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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
for the transaction period from to
Commission File Number 0-02555
Veridien Corporation
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(Name of Small Business Issuer in its charter)
Delaware 59-3020382
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State of other jurisdiction (I.R.S. Employer
Identification No.)
11800 28th Street North, St. Petersburg, Florida 33716
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(Address of principal executive offices) (Zip code)
Issuer's telephone number (727) 572-5500
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which
registered
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of class)
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(Title of class)Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
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information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. ( )
State issuer's revenues for its most recent fiscal year. $415,491.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. At the average bid and asked prices of stock as of March 21, 2000 of
$.2375 the aggregate market value of voting stock held by non-affiliates is
$21,285,854.
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TABLE OF CONTENTS
PART I PAGE
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Item 1. Description of Business 3
Item 2. Description of Property 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Management's Discussion and Analysis or Plan of Operation 17
Item 7. Financial Statements 23
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 42
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 43
Item 10. Executive Compensation 47
Item 11. Security Ownership of Certain Beneficial Owners and Management 48
Item 12. Certain Relationships and Related Transactions 50
Item 13. Exhibits and Reports on Form 8-K 52
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ITEM 1. DESCRIPTION OF BUSINESS
ORGANIZATION/HISTORICAL BACKGROUND
We were incorporated in Delaware on June 4, 1991 as "VCT Acquisitions II, Inc.".
We then acquired all of the assets of another Delaware corporation called Viral
Control Technology, Inc. On September 13, 1991, we changed our name to Viral
Control Technology, Inc. On November 8, 1991, we again changed our name and
became Veridien Corporation.
The "Viral Control Technology, Inc." from which we acquired our assets was
created on August 3, 1989 by a reverse acquisition of a public shell called
Valencia Enterprises, Inc. by a private company named Viral Control Technology,
Inc. The original Viral Control Technology, Inc. was organized in Delaware on
August 10, 1988 while Valencia Enterprises was organized in Utah on February 10,
1984. Valencia, which had changed its name to Viral Control Technology, Inc.
after the reorganization, was redomesticated in Delaware on December 14, 1990.
The original private company called Viral Control Technology, Inc. was organized
by Paul L. Simmons and his wife. Mr. Simmons continues to be a director and a
stockholder.
BUSINESS
We were founded to develop, manufacture, distribute and sell disinfectants,
antiseptics, and sterilants which are inherently non-toxic, posing no hazard to
people who use them and which are environmentally friendly, decomposing into
harmless naturally occurring organic molecules. To this end, we have developed
and patented a hard surface disinfectant, VIRAHOL(R), which has been registered
with the Environmental Protection Agency (EPA), and an antiseptic hand gel
sanitizer made in accordance with the applicable Food and Drug Administration
(FDA) Monograph, containing the patented VIRAHOL(R) composition. Our products
are currently manufactured in a leased 38,000 square foot facility located in
St. Petersburg, Florida.
We operate both a microbiological and chemical laboratory and perform directly
or contract out our research and development activities (R&D). R&D activities
currently underway include analysis to support expanding our product claims to
a broad range of new viruses and germs which we intend to assert effectiveness
for our existing products, all of which employ the VIRAHOL(R) product. We are
also actively testing new products to broaden our line of infection control
products and other healthy lifestyle product lines.
CORPORATE FINANCE AND CAPITAL STRUCTURE
In October 1995 the Company entered into a Loan and Security Agreement with
Dunvegan Mortgage Corporation. Dunvegan is a company of which the Company's
current President and CEO (since June 1998) is an officer and director, but at
the time of the transaction there was no affiliation. Under the terms of the
Loan and Security Agreement, the lender was issued Common Stock Purchase
Warrants which guaranteed the lender could maintain a 51% ownership interest in
the Company so long as the debt was outstanding. Under the Loan and Security
Agreement, Dunvegan loaned the Company $2,500,000 and received a 10% Convertible
Senior Secured Promissory Note as evidence thereof.
In late 1997 it was noted that if all outstanding convertible securities were
converted and all outstanding common stock purchase warrants were exercised the
total number of shares issued and outstanding would exceed the then authorized
100,000,000 shares of Common Stock. Accordingly, on December 15, 1997 the
Company's Board of Directors approved a capital-restructuring plan whereby
preferred stock warrants
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would be issued in lieu of certain common stock warrants. So far, only the
Dunvegan portion of the capital-restructuring plan has been implemented. On
September 14, 1998 the Company designated the Series B Convertible Preferred
Stock and authorized the Series B Convertible Preferred Stock Purchase Warrants.
Thereupon, the total number of Common Stock Purchase Warrants held by Dunvegan
was reduced by the Common Stock equivalent of the Preferred Stock Purchase
Warrants issued.
That same day, Dunvegan elected to exercise a portion of its common stock and
preferred stock warrants and used $1,575,166 of the $2,500,000 indebtedness in
payment of the warrant exercise prices. At that time, based on a calculation of
51% of the Company's equity ownership, Dunvegan exercised 33,530,973 Common
Stock Purchase Warrants and 154,163 Preferred Stock Purchase Warrants and
received 33,530,973 shares of the Company's Common Stock and 154,163 shares of
the Company's Series B Preferred Stock. Since the 154,163 shares of the
Company's Series B Preferred Stock are convertible into 3,089,449 shares of the
Company's Common Stock, the calculated exercise price per share of Common Stock
was $.043. The remaining loan balance of $924,834 was assigned to another
lender.
The new holder of the Loan and Security Agreement has exercised the conversion
provision twice during 1999. On June 11, 1999 the lender was issued 4,626,410
common shares and 15,000 Series B Preferred shares and on December 16, 1999 the
lender was issued 7,457,000 common shares and 32,495 Series B Preferred shares.
The total amount converted was $405,495. The balance remaining under the Loan
and Security Agreement at December 31, 1999 and at March 21, 2000 is $519,340.
PRODUCTS
Our products are designed for use both in health care delivery environments and
for consumer and commercial applications where disinfectants and antiseptics are
sought. The patented VIRAHOL(R) composition is the basic infection control
ingredient used in the majority of our products. Our disinfectant products are
sold ready to use, not requiring dilution, and accomplish their germicidal
effects without the need for inherently toxic compounds, such as quaternary
ammonium compounds, phenols, iodophors, and chlorine, which may leave sublethal
toxic films that can exert genetic pressure on pathogens to alter themselves to
more resistant forms.
VIRAHOL(R) has been acknowledged by the United States Department of Agriculture
(USDA) as acceptable as an antimicrobial agent for surfaces requiring a water
rinse and requires no mask and/or gloves for application.
VIRAHOL(R) usage eliminates the need to use toxic chemicals, however dilute they
may be, as disinfectants and antiseptics in the home, hospital, dental office,
restaurant, and any other environment where people are exposed to pathogens.
Our products include the following under our own trademarks or as private label
products.
VIRAHOL(R) - Non-toxic, ready to use, hard surface
disinfectant/cleaner, tuberculocide, bactericide, virucide, and
fungicide packaged in sizes ranging from 1.2 oz. pump sprays to 55
gallon drums. No aerosols, which may harm the environment, are employed
in any of our packaging. VIRAHOL(R) can be sprayed or wiped onto
surfaces such as toilet seats, door handles, public telephones, counter
tops, etc. Because of its wide range of materials compatibility, it can
be used full strength on bedspreads and all types of fabrics. Because
VIRAHOL(R) is not water-based, it is a cleaner and disinfectant product
for all types of electronic equipment, including computer keyboards and
monitors.
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VIRAGEL(R) - Waterless, antiseptic hand sanitizer packaged in sizes
ranging from a 1/2 oz. packet or purse container to 800 ml wall mounted
commercial sized dispensers with sealed replacement bags supplying over
1,000 applications. VIRAGEL(R) is to be used to supplement routine hand
washing for the family or for the person on the job when no water is
available, to kill a wide variety of pathogens fast. VIRAGEL(R)
contains a moisturizing formula and will not dry out the hands.
VIRAGEL(R) employs a premium grade thickener, insuring long product
stability and the right feel in the hands. Among the many pathogens
killed in 30 seconds or less with VIRAGEL(R) are bacteria know to cause
intestinal disorders, such as Salmonella and E.coli, and secondary
infections such as Staphylococcus, including strains of genetically
altered pathogens resistant to certain antibiotics.
VIRAHOL(R) products are also marketed in several different kit assemblies
designed for sales through various customer market segments. Different kits are
available for catalog sales, direct TV and radio sales, multi-level marketing,
fund raising sales, and the travel and hospitality industry.
THE COMPETITION AND VIRAHOL(R)
We have many competitors in our major product categories: (i) hard surface
disinfectants, (ii) waterless antiseptic hand sanitizers, and (iii) first aid
antiseptic sprays. The competitors, which include such companies as Johnson &
Johnson, Procter & Gamble, Clorox, Quest, Inc., Betco, and Gojo Industries, have
recognized national brands that include Clorox, Lysol, First Medic, Quest,
Sporidicin, Metricide, and Purell. The competitors' products are based primarily
on an aqueous solution. Many of these products contain ingredients from one of
the following four families of ingredients: ammonium, phenol, chlorine, and/or
glutaraldehyde. One of the common characteristics of these types of active
ingredients is that they are toxic skin penetrants. Our product line, containing
the patented VIRAHOL(R) composition, has as the basic underlying characteristic
that the products are non-toxic and no-skin penetrating. The products are
non-aqueous based with the primary active ingredient being isopropyl alcohol.
Other active ingredients in our composition are propylene glycol and citrus
oils. Propylene glycol is a wetting agent that retards evaporation and aids in
the penetration of cell walls as well as lowers flammability. Isopropyl alcohol
and propylene glycol combine to create a synergistic action that makes the
formulation more effective than alcohol without other ingredients.
