executive Officer,
Chief Financial Officer         

Date:                   April 16, 2006                                          

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10KSB’ Filing		Date		First		Last			Other Filings
		12/31/25		40
		12/19/08		33					8-K/A
		12/13/08		34
		4/5/07		33
		12/31/06		36		52			10KSB,  NT 10-K
		9/30/06		34					10QSB,  NT 10-Q
Filed on:		4/17/06
		4/16/06		1		54
		4/15/06		6		17
		4/14/06		16
		3/31/06		54					10QSB,  NT 10-K,  NT 10-Q
		3/24/06		53					4,  8-K
		3/15/06		53					8-K
		3/14/06		46
		1/23/06		23		46
		1/22/06		3		30
For Period End:		12/31/05		1		53			NT 10-K
		12/15/05		14		27
		11/10/05		34
		10/24/05		27
		9/30/05		29		43			10QSB,  NT 10-Q
		7/18/05		53					SB-2/A
		6/30/05		9					10QSB,  8-K
		6/15/05		14		27			4
		4/12/05		53					SB-2/A
		3/31/05		53					10KSB,  10QSB
		2/28/05		36		52
		2/17/05		17
		12/31/04		12		52			10KSB,  3,  4,  5
		12/30/04		36		52			3,  4,  8-K
		12/22/04		35		52
		11/2/04		43
		3/31/04		34					10QSB
		12/31/03		9		47			10KSB,  5,  5/A,  NT 10-K
		12/19/03		33		35
		8/14/03		9		38
		5/2/03		53
		12/11/02		53
		5/2/02		53
		4/2/99		35
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