To the best of our knowledge, no competitive products have the inherently
non-toxic feature of the patented VIRAHOL(R) composition, complete
biodegradability and efficacy against a broad range of pathogens. It has been
easier and cheaper for our competition to-date to employ toxic materials,
diluted with water, as disinfectants, than to find how to create an inherently
non-toxic formulation. That is why we have a proliferation of products
containing chlorine, ammonia, and pine oil. Government and environmental
agencies are starting to focus on the negative aspects of toxicity in
disinfectants and may prohibit the use of such products in the market place.
Many of our competitors, recognizing an untapped market potential in changing
consumer awareness in disease transmission, are expanding the market through
various marketing campaigns. This market expansion is deemed to be of great
importance to us as increased market growth of the market base (due to increased
awareness) will allow for an easier penetration by our products.
COMPANY SALES AND PRICING STRATEGIES
Our sales team consists of sales professionals who are supported by customer
service representatives and a technical support staff. Our field representatives
are responsible for sales calls on all classes of trade as well as attending
trade shows. Supplementing their efforts we have selected manufacturer's
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representatives in key strategic markets. We intend to expand our use of
manufacturer's representatives as our growth in sales and capital resources
permit. We have completed training sessions with several large distributor
companies and intend to continue such programs as a major part of our sales
program.
Although the VIRAHOL(R) composition is inherently more expensive than the raw
materials of the competitive products, our new pricing strategy is to remain as
close as possible to competitors' pricing to emphasize the clear price/value
comparison. We revised our prices during 1999 to take advantage of various size
containers which are in demand. We believe that our current pricing structure
will allow us margins which can support the Company at the anticipated volume of
sales during the next year.
MARKETING STRATEGY AND KEY MARKET SEGMENT
Our marketing strategy will use a three-pronged approach that includes a
significant product line expansion. For Veridien to become a viable supplier for
its target customer base, we must provide a broad product line. Such a line will
be developed based on our three-pronged strategy. First and foremost, we will
continue to provide the Medical and Dental markets with our branded VIRAGUARD(R)
Gel and Disinfectant. In addition, we will launch a new line of towelettes in
single-use packages as well as 60- and 160-count canisters for both hand and
surface applications. This will require a wide range of marketing support to
pull through product, and we have budgeted to provide advertising and
promotional support. We have actively pursued these markets, and believe we have
established the foundation upon which we can build our core business.
The second prong will focus on the mass merchandise consumer market, previously
considered too difficult to penetrate. In late 1999 we formed a strategic
business alliance with SunSwipe, Inc., a company that develops and markets
products and packaging for the mass merchandise consumer market. In March 2000
we acquired 50% of SunSwipe, including their proprietary product line. Addition
of the SunSwipe product line allows us to implement our strategy to offer an
expanded line of products for a healthy lifestyle. The SunSwipe towelette
product line, including an innovative single-use towelette impregnated with
sunscreens, repellents and anti-microbial agents, is a significant addition to
our VIRAGUARD(R) Gel and Disinfectant products. SunSwipe towelettes are sold in
individual single-use packages and 60- and 160-count canisters. SunSwipe
products are sold at major retailers such as Wal-Mart, K-Mart, CVS drugstores,
Walgreens, Price Chopper, and Albertsons. We believe this market offers great
opportunity if we position ourselves properly. The towelette business is one of
the fastest growing segments in the retail market, and our products afford our
mass merchandise marketers the opportunity to market disinfectant products that
are safe and effective, as well as offering the canister line currently in
short supply. The canister line will allow us to piggyback other core products
into retail stores and gain additional SKUs and shelf space. This effort will
require funding to support retailers' promotional activity necessary to grow
sales and market share. SunSwipe will also feature our VIRAGUARD(R) products,
which will also increase our exposure in the retail sector. Our products will
be offered to retailers in both private label and branded form.
The third prong of our approach will focus on identifying niche strategies and
customers. We have already identified many niche markets, and we believe these
untapped markets offer significant potential for our products. These niche areas
include multilevel marketers, EMS, food manufacturers, zoos and veterinarians,
schools, restaurants, promoters and fund raisers. Several of these niche
marketers already purchase our VIRAGUARD(R) products.
We have also established a new subsidiary, Norpak (U.S.), Inc., which will
principally market and distribute products manufactured by Norpak Manufacturing
Inc. and other similar companies (see Item 12). These products include alcohol
swabs, iodine swabs, and towelettes. In addition, Veridien products will be
featured on its website to utilize E-Commerce sales opportunities.
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SALES STRATEGY
Our sales team consists of a field manager and newly appointed field
representatives with a technical background. They are responsible for calling on
all classes of trade as well as attending trade shows. Supplementing their
efforts will be select manufacturers' representatives in key strategic markets.
As we grow, we expect to increase our sales staff; a highly qualified customer
service representative will supplement the field activity, handling incoming
orders and inquiries.
AVAILABILITY OF RAW MATERIALS
The largest ingredients by weight for the VIRAHOL(R) composition are isopropyl
alcohol and propylene glycol. Both of these chemicals are readily available from
a wide variety of sources nationally and internationally, at competitive prices.
Although we prefer to use isopropyl alcohol as the monohydric alcohol and
propylene glycol as the polyhydric alcohol, our patent covers the full range of
both of these alcohol's so that a wide variety of choices are available should a
shortage in one or more chemicals occur. Substantial numbers of companies
produce both the plastic and corrugated packaging used by the Company. Trade
secret ingredients are employed for fragrances used in the Company's products
but are available from several sources.
GOVERNMENTAL REGULATION
Those who develop products to control pests are subject to regulation under
several Federal Laws. However, only certain pest control products are subject to
registration. The Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) and
Federal Food, Drug, and Cosmetic Act (FFDCA) As Amended by the Food Quality
Protection Act (FQPA) of August 3, 1996, requires that before any person in any
state or foreign country can sell or distribute any pesticide in the United
States, they must obtain a registration from the U. S. Environmental Protection
Agency (EPA). The term "pesticide," as defined in FIFRA section 2 (u), means any
substance or mixture of substances intended for preventing, destroying,
repelling, or mitigating any pest, virus, bacteria, or other micro-organism
(except viruses, bacteria, or other micro-organism on or in living man or other
living animals). Pesticides include fungicides, disinfectants, sanitizers, and
germicides. After the registration process and submission of required data, an
accepted label is stamped accepted and returned to the registrant for the
registered product. Annual Pesticide Maintenance Fees are required for
registered products. Anyone who sells/distributes a pesticide (including
antimicrobial products such as disinfectants, sanitizers, and germicides) must
register that product in every state and pay a registration fee. As of this
date, Alaska does not require a registration fee but does require registration.
In order to "produce," defined to mean "to manufacture, prepare, propagate,
compound, or process any pesticide . . . or to repackage or otherwise change the
container of any pesticide, . . " the plant(s) and/or facility must be
registered. Upon registration an establishment number is assigned. The label
and/or container must bear the registration number as well as the establishment
number. Annual reports are required to be submitted to the US EPA indicating the
amount produced, repackaged/relabeled for the past year, amount sold/distributed
for the past year US and Foreign, and amount to be produced/repackaged/
relabeled for the current year.
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The Company currently has two products registered with the United States
Environmental Protection Agency. They are as follows:
A. VIRAHOL(R) Hospital Disinfectant/Cleaner & Instrument Presoak, assigned EPA
Registration No. 60142-1, and has an EPA accepted label, is designed for
effective disinfecting, cleaning and deodorizing of hard inanimate surfaces
such as walls, sink tops, tables, chairs, telephones and bed frames.
B. VIRAHOL(R) Hospital Surface Disinfectant Towelette, assigned EPA
Registration No. 60142-3, and has an EPA accepted label, is designed for
effective cleaning, disinfecting and deodorizing of hard non-porous,
inanimate surfaces such as walls, sink tops, tables, chairs, telephones and
bed frames.
The Company facility in which the product(s) is produced is registered and
assigned EPA Establishment No. 60142-FL-1.
In addition, the Company manufactures and distributes Antiseptic Drug Products
per 21 CFR Parts 333 and 369 and respective monographs, Topical Antimicrobial
Drug Products for Over-the-Counter Human Use. Veridien Corporation's
establishment is registered and a Labeler Code Number was assigned. Per Title
21, Part 207 of the Code of Federal Regulations (CFR), the products are drug
listed with the Food and Drug Administration (FDA).
All regulated products, EPA and FDA, are manufactured in compliance with Good
Manufacturing Practices (GMPs).
CANADIAN LICENSING
We have entered into an agreement with Backcourt Industries, Inc. (BII),
Toronto, Canada, licensing BII to produce and market the VIRAHOL(R) line in
Canada. BII is completing product registrations with Health Canada and plans to
market VIRAHOL(R) under the VIRAGUARD(R) trade name primarily through retail
distribution channels in specialty and mass merchandisers in Canada. To date,
BII has successfully placed our products in national and regional drugstore
chains with over 800 locations in Canada. The product has received strong
preliminary acceptance in Canada and aggressive sales are forecast.
RESEARCH AND DEVELOPMENT
Research and development expenditures for 1999 were $370,667. This was a
decrease of $6,677 or 2% compared with expenditures of $377,344 in 1998. Our
research focus has shifted from the development of new products to seeking
additional applications for our existing products. We observed during the year
that our products are effective against a wide range of bacteria and viruses
heretofore unknown to us. We are continuing to pursue these findings and the
outcome of our research may prove to be a benefit to our marketing campaign.
COMPLIANCE WITH ENVIRONMENTAL LAWS
We have had no need to spend monies on compliance with local, state and federal
laws. We are current for our annual filing of the Pesticide Registration
Maintenance Fee Filing Form for 2000, and our annual filing of the Pesticide
Report for Pesticide-Producing Establishments. The Company is in receipt of the
certificates of approval from all states that the registered product is
currently sold and/or distributed.
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NUMBER OF EMPLOYEES
We employ twelve persons, all of whom are full-time employees.
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Department Number of Employees
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Management & Finance 4
Sales 3
R&D 3
Production & Administration 2
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In addition to our employees, certain Board members, while not employees,
provide substantial unpaid assistance to us. We also use consultants to assist
with administration, operations, and marketing.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains some forward-looking statements. "Forward-looking
statements" describe our current expectations or forecasts of future events.
These statements do not relate strictly to historical or current facts. In
particular, these include statements relating to future actions, prospective
products, future performance or results of current and anticipated products,
sales, efforts, the outcome of contingencies and financial results. Any or all
of the forward-looking statements we make may turn out to be wrong. They can be
affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Many factors, such as product acceptance, competition and
marketing capabilities, will be important in determining future results.
Consequently, no forward-looking statements can be guaranteed. Actual future
results may vary materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any future disclosures we make on related subjects
in our 10-QSB, 8-KSB, and 10-KSB reports to the SEC.
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products. These
are factors that we think could cause our actual results to differ materially
from expected results. Other factors besides those listed here could adversely
affect us.
RISKS OF OUR BUSINESS
We are a small and relatively new company. To date, we have expended much of our
efforts and funds on development of products. We have only recently begun
concerted sales and marketing efforts. We are uncertain about the market
acceptance of our products.
As a small company, we are highly dependent upon the efforts and abilities of
our management. The loss of the services of any of them could have a substantial
adverse effect on us. We have not purchased "key man" insurance policies on any
of them.
To date the Company has not had significant sales. We expect the growth in our
sales to come primarily from others, such as independent manufacturer's
representatives and accessing existing distribution and fulfillment systems. We
cannot be certain about our ability to attract and retain representatives until
we have had greater experience with these groups and organizations. We are also
uncertain about their sales effectiveness for our products.
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We have expended substantial capital on developing our products and beginning
sales and marketing. Until we are cashflow-positive from sales, we will need
additional financing to fund our growth. We are uncertain about our ability to
secure the financing. We are also uncertain about the costs of any financing
which we may obtain.
We have many competitors in our major product categories. We are uncertain about
our ability to compete effectively.
We must be able to manage our expected growth. This means we must increase our
manufacturing capacity, expand and improve our timely management of orders, and
secure sufficient, reliable shipping. We must also have the systems to handle
ordering of raw materials and packaging supplies, as well as managing our
inventories.
Although we are diversifying our product line to lessen our dependence on
VIRAHOL(R), which is patented, that change will take time. Therefore, under
present circumstances, if VIRAHOL(R) were to become subject to a problem such as
loss of patent protection, regulatory proceedings, or pressure from a directly
competitive product, the impact on our revenues could be significant.
RISKS OF OUR PRODUCTS
Our products, disinfectants and antiseptics, are subject to regulation by
various governmental agencies. Typically, they must be tested before they can be
introduced into the market. Our VIRAHOL(R) product is approved. We are uncertain
about approvals of future products.
Any failure of our products to fulfill their stated purpose could result in
lawsuits for product liability or breech of contract. We currently maintain
product liability insurance. A successful claim against us in excess of our
insurance coverage could have a material adverse effect on our results of
operations, financial condition or business. Even unsuccessful claims would
result in expenditure of funds in litigation, as well as diversion of management
time and resources.
ITEM 2. DESCRIPTION OF PROPERTY
At present, we lease a 38,000 square foot facility that integrates offices,
warehouse space, manufacturing space and research and development space, located
at 11800 28th Street North, St. Petersburg, Florida 33716. We are currently on a
renewal option year of the lease that ends on June 30, 2000. The base rent is
$20,317.15 a month. We have successive options to renew year-to-year until May
31, 2007. These premises should suffice for our administrative office for the
foreseeable future; however, the total space is larger than we need. We are
considering alternatives which would lower our rental cost.
In addition, we own full commercial chemical and microbiological research
laboratories. We have a lease-to-buy on our phone voicemail system for $113.64
per month and currently lease a postage meter and copier. We have lease-to-buy
agreements for our computer network system for $532.55 per month and individual
personal computers for $219.41 per month. We own all other equipment and
furniture currently at the premises, which consists of certain computers,
computer accessories, office furniture, file cabinets, and miscellaneous
equipment.
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PATENTS AND TRADEMARKS
Our VIRAHOL(R) composition is covered under U.S. patents 5,145,664 and
5,441,723. These patents have been assigned by the inventor to us. In addition,
the VIRAHOL(R) composition is patented in Great Britain, Canada, Australia, New
Zealand, and Mexico, and pending in Japan. We have additional patents in the
U.S. and the European Economic Community for various formulations and medical
devices, which remain under development. (See "Property of the Company".)
The Company also has numerous trade names registered in the U.S. The Company has
patents for VIRAHOL(R) (Disinfectant) DSI, composition and usage are covered
under U.S. Patent No. 5,145,663 issued September 8, 1992 and U.S. Patent No.
5,441,723 issued August 15, 1995. VIRAHOL(R) is also patented in Australia (SI),
United Kingdom (DSI), Great Britain (DSII), Canada (DSI), New Zealand (DSII),
Mexico (DSII); Patents in Japan DSI #2,904,917 issued June 14, 1999, Australia
DSII (S.N. 73298/94), Canada DSII (S.N. 2166810). The company also holds patents
for STERIHOL(R) (Cold Chemical) (CCSII) U.S. Patent No. 5,405,602 issued April
11, 1995 and METHOD (Sterilant) (CCSS) U.S. Patent No. 5,637,307 issued June 10,
1997. The Company has a U.S. Patent issued November 16, 1999 for a Cold Chemical
Sterilant-UREA, Patent Nbr. 5,985,929, and a U.S. Patent for Umbilical Surgical
Scissors under U.S. Patent No. 5,925,052 issued July 20, 1999. STERIHOL(R) is
also patented in Australia (CCSII); Patent pending EPO (CCSII). The Company has
U.S. Patents pending for an instrument sterilizer, S.N. 091296915, a Diagnostic
Syringe Actuator Device, S.N. 5,891,052, and a 911 Medical Diagnostic Console,
S.N. 5895354. The Company has Trademarks for the following brands: VIRAHOL(R)
(USA) registered September 24, 1991, Trademark number 1,657,969; VIRAGEL(R)
(USA) registered July 20, 1993, Trademark number 1,783,204; VIRAHOL(R) (Mexico)
registered September 27, 1994, Trademark number 474,986; VIRASCRUB(R) (USA)
registered January 31, 1995, Trademark number 1,877,118; STERIHOL(R) (USA)
registered February 28, 1995, Trademark number 1,881,134; VERIDIEN registered
September 5, 1995, Trademark number 1,917,134; VIRAWASH(R) (USA) registered
March 12, 1996, Trademark number 1,962,158; STERIHOL(R) (USA) registered June
16, 1998, Trademark number 2,166,502; VIRASCRUB(R) (USA) registered June 16,
1998, Trademark number 2,166,503; VIRASONIC(R) (USA) registered June 16, 1998,
Trademark number 2,166,504; VIRA-CD7(R) registered January 6, 1998, Trademark
number 2,127,866; VIRA-RD12(R) registered March 24, 1998, Trademark number
2,146,770; VIRA-GC18(R) registered May 12, 1998, Trademark number 2,157,635;
VIRALUBE(R) (USA) registered July 7, 1998, Trademark number 2,171,823; and
VIRAGUARD(R) (USA) registered September 1, 1998, Trademark number 2,186,559.
The Company has a Patent Pending, S.N. 09/338,258 for a Germicide with
Oxygenated Water.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal actions, the previously reported matters having
been resolved as described below. We are not aware of any legal proceedings
pending, threatened or contemplated against any of our officers or directors,
respectively, in their capacities as such.
The previously reported lawsuit of November 4, 1997 against Veridien Corporation
by Michael L. Childers as Trustee of the Money Purchase Plan and Michael L.
Childers and Deana F. Childers as Joint Tenants has been settled by payment of
the plaintiffs' approximate legal costs, with no liability admitted.
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<PAGE> 12
The previously reported lawsuit of July 15, 1998 against Veridien Corporation by
Creative Technologies, Inc. relating to the prior settlement agreement is now
being dismissed following the Company's completion of the terms of that prior
settlement.
The previously reported proposed civil penalty by the Federal Aviation
Administration was resolved by the payment of $500 without the admission of
liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders in the fourth quarter
of 1999.
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<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our Common Stock is traded on the NASDAQ Bulletin Board under the stock symbol
"VRDE." The chart below breaks down the high bid and the low bid prices for each
of the last 8 quarters (as reported by NASDAQ Trading & Market Services) which
quotations reflect inter-dealer price, without retail mark-up, mark-down or
commission, and may not reflect actual transactions. During 1998 and 1999, the
high and low bid and asked prices were as follows:
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
------------- -------- -------
<S> <C> <C>
December 31, 1999 $ .11 $ .045
September 30, 1999 .16 .08
June 30, 1999 .21 .11
March 31, 1999 .185 .08
December 31, 1998 .10 .04
September 30, 1998 .17 .07
June 30, 1998 .24 .06
March 31, 1998 .45 .21
</TABLE>
On March 21, 2000 the closing prices of the Company's Common Stock were $0.23
bid and $0.245 asked, as quoted on the NASDAQ Bulletin Board.
HOLDERS
The approximate number of holders of record of our Common Stock, which is our
only class of common equity, is 472.
DIVIDENDS
We have never had net profits on operations and therefore are currently
proscribed under the Delaware General Corporation Law from declaring dividends.
We have not paid any cash dividends on our Common Stock or our Preferred Stock.
Our Board of Directors has no present intention of declaring any cash dividends,
as we expect to re-invest all profits in the business for additional working
capital for continuity and growth. The declaration and payment of dividends in
the future will be determined by our Board of Directors considering the
conditions then existing, including the Company's earnings, financial condition,
capital requirements, and other factors. In addition, there are two series of
Preferred Stock which affect the payment of dividends on the Common Stock.
At present there is a series of 100,000 shares of Preferred Stock, created on
April 3, 1995, titled "10% Cumulative Convertible Redeemable Preferred Stock".
These shares are entitled to receive an annual dividend of $1.00 per share
before any dividend is paid to holders of the Common Stock. Any dividend not
declared and paid is accumulated and must be paid before any dividend or
distribution is made on our Common Stock.
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<PAGE> 14
Also, at present there is a series of 244,678 shares of Preferred Stock created
on December 31, 1997, titled "Series B Convertible Preferred Stock". These
shares are entitled to receive an annual dividend equal to the greater of:
- 10% of the stated value, as adjusted from time to time; and
- the actual dividend per share of Common Stock as declared by
the Company's Board of Directors times the number of shares of
Common Stock into which each share of Series B Convertible
Preferred Stock is convertible on the dividend record date.
The dividend is cumulative, whether or not earned and, to the extent not paid on
a quarterly dividend payment date (commencing January 1, 1999) is added to the
stated value.
1999 SALES OF UNREGISTERED SECURITIES
As of December 31, 1998 and 1999 the Company had issued and outstanding the
following securities:
<TABLE>
<CAPTION>
Outstanding Outstanding
12/31/1998 12/31/1999
----------- -----------
<S> <C> <C>
Debentures:
Convertible Debentures (1996-1998) $2,494,198 $818,215 (1)
1999-A Convertible Debentures 0 30,000 (2)
1999-B Convertible Debentures 0 10,000 (3)
1999-C Convertible Debentures 0 100,000 (4)
1999-D Convertible Debentures 0 611,000 (5)
Preferred Stock:
$10 Conv. Red. Pref. Stock 6,000 shrs 6,000 shrs
Series B Pref. Stock 154,163 shrs 193,534 shrs 6
Common Stock 78,152,833 shrs 119,958,735 shrs 7
Pref. Stock Purchase Warrants 4,125,000 shrs 3,978,621 shrs 8
Common Share Warrants
Conv. Deb. Wts. (DMC) 2,236,264 2,236,264
Conv. Deb. Wts. (PTC) 465,357 465,357
Conv. Deb. Wts. (Wardeb) 2,705,465 2,705,465
Consultant Series 200,000 100,000 (9)
Series $0.01 110,000 110,000 (10)
Series B LSA 90,515 49,043 (11)
Series C-I Wardeb 115,184 115,184
Series C-II Wardeb 41,893 41,893
Series D Dunvegan 890 890
Common Stock Purchase Warrants (1999) 0 800,000 (12)
Loan and Security Agreement Warrants
Loan Balance $924,834 $519,340 (13)
Series I ($.499) -- -- (13)
Series II ($.001) -- -- (13)
Options 200,000 shrs 0 (14)
</TABLE>
- -----------
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<PAGE> 15
(1). The authorized value of the Company's Convertible Debentures varied, as
the Board of Directors specifically authorized each issuance during the
period 1996-1998. The $818,215 represents the principal sum remaining
issued and outstanding on December 31, 1999.
(2). The 1999-A Convertible Debentures, which were issued on December 15, 1999,
bear a 10% interest rate, are convertible at a price of $.10 per share of
Common Stock, and have a term of six months.
(3). The 1999-B Convertible Debentures, which were issued on December 15, 1999,
bear a 10% interest rate, are convertible at a price of $.10 per share of
Common Stock, and have a term of three years.
(4). The 1999-C Convertible Debentures, which were issued on December 15, 1999,
bear a 10% interest rate, are convertible at a price of $.06 per share of
Common Stock, and have a term of six months.
(5). The 1999-D Convertible Debentures, which were issued on December 15, 1999,
bear a 10% interest rate, are convertible at a price of $.071 per share of
Common Stock, and have a term of six months.
(6). During 1999 39,371 Series B Preferred Shares were issued as a result of
two conversions under the Loan and Security Agreement.
(7). This represents the actual total shares issued and outstanding of record
as of December 31, 1999. 8. This represents the vested Warrants issued and
outstanding as of December 31, 1999, having a $.20 to $.25 exercise
price. Up to an additional 4,375,000 Warrants are issuable if and when
they vest having exercise prices from $.20 to $.25. See "Preferred Stock
Warrants".
(9). Warrants exercisable to purchase 100,000 shares expired January 31, 1999
and Warrants exercisable to purchase 100,000 shares expired January 31,
2000.
(10). The total number of Warrants authorized was dependent upon a formula; a
total of 6,177,478 Warrants was issued; a total of 6,067,478 Warrants have
been exercised prior to 1998.
(11). During 1999 the number of Series B Dunvegan Warrants decreased
automatically by 2,101 pursuant to the terms of the Loan and Security
Agreement, while 39,371 were exercised.
(12). During 1999 an employee was issued 250,000 Common Stock Purchase Warrants
exercisable at $.10 and 350,000 Common Stock Purchase Warrants exercisable
at $.20. Also, a consultant was issued 300,000 Common Stock Purchase
Warrants exercisable at $.20.
(13). The number of Warrants and the prices at which they are exercisable are to
be determined by a formula, applied at the date(s) of exercise. As of
December 31, 1998 there were a combined total of 23,360,109 Warrants
between Series I and Series II. As of December 31, 1999 there were a
combined total of 30,252,016 Warrants between Series I and Series II.
(See Note E to Financial Statements)
(14). Options held by the former Chairman of the Board to purchase 200,000
shares at a price of $0.25 per share expired on October 17, 1999.
The changes which occurred during 1999 are as follows:
Debentures
At various times during 1999, the holders of the Convertible Debentures
exercised the conversion privilege as to a total of $1,675,983 in principal plus
accrued interest thereon, and we issued a total of 13,941,900 shares of our
Common Stock. These issuances were considered exempt by reason of Sections
3(a)(9) and 4(2) of the Securities Act.
On December 15, 1999, we issued $751,000 of Convertible Debentures. For purposes
of clarity in this filing, we have denominated them as the 1999-A, 1999-B,
1999-C and 1999-D Convertible Debentures, which have the terms described in
footnotes 2, 3, 4 and 5 to the above chart. These four issuances were considered
exempt by reason of Section 4(2) of the Securities Act.
Preferred Stock
Series B Preferred Stock: The shares of this series are issued to the holder of
the Loan and Security Agreement upon the exercise of conversion rights under
that Agreement. On June 11, 1999 we issued
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<PAGE> 16
15,000 shares and on December 16, 1999 we issued 24,371 shares, in addition to
the Common Stock discussed below. These issuances were considered exempt from
registration by reason of Sections 3(a)(9) and 4(2) of the Securities Act.
Common Stock
At various times during 1999 we issued 4,459,798 shares of our Common Stock in
our Rule 504 offering. Total proceeds during 1998 and 1999 were $836,850 with an
allowable maximum of $845,000. These issuances were considered exempt from
registration by reason of Rule 504 of Regulation D and Section 3(b) of the
Securities Act.
During the first quarter of 1999 we issued 3,550,000 shares of our Common Stock
in five private transactions (one to a Canadian and two to Bahamians). These
issuances were considered exempt from registration under Section 4(2) of the
Securities Act and.
On March 26, 1999 we physically issued 1,162,500 shares of our Common Stock to
an investment group for $93,000 received during 1997 and carried as
uncertificated convertible debt. This issuance was considered exempt from
registration by reason of Sections 3(a)(9) and 4(2) of the Securities Act.
During the second quarter of 1999 we issued 2,416,667 shares of our Common Stock
to an investment group and six individuals in private transactions. These
issuances were considered exempt from registration under Section 4(2) of the
Securities Act.
On December 27, 1999 (implementing a Board resolution of January 28, 1999) we
converted $381,089 of unsecured debt to 2,722,063 shares of our Common Stock.
This issuance was considered exempt by reason of Sections 3(a)(9) and 4(2) of
the Securities Act.
During the last nine months of 1999 we issued 1,623,785 shares of our Common
Stock in payment for services, including legal services (660,000 shares),
marketing consulting services (521,825 shares), public relations (30,000 shares)
and salary and debt accruals (411,960 shares). These issuances were considered
exempt from registration by reason of Section 4(2) of the Securities Act.
On June 11, 1999 (4,626,410 shares) and December 16, 1999 (7,457,000 shares)
under the Loan and Security Agreement conversion referenced above under the
Series B Cumulative Preferred Stock, the Company issued 12,083,410 shares in
addition to the Series B Preferred Stock at a total conversion price of
$405,495. These issuances were considered exempt from registration under
Sections 3(a)(9) and 4(2) of the Securities Act.
Preferred Stock Purchase Warrants
On August 2, 1999, an investor holding 875,000 Preferred Stock Purchase Warrants
exercised 146,379 warrants directly to Common Stock (under the 1:1 conversion
ratio between the Preferred Stock and the Common Stock) and we issued 146,379
shares of Common Stock. This issuance was considered exempt from registration by
reason of Sections 3(a)(9) and 4(2) of the Securities Act.
Common Stock Purchase Warrants
During June 1999 we physically issued 250,000 Common Stock Purchase Warrants
exercisable at $.10 per share, due to Mr. Libby under his employment agreement
and 100,000 Common Stock Purchase Warrants, exercisable at $.20 per share, also
due to Mr. Libby as of December 31, 1998 under his employment agreement. In
December 1999 we issued 250,000 Common Stock Purchase Warrants, exercisable at
$.20 per share, to Mr. Libby, again as provided in his employment agreement.
Also in December 1999 we issued 200,000 Common Stock Purchase Warrants,
exercisable at $.20 per share, to a
16
<PAGE> 17
consultant as incentive compensation. These issuances were considered exempt
from registration by reason of Section 4(2) of the Securities Act.
The further changes which have occurred since December 31, 1999 are as follows:
Convertible Debentures
During February and March 2000, we have issued $1,347,000 of Convertible
Debentures to 26 accredited U.S. investors, 8 Canadian investors and 1 Bahamian
investor. The Convertible Debentures have a term of three years, bear a 10%
interest rate, and the principal and accrued interest are convertible at a price
equal to two-thirds of the average of the bid and asked prices for a period of
ten business days prior to the exercise date, except that the exercise price
during the first year shall not be less than $.065, during the second year shall
not be less than $.10, and during the third year shall not be less than $.15. To
encourage early conversion, the holder may convert at $.10 during the first year
irrespective of the two-thirds calculated price. These issuances were considered
exempt from registration by reason of Section 4(2) of the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provide information that we believe is
relevant to an assessment and understanding of the results of operations and
financial condition for the two years ended December 31, 1999 compared to the
same periods of the prior year. This discussion should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto included
elsewhere in this Report. The discussion contained herein relates to the
financial statements, which have been prepared in accordance with GAAP. This
Report also contains certain forward-looking statements and information. The
cautionary statements should be read as being applicable to all related
forward-looking statements wherever they may appear. Our actual future results
could differ materially from those discussed herein.
OVERVIEW
We are organized as a Delaware corporation to engage in the development,
manufacture, distribution and sale of disinfectants, antiseptics, and sterilants
which are inherently non-toxic, posing no hazard to people who use them, and
which are environmentally friendly, decomposing into harmless, naturally
occurring organic molecules. To this end, we have developed and patented a hard
surface disinfectant, VIRAHOL(R), which has been registered with the
Environmental Protection Agency (EPA), and an antiseptic hand gel sanitizer,
made in accordance with the applicable FDA Monograph, to our product line. We
have incurred losses since our incorporation. At December 31, 1999, we had an
accumulated deficit of $ 29,686,895. We have financed our ongoing research
program and business activities through a combination of sales, equity
financing, and debt.
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED WITH FISCAL 1998
During 1999, we arranged for a distributor of disinfectants to service our
existing three year agreement with a medical healthcare provider network. Our
products provide infection control for healthcare providers. Our initial
shipments of products have begun.
17
<PAGE> 18
During 1999 we entered into an agreement with the Founders of "Koala Bear Kare
Baby Changing Stations" to combine their premium towelette with our patented
product VIRAHOL(R) to create a towelette to be competitively marketed for
restrooms worldwide.
During 1999 we created a wholly owned Delaware subsidiary, VERIDIEN.COM, Inc.,
to coordinate and manage all Internet E-Commerce activity for our product line.
Initially, we retained an E-Commerce Design firm to assist in the development of
our commercial website.
During 1999 we entered into a strategic alliance agreement to provide sales,
marketing, and distribution services within the U.S. to the medical products
manufacturer/distribution company in Canada. This strategic partner specializes
in the high volume manufacturing of alcohol swabs and other form/fill/seal
flexible packaging products for use as skin cleansers, hard surface
disinfectants, lens cleaners and suntan lotion applications. During 2000 we
anticipate utilizing our abilities to both market and sell products from both
companies.
During 1998 we entered into a licensing agreement with a Canadian company to
allow for distribution of our products in Canada. During 1999 this company
placed our products in national and regional drugstore chains with over 800
locations in Canada. Under the terms of our licensing agreement we anticipate
receiving royalties in Year 2000 from expected sales in Canada.
During 1999 we established our website to provide company and product
information to the Internet community. Initially we have provided information
for shareholders and consumers to learn more about our patented products.
Beginning in Year 2000 we anticipate offering products available for purchase
through Internet transactions on an improved E-Commerce website.
During 1999 we received a U.S. patent for the invention of the Umbilical
Surgical Scissors. The medical device is intended to be used to clamp the
umbilical cord from the newborn while simultaneously clamping the cord on the
placental side. The device constricts the cord in both places to prevent loss
and splattering of blood, thus reducing the probability of spreading diseases.
We began discussions with a distributor to the medical market for production and
distribution services. To date, we have not finalized an agreement and have
begun searching for alternative distribution sources.
In conjunction with our previously announced intent to make acquisitions as part
of our long-term commitment to growth and development, at the end of 1999, we
formed a strategic business alliance with SunSwipe, Inc.,a company that develops
and markets products and packaging for the mass merchandise consumer market. In
March 2000 we acquired 50% of SunSwipe, Inc., including their proprietary
product line. [Negotiations continue with respect to our acquiring an even more
significant interest in the SunSwipe opportunity.] The product line currently
includes single use towelette applications that are impregnated with
sunscreens, repellents and anti-microbial agents. The product line is sold at
major retailers in the U.S. such as Wal-Mart, K-Mart, CVS drugstores, Walgreens,
Price Chopper, and Albertsons. These products are currently being produced by
our strategic alliance manufacturing company in Canada.
In 1999 we increased our supplier capacity through new agreements with two
manufacturers and one marketing company that represents a foreign manufacturer.
While the bulk of our products are still
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<PAGE> 19
purchased from a single manufacturer, we believe that diversifying our
manufacturing sources will ensure the timely production and consistent quality
of our expanding product line.
During 1999 we revised our wholesale prices on several products to approximate
our competitors prices. We anticipate this will allow our products a strategic
advantage by offering our toxic-free broad-range disinfectants at or near the
same cost as competitor's products which are toxic.
During 1999 we continued to implement our new information systems to modernize
our accounting and manufacturing processes as well as implement our Y2K plan.
Our systems are functioning normally after the installation of our new computer
hardware and software. Costs associated with the implementation totaled
approximately $32,000 during the year ended December 31, 1999. We are continuing
to enhance our ability to electronically exchange information with our strategic
alliance partners as well as our subsidiaries. We anticipate the costs
associated with these enhancements and training of employees not to be
significant.
Consolidated revenues decreased by $404,574 or 49.3% to $415,491 compared with
$820,065 in 1998. The decrease in revenue was primarily due to our terminating
an exclusive master dental distribution network. We began actively promoting our
product line through trade-show presentations and direct sales calls on both
existing and potential customers which management believes will significantly
increase sales during Year 2000. Our goal is to offer a broad product line which
provides a broad range of infection control for our customers. We anticipate
our new towelette products for surface, hand, and body applications will
generate substantial revenue beginning mid-year 2000.
During 1999, we recognized the balance of Licensing Revenue of $87,418 which had
been deferred revenue on the 1998 statements. The first year of our five-year
licensing agreement previously granted to a Canadian company ended June 30,
1999. We are currently in the second year of this agreement. The Canadian
company has placed our product in a nationwide Canadian drugstore chain and we
anticipate future royalties to be earned by our company.
During 1999, we earned gross revenue from operations/production services in the
amount of $171,000. This was a new source of revenue for us by providing quality
assurance, research and development, purchasing assistance and freight-handling
fees to our contract fill manufacturer who occupies a major portion of our
facility. We provided services on an as-needed basis and cannot anticipate or
measure future demand, if any, for these services.
Interest income for 1999 decreased by 13% to $2,521 compared with $2,899 in
1998.
Rental income for 1999 increased by 103% to $104,019 compared with $51,290 in
1998. A major portion of the Company's leased 38,000 square foot manufacturing
facility is subleased to a contract filler which manufactures Veridien's
products which relocated to our facility during August 1998. This space is
leased for an annual base amount of $90,000 per annum.
The cost of goods sold for 1999 decreased by 44% to $335,094 compared with
$601,037 in 1998. The cost of goods ratio as a percentage of sales was 80% in
1999 compared to 73% in 1998. The increase in the cost of sales resulted
primarily from the write-off of $21,462 of raw material cost and $18,802 of
finished goods cost attributable to our decision to create new labels for our
products.
General, selling, and administrative expenses for 1999 were $1,927,383 compared
with $1,399,251 in 1998. Increases that affected general and administrative
costs were associated with professional fees for 1999 that increased by 75% to
$635,814 compared with $361,878 in 1998. During 1999, sales expense
19
<PAGE> 20
increased by 43% to $339,528 compared with $237,076, primarily due to our
decision to re-establish direct contact and product training for our
distributors. We retained an advertising agency to develop a campaign theme and
we began exhibiting at trade shows throughout the U.S. Marketing efforts have
resulted in new product labels, sales literature, and the identification of new
products to extend our line of disinfectant products.
We incurred other operating expenses during the year as a result of changing
product label names to allow for the creation of a family of products rather
than just one product. We changed our labels, leaving the name Virahol(R) and
moving forward with the name VIRAGUARD(R) so that we could develop the
VIRAGUARD(R) family of products. Although this restructuring of product names
was costly in terms of time, consulting fees, label production, and state
registrations within the U.S., we believe the long-term benefit will enhance our
marketing efforts and allow for brand recognition.
Research and development expenses for 1999 were $370,667 compared to $377,344
for 1998. Our microbiology and chemistry laboratory continues to focus on
broadening the range of claims we can assert for our existing products. During
the year we increased our microbiology laboratory capability by employing a
second senior microbiologist. We are also focusing on testing new products which
we intend to begin marketing during 2000.
Interest expense for 1999 decreased by 50% to $261,377 compared with $525,872 in
1998. The decrease in interest expense was due primarily to the decision of the
holders of various debts, Convertible Debentures, loan security agreement and
accrued interest to convert a portion of their rights to equity during the year
1999. During the year we reduced our net Notes Payable by $480,494 and reduced
our liability for Convertible Debentures by $924,983.
Operating losses increased from $1,883,554 in 1998 to $2,097,444 in 1999. This
represented an 11% increase, or $213,890 in the loss between the two years. This
1999 increase in losses was a result of our terminating an exclusive license
with a master dental distribution company, accompanied by increases in
marketing, product development and selling expenses as we actively promoted our
product line through direct sales calls, as we and the anticipated creation of
a sales-broker network and as we developed our existing and new product lines.
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<PAGE> 21
YEAR ENDED DECEMBER 31, 1999 VS. YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Year Ended Percentage of
December 31 net revenue
----------- -------------
1998 1999 1998 1999
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Net Sales $ 820 $ 415 100% 100%
Cost of Goods Sold 601 335 73% 80%
Gross Profit 219 80 27% 20%
Operating Expenses
General & Administrative 1386 1927 169% 463%
Research & Development 377 370 46% 89%
(Loss) from Operations (1544) (2217) (188)% (533)%
Other Income (Expense) Net (339) 120 (41)% 28%
Net (Loss) Before Taxes (1883) (2097) (229)% (505)%
Income Taxes 0 0 0% 0%
Net (Loss) (1883) (2097) (229)% (505)%
</TABLE>
LIQUIDITY AND WORKING CAPITAL
Historically, our principal source of financing for our research & development
and business activities has been through sales, equity offerings, and debt. As
of December 31, 1999, and December 31, 1998, we had working capital deficits of
approximately $2,847,993 and $2,219,479, respectively. Our independent certified
public accountants stated in their reports on the 1999 and 1998 consolidated
financial statements that due to losses from operations and a working capital
deficit, there is substantial doubt about the Company's ability to continue as a
going concern. We believe that we are addressing the going concern issue in
virtually every aspect of our operation. We have cut operating expenses and have
signed two major distribution agreements, which we believe will provide improved
profit margins. Because of our significant losses incurred since inception, we
have become substantially dependent on loans from officers, directors, third
parties and from private placements of our securities to fund operations. These
financings and equity placements are included in the following paragraphs.
During 1999, we received proceeds from the sale of preferred and common stock in
the amount of $909,550. We received funds in the amounts of $542,750 through the
sale of common stock under a Rule 504 offering and $366,800 in proceeds from
private placements.
During 1998, we issued 450,000 common shares in exchange for a note receivable
in the amount of $22,500, the balance of which is payable to us during 2000.
During 1997, we issued Convertible Debentures in the amount of $1,566,273 and
during 1998 in the amount of $585,333 to three investment companies in exchange
for cash received. The Convertible Debentures carry interest at a rate of 10% -
11% which has been accrued through December 31, 1998. The Convertible Debentures
maturing on December 31, 1997 were extended to June 30, 2000, and in
consideration for the extension, the conversion rate was reduced to the lower of
the existing conversion rate or $.15 to August 31, 1999, thereafter reverting to
the original conversion price which ranges from $.1851 to $.3868 per share.
During 1997 and 1998 we also issued 9,563,677 Warrants for additional shares of
Common Stock in connection with the Convertible Debentures. The Warrants are
exercisable at
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<PAGE> 22
100%-105% of the conversion price of the common shares associated with the
Convertible Debentures. The Warrants expire five years from the original issue
date of the Convertible Debentures.
During 1999, we utilized legal, sales consultants and public relations services
for which we issued Common Stock valued at $185,027.
During 1999, accounts receivable increased $97,288, substantially all of which
is due to increased rent and service obligations of our contract-fill
manufacturer which occupies a substantial portion of our facility under a
two-year sublease agreement.
During 1999, accounts payable and accrued expenses decreased $252,165 primarily
due to the reduction in accrued interest expense on existing debt obligations
which were converted to Common Stock during the year. The decrease was moderated
by an increase in expenses to a management services company in the amount of
$120,000.
During 1998, we entered into a license agreement with a Canadian company for the
sale of products in Canada. We have recognized $87,418 as the portion of the
license agreement applicable to 1999.
During 1999, we increased inventory by 69% to $156,932 compared with $92,549 in
1998. The increase resulted primarily from the return of gel product from a
distributor who is no longer in business. We have performed quality controls
tests and found the product to be satisfactory to offer for sale.
We plan to utilize our current debt financing arrangements and pursue additional
equity and debt financing while managing cash flow in an effort to provide funds
to increase revenues to support operation, research and development activities.
We believe that our long-term success depends on revenues from operations from
product sales and ongoing royalties from technologies. If such sources of funds
are not adequate, we may seek to obtain financing to meet operating and research
expenses from other sources including, but not limited to, future equity or debt
financings.
As of March 2000, we have cash of approximately $925,000 and during March we
expect cash inflow of $40,000 from accounts receivable. This level of liquidity
is sufficient to fund the routine operating expenses of the Company for 180
days, exclusive of the repayment of Convertible Debentures due beginning in May
2000. The Company anticipates increasing sales, reduced operating expenses, and
additional private placement funding will contribute to continuous operations of
the Company.
At the present time the Company does not have any material commitments for
capital expenditures. We anticipate utilizing a portion of our funds to acquire
a larger volume of product inventory to meet existing demand generated by
purchase orders received during March 2000. We envision generating sufficient
cash from the collection of sales orders to provide replenishment of these
funds.
22
<PAGE> 23
ITEM 7. FINANCIAL STATEMENTS
CARTER, CARTIER, MELBY & GUARINO, C.P.A.S, P.A. LOGO
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Veridien Corporation
We have audited the accompanying consolidated balance sheets of Veridien
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related statements of operations, changes in deficit in
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Veridien
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note B to the
consolidated financial statements, the Company, since its inception, has
sustained substantial losses, has a deficit in stockholders' equity, a deficit
in working capital, and is experiencing a continued cash flow deficiency. Those
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are described in Note
B. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Carter, Cartier, Melby & Guarino, C.P.A.s, P.A.
March 7, 2000
23
<PAGE> 24
VERIDIEN CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
Assets
------
Current Assets:
<S> <C> <C>
Cash $ 6,734 $ 17,158
Accounts receivable - trade
Less allowance for doubtful accounts of
$10,564 and $6,096, respectively 300,436 203,148
Note receivable 22,500 22,500
Inventory 156,932 92,549
Prepaid expenses and other current assets 13,939 20,580
-------- --------
Total current assets 500,541 355,935
Property and equipment:
Furniture and fixtures 656,962 613,005
Leasehold improvements 97,180 97,180
-------- --------
754,142 710,185
Less accumulated depreciation 683,045 668,015
-------- --------
71,097 42,170
Other Assets:
Patents, less accumulated amortization of $485,986
and $482,378, respectively 28,396 32,004
Loan costs, less accumulated amortization of
$65,192 and $49,633, respectively 12,601 28,160
Security deposits and other assets 39,947 40,389
-------- --------
80,944 100,553
-------- --------
$652,582 $498,658
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
24
<PAGE> 25
VERIDIEN CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets - Continued
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
Liabilities and Deficit in Stockholders' Equity
<S> <C> <C>
Current Liabilities:
Notes payable $ 585,779 $ 1,066,273
Convertible debentures due 1,569,215 2,494,198
Accounts payable 582,107 244,343
Accrued compensation 57,869 39,000
Accrued interest 296,650 805,206
Other accrued liabilities 43,611 143,853
Customer deposits 46,516 --
Due to stockholders 166,787 189,321
Deferred revenue - licensing agreement -- 87,418
------------ ------------
Total current liabilities 3,348,534 5,069,612
Deficit in stockholders' equity:
Undesignated Preferred Stock $.001 par value,
25,000,000 shares authorized
Convertible Redeemable Preferred Stock,
$10 par value; 100,000 authorized, 6,000 issued and
outstanding at December 31, 1999 and 1998 60,000 60,000
Series B Preferred Stock, $.001 par value,
245,344 authorized, 193,534 and 154,163 issued
and outstanding at December 31, 1999 and 1998 194 154
Common Stock, $.001 par value; 200,000,000 shares authorized,
119,958,735 and 78,152,833 shares issued and outstanding at
December 31, 1999 and 1998 119,960 78,154
Additional paid-in capital 26,789,390 22,858,790
Common Stock warrants 26,399 26,399
Accumulated deficit (29,686,895) (27,589,451)
------------ ------------
(2,690,952) (4,565,954)
Stock subscriptions receivable (5,000) (5,000)
------------ ------------
Total stockholders' deficit (2,695,952) (4,570,954)
------------ ------------
$ 652,582 $ 498,658
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
25
<PAGE> 26
VERIDIEN CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 415,491 $ 820,065
Operating costs and expenses:
Cost of sales 335,094 601,037
General and administrative 1,927,383 1,399,251
Research and development 370,667 377,344
------------ ------------
2,633,144 2,377,632
------------ ------------
Loss from operations (2,217,653) (1,557,567)
Other income (expense):
Interest expense (261,377) (525,872)
Operations/production service income 171,000 --
Rental income 104,019 51,290
Licensing fees 104,046 145,696
Interest income 2,521 2,899
------------ ------------
120,209 (325,987)
------------ ------------
Net loss $ (2,097,444) $ (1,883,554)
============ ============
Net loss per common share $ (.02) $ (.04)
============ ============
Weighted average shares outstanding 98,083,253 48,299,890
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
26
<PAGE> 27
VERIDIEN CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
Cash flows from operating activities
<S> <C> <C>
Net (loss) $(2,097,444) $(1,883,554)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciation and amortization 39,258 33,794
Other, not requiring cash flow 981,418 123,800
(Increase) decrease in:
Accounts receivable (97,288) (143,766)
Prepaid and other current assets 6,641 (1,308)
Inventories (64,383) 135,429
Other assets 442 --
Increase (decrease) in:
Accounts payable and accrued expenses (252,164) 192,795
Due to stockholders (22,534) 165,164
Deferred revenue (87,418) 87,418
Customer deposits 46,516 --
----------- -----------
Net cash (used) by operating activities (1,546,956) (1,290,228)
Cash flow from investing activities:
Purchases of property and equipment (49,018) (16,207)
----------- -----------
Net cash (used) by operating activities (49,018) (16,207)
Cash flow from financing activities:
Proceeds from convertible debentures 751,000 585,333
Net proceeds from borrowings (75,000) 116,479
Proceeds from sale of preferred and common stock 909,550 533,736
----------- -----------
Net cash provided by financing activities 1,585,550 1,235,548
----------- -----------
Net (decrease) in cash (10,424) (70,887)
Cash at beginning of year 17,158 88,045
----------- -----------
Cash at end of year $ 6,734 $ 17,158
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
27
<PAGE> 28
Veridien Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT IN STOCKHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Convertible
Redeemable Series B Number Additional
Preferred Preferred common Common paid-in Stock
Stock Stock shares stock capital warrants
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1998 $ 160,000 $ - 33,463,173 $ 33,464 $ 17,796,043 $ 2,599,288
Exercise of warrants conversion for services - - 300,000 300 (300) -
Issuance of stock for services - - 452,722 453 123,347 -
Conversion of preferred shares to common
correction to prior conversion - - 100,000 100 (100) -
Issuance of stock for note - - 450,000 450 22,050 -
Issuance of stock for debt conversion - - 742,500 743 178,757 -
Conversion of preferred shares to common (100,000) - 200,000 200 99,800 -
Exercise of 1995 PPM Warrants - - 984,170 984 85,591 (72,889)
Conversion of partial loan/security agreement - 154 33,530,973 33,531 4,041,481 (2,500,000)
Proceeds from Section 504 offering - - 6,929,295 6,929 463,121 -
Proceeds from Private Placement - - 1,000,000 1,000 49,000 -
Net (loss) - - - - - -
----------------------------------------------------------------------------
Balances at December 31, 1998 60,000 154 78,152,833 78,154 22,858,790 26,399
Proceeds from Section 504 offering 4,459,798 4,460 362,340
Proceeds from private placement 5,966,667 5,967 536,783
Conversion of debt to equity 3,884,563 3,885 377,204
Conversion of convertible debentures 13,941,900 13,941 2,077,344
Issuance of stock for services 1,770,164 1,770 183,257
Conversion of partial loan/security agreement 40 11,782,810 11,783 393,672
Net (loss)
----------------------------------------------------------------------------
Balances at December 31, 1999 $ 60,000 $ 194 119,958,735 $119,960 $ 26,789,390 $ 26,399
============================================================================
<CAPTION>
Stock Stockholders'
Accumulated subscriptions equity
deficit receivable (deficit)
-------------------------------------------
<S> <C> <C> <C>
Balances at January 1, 1998 $ (25,705,897) $ (5,000) $ (5,122,102)
Exercise of warrants conversion for services - - -
Issuance of stock for services - - 123,800
Conversion of preferred shares to common
correction to prior conversion - - -
Issurance of stock for note - - 22,500
Issuance of stock for debt conversion - - 179,500
Conversion of preferred shares to common - - -
Exercise of 1995 PPM Warrants - - 13,686
Conversion of partial loan/security agreement - - 1,575,166
Proceeds from Section 504 offering - - 470,050
Proceeds from Private Placement - - 50,000
Net (loss) (1,883,554) - (1,883,554)
-------------------------------------------
Balances at December 31, 1998 (27,589,451) (5,000) (4,570,954)
Proceeds from Section 504 offering 366,800
Proceeds from private placement 542,750
Conversion of debt to equity 381,089
Conversion of convertible debentures 2,091,285
Issuance of stock for services 185,027
Conversion of partial loan/security agreement 405,495
Net (loss) (2,097,444) (2,097,444)
-------------------------------------------
Balances at December 31, 1999 $ (29,686,895) $ (5,000) $ (2,695,952)
===========================================
</TABLE>
See accompanying notes to the consolidated financial statements.
28
<PAGE> 29
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows.
1. Organization, Business and Control
On June 4, 1991, the Company was incorporated in Delaware as "VCT Acquisitions
II, Inc.". The Company then acquired all of the assets of another Delaware
corporation called Viral Control Technology, Inc. On September 13, 1991, the
Company changed its name to Viral Control Technology, Inc. Subsequently, on
November 8, 1991, the Company again changed its name and became Veridien
Corporation (the Company).
The "Viral Control Technology, Inc." from which the Company acquired its assets
was created on August 3, 1989, by a reverse acquisition of a public shell called
Valencia Enterprises, Inc., by a private company named Viral Control Technology,
Inc. The original Viral Control Technology, Inc., was organized in Delaware on
August 10, 1988, while Valencia Enterprises was organized in Utah on February
10, 1984. Valencia, which had changed its name to Viral Control Technology,
Inc., after the reorganization, was redomesticated in Delaware on December 14,
1990. The original private company called Viral Control Technology, Inc. was
organized by Paul L. Simmons and his wife.
The Company was founded to develop disinfectants and sterilants which will pose
no hazard to people who use them and will not harm the environment. To this end,
the Company has developed a hard surface disinfectant (VIRAHOL(R)), which has
been registered with the Environmental Protection Agency (EPA), and a cold
chemical sterilant (STERIHOL(R)), for which the Company is currently seeking
regulatory approval. The Company's research and development efforts are
currently focused on further development of infection control chemicals and on
devices, both medical and commercial, which utilize the Company's liquid
products and are in keeping with the corporate philosophy of environmentally
friendly products and other healthcare products. In June 1996, the Company added
Vira-RD12(TM) a heavy-duty rotational disinfectant and Vira-CD7(TM) a detergent
disinfectant for large areas to its infection control line.
In October 1995, the Company entered into a 10% Convertible Senior Secured Term
Loan agreement to finance marketing efforts for its line of products, to fund
operating cash flow deficiencies, and to continue its research and development
activities.
The agreement requires the Company to issue to the lender warrants, in
sufficient quantity, that at all times the loan agreement is in force the lender
can obtain 51% of all classes of outstanding stock for a $2,500,000 exercise
price. During 1999 and 1998, $405,495 and $1,575,166 of the debt and the
lender's warrants were converted into 11,782,810 and 33,530,973 common shares
respectively, and 39,371 and 154,163 Series B Preferred shares respectively.
During 1998, the
29
<PAGE> 30
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Company was authorized to increase its capital structure to 200,000,000
authorized shares of common stock.
2. Principles of Consolidation
The accompanying financial statements include the accounts of the Company and
its subsidiaries, each of which is wholly owned. All intercompany balances and
transactions have been eliminated in consolidation.
3. Accounting Estimates
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. Accounts Receivable
The Company uses the allowance method of accounting for doubtful accounts. The
year-end balance is based on historical collections and management's review of
the current status of existing receivables and estimate as to their
collectibility.
5. Inventories
Inventories, consisting primarily of raw materials and finished goods, are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method. At December 31, 1999, raw materials and finished goods
amounted to approximately $84,200 and $72,800, respectively. At December 31,
1998, raw materials and finished goods amounted to approximately $64,000 and
$29,000, respectively.
6. Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over their estimated useful
lives ranging from three to seven years. Leasehold improvements are amortized on
the straight-line method over the shorter of the lease term or estimated useful
life. Major renewals, betterments and replacements are capitalized. Maintenance
and repairs are charged to expense as incurred.
30
<PAGE> 31
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
7. Patents
The Company capitalizes certain costs, primarily legal and other fees, related
to patents. Accumulated costs are amortized over the estimated lives of the
patents using the straight-line method, commencing at the time the patents are
issued.
8. Loan Costs
Loan costs are amortized by the straight-line method over the term of the
respective loans.
9. Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
10. Reclassification
Certain reclassifications have been made to the 1998 financial statements to be
in conformity with the 1999 presentation.
11. Net Loss per Share
Net loss per share is calculated by dividing the net loss by the weighted
average number of common shares outstanding during the period. Weighted average
number of common shares outstanding is calculated as the sum of the month-end
balances of shares outstanding, divided by the number of months. The weighted
average shares outstanding were 98,083,253 and 48,299,890 for the years ended
December 31, 1999 and 1998, respectively. Common stock equivalents (stock
options, warrants, convertible debentures and convertible redeemable preferred
stock) are not included in the weighted average number of common shares because
the effects would be anti-dilutive.
31
<PAGE> 32
NOTE B - REALIZATION OF ASSETS
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. Since inception, the Company has
incurred losses of approximately $29.7 million, resulting primarily from
research and development, sales and marketing, and administrative expenses being
substantially in excess of sales revenue. The Company has a deficit in
stockholders' equity of $2.7 million, a deficit in working capital of $2.8
million and is experiencing a continuing cash flow deficiency.
For the year ended December 31, 1999, the Company's operating activities
resulted in cash outflows of $1,546,956. In addition, the Company used $49,018
for patent development and equipment purchases. In order to fund these cash
outflows, the Company sold $909,550 of preferred and common stock and received
net proceeds of $751,000 from convertible debentures. These proceeds, together
with the cash balance at the beginning of the year, did not fund the Company's
cash outflows, resulting in a net cash decrease of $10,424 for the year ended
December 31, 1999.
The Company plans to utilize its current debt financing arrangements and pursue
additional equity and debt financing while managing cash flow in an effort to
provide funds to increase revenues to support operations, research and
development activities. Management anticipates cash flow from product sales
and/or strategic equity financing will meet and exceed cash requirements in the
Fall of 2000. The Company plans to pursue additional cash through sales of
convertible debentures (see Note P - Subsequent Events).
In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon the continued operations of the
Company and that such operations will be profitable and provide adequate cash
flows. Further, the ability of the Company to continue its operations and
successfully defend itself against potential claims or assessments is dependent
on the ability to obtain additional debt and equity financing, employ cash
management techniques and aggressively market its products.
The consolidated financial statements do not contain any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
NOTE C - RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, the Company owed $166,787 and $189,321,
respectively to stockholders who have made advances of cash or material to the
Company.
During 1998, the Company had purchased $104,444 of inventory from a company
owned by a shareholder and recorded the advance in Due to stockholder. During
1999, the Company
32
<PAGE> 33
NOTE C - RELATED PARTY TRANSACTIONS - CONTINUED
converted $94,444 of funds due to shareholders into 674,600 shares of common
stock at a conversion price of $.14 per share.
The Company has entered into numerous financing transactions with Dunvegan
Mortgage Corporation, a corporation of which the Company's President and CEO is
an officer and a director. These transactions are detailed elsewhere in these
footnotes.
During 1999, the Company utilized the services of a management company which has
as its senior officer and director Sheldon C. Fenton, the Company's
President/CEO and a director, to assist with administrative and organizational
function of the Company. The amount of $120,000 is owed for professional
services.
NOTE D - NOTES RECEIVABLE
The Company issued 450,000 shares of common stock to a shareholder in exchange
for a note receivable in the amount of $22,500. The note is non-interest
bearing, can be satisfied in full by the return of the Company common stock, and
was due in full on December 31, 1999. During January 2000, the Company received
a $2,500 payment, and extended the balance of $20,000 until June 30, 2000. The
note can be further extended until December 31, 2000 with an additional payment
of $5,000 by June 30, 2000. At December 31, 1999, the 450,000 common shares had
an approximate market value of $35,000.
NOTE E - NOTES PAYABLE
In October 1995, the Company secured a 10% Convertible Senior Secured Term Loan
of up to $2,500,000 with a mortgage company. During 1998, the mortgage company
converted $1,575,166 of the $2,500,000 debt into 33,530,973 common shares and
154,163 Series B preferred shares. On October 5, 1998, the remaining balance of
$924,834 was assigned to another lender. The maturity date and other terms
remain the same. During 1999, the new lender converted $405,495 of debt into
11,782,810 common shares and 39,371 Series B preferred shares. The loan
agreement grants the lender warrants to purchase 51% of the Company's
outstanding common and preferred stock. The note is collateralized by the assets
and intellectual properties of the Company and its subsidiaries and requires
semi-annual payments of interest only with the entire principal balance due in
November 2000. As of December 31, 1999, the remaining principal balance
outstanding was $519,340 and $84,019 of interest has accrued under the
agreement. The Company has been in technical default on the loan since March
1996 with respect to certain financial criteria. Furthermore, the lender has not
waived compliance regarding these criteria and has continued to fund the monthly
working capital needs of the Company, as previously agreed. Accordingly, the
accompanying consolidated financial statements have presented the amounts
advanced under the note as a current liability.
33
<PAGE> 34
NOTE E - NOTES PAYABLE - CONTINUED
During 1998, the original lender advanced $75,000 under a short-term bridge loan
at 0% stated interest rate which was repaid during 1999.
The Company has negotiated promissory notes with a real estate leasing company
at varying terms and maturities. The remaining balance amounted to $66,439 at
December 31, 1999 and 1998, respectively. The Company renegotiated the loans
during April 1998. The note carries an interest rate of 9% per annum payable
monthly, with principal payments of $21,924 due on May 1, 1999, and 2000, with
the remaining principal due on May 1, 2001. The Company is in default on the
payment due in May 1999.
NOTE F - DEFERRED REVENUE/LICENSING FEES
During 1998, the Company entered into a marketing agreement with a Canadian
company and awarded exclusive sales rights in Canada for a period of five years.
The Company is entitled to minimum annual license fees and in 1998 received
$233,114 for year one. The initial period for determining sales subject to the
licensing agreement is February 28, 1998, through June 30, 1999. At December 31,
1998, $87,418 of this licensing fee had been deferred. The Company recognized as
licensing fees $104,046 and $145,696 for 1999 and 1998, respectively.
Minimum annual license fees have scheduled increases through approximately
$676,000 in year five. The licensing fees are based on 10% of sales as defined
in the agreement and are subject to a yearly minimum.
NOTE G - CONVERTIBLE DEBENTURES
During 1999 and 1998, the Company received $751,000 and $585,333, respectively
of proceeds from the sale of convertible debentures to various investment
companies. Interest is accrued at various rates from 10% - 11% per annum,
compounded in full at various maturities from May through November 2000. Prior
to the retirement of the debentures, the investment companies may convert any or
all amounts owed into common stock. The conversion price for each debenture
ranges from $.06 to $.2553 per share. The conversion privilege terminates when
all principal plus interest due has been paid in full. In addition, the
investment companies were issued 10,518,287 warrants which are outstanding at
December 31, 1999 for additional common shares for 100 - 105% of the convertible
debentures per share conversion price. The additional warrants expire five years
from the original date of the debentures.
34
<PAGE> 35
NOTE H - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases manufacturing and office facilities under a lease that
expires June 2002 with an additional five year option period. Rent expense was
approximately $219,000 and $214,000 in 1999 and 1998, respectively.
The following table reflects approximate future minimum annual rental expense
amounts:
<TABLE>
<CAPTION>
YEAR AMOUNT
---------- ----------
<S> <C>
2000 $ 238,900
2001 244,500
2002 123,700
</TABLE>
NOTE I - CONVERTIBLE REDEEMABLE PREFERRED STOCK
In 1994, the Company prepared an Offering Circular to raise approximately
$1,000,000 of 10% Cumulative Convertible Redeemable Preferred Stock with a $10
par value. At the option of the Company, the shares can be redeemed after two
years at $10 per share plus accrued and unpaid dividends in aggregate amounts
not to exceed $250,000 annually. Each preferred share is convertible into
twenty common shares. Additionally, the Offering Circular provides for common
stock purchase warrants with an exercise price of $.01 per share. The number of
warrants issued, when exercised in combination with conversion of the preferred
stock into common stock, will result in an effective cost for each share of the
common stock equal to the closing bid price of the common stock, in the
over-the-counter market, on the day of the subscription to the Offering
Circular. The warrants may be redeemed for $.001, at the election of the
Company, upon thirty days' written notice after the bid price of the common
stock in the then existing public market has been $1.00 or more for thirty
continuous days in which the market is open for business. From inception
through December 31, 1999, $622,000 of preferred stock was issued for cash and
$318,150 was issued in satisfaction of debt and services at $10 per share.
Preferred shareholders have converted 88,015 shares of preferred stock into
1,760,300 shares of common stock. No conversion of preferred stock into common
stock occurred during 1999. At December 31, 1999, preferred stock dividends in
arrears totaled approximately $30,000.
NOTE J - SERIES B CUMULATIVE PREFERRED STOCK
The Series B Cumulative Preferred Stock was created on December 31, 1997, as a
mechanism of permitting the conversion of part of the indebtedness under the
Loan and Security Agreement, without sacrificing the intent of the original
Loan and Security Agreement warrants. The Series B Cumulative Preferred Stock
has a par value of $.001 per share and an initial stated capital of $10 per
share, which is subject to adjustment. This Series is senior to the Common
Stock and
35
<PAGE> 36
NOTE J - SERIES B CUMULATIVE PREFERRED STOCK - CONTINUED
is senior to all other classes and series except that it is junior to the
Convertible Redeemable Preferred Stock with respect to the payment of
dividends. Each share has that number of votes equal to the number of share of
Common Stock into which it is convertible on the record date. Subject to
adjustment in the event of certain future Common Stock or convertible security
issuances, each share is convertible into 20.04010695 shares of Common Stock.
These shares are entitled to receive an annual dividend equal to the greater of
10% of the stated value and the actual dividend per share of common stock
declared by the Company's Board of Directors times the number shares of Common
stock into which each share of Series B is convertible on the dividend record
date. The dividend is cumulative, whether or not earned and, to the extent not
paid on a quarterly dividend payment date is added to the stated value.
NOTE K - STOCK OPTIONS
Options to acquire 200,000 shares were granted in 1995 to a director of the
Company in consideration of his efforts relating to business services. These
options expired on October 17, 1999.
Non-qualified stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Shares Exercise
Under Price
Option Range
---------- -----------
<S> <C> <C> <C>
Outstanding at January 1, 1998 1,100,000 $.50 - 3.00
1998 Granted -- N/A
Expired (900,000) .50 - 3.00
---------- -----------
Outstanding at December 31, 1998 200,000 .25
1999 Granted -- --
Expired (200,000) --
---------- -----------
Outstanding at December 31, 1999 -- $ N/A
========== ===========
</TABLE>
NOTE L - STOCK WARRANTS
In 1999, the Company issued 600,000 and 200,000 warrants at exercise prices
ranging from $.10 - $.20 as additional consideration for employee and
consulting services respectively. The Company issued an additional 6,891,907
warrants under the terms of the loan and security agreement.
36
<PAGE> 37
NOTE L - STOCK WARRANTS - CONTINUED
In 1998, as additional consideration for the convertible debentures, the
Company issued 4,029,539 warrants at exercise prices ranging from $.105 to
$.180, 100% of the debenture conversion price, and that expire five years from
date of issuance.
In September 1993, the Company granted a stock purchase warrant to a foreign
private foundation in recognition of its purchases of over 1,000,000 shares of
common stock. The warrant entitles the holder to acquire up to 250,000 shares
of the Company's authorized common stock. The purchase price of each share is
$1.00, and the warrant was exercisable through October 31, 1998. During 1998,
the warrant expired.
As described in Note I, the Company offered $1,000,000 of 10% Cumulative
Convertible Redeemable Preferred Stock along with common stock purchase
warrants at $.01 per share. The number of warrants issued, when exercised in
combination with conversion of the preferred stock into common stock results in
an effective cost for each share of the common stock equal to the closing bid
price of the common stock, in the over-the-counter market, on the day of the
subscription to the Offering Circular. The warrants are recorded at their fair
market value at the time of issuance less the exercise price of $.01 and
reported as a reduction to preferred stock. The value assigned to the warrants
is amortized over the shorter of the life or the exercise of the warrant.
As described in Note A, in October 1995, the Company entered into a 10%
Convertible Senior Secured Term Loan agreement. The agreement required the
Company to issue to the lender warrants, in sufficient quantity, that at all
times the loan agreement is in force the lender can obtain 51% of all classes
of outstanding stock for a $2,500,000 exercise price.
At December 31, 1999, in aggregate the lender was entitled to 80,727,673
warrants at a cumulative exercise price of $2,500,000 under the terms of the
agreement. This equated to an effective cost of $0.031 per share. As of
December 31, 1999, the lender(s) had converted $1,980,660 of the debt and the
lender's warrants were exercised into 45,614,383 common shares and 193,534
Series B preferred shares (convertible into 3,878,447 common shares) at a
combined cost of equivalent to $0.04 per common share.
37
<PAGE> 38
NOTE L - STOCK WARRANTS - CONTINUED
Warrants issued and exercised are summarized as follows:
<TABLE>
<CAPTION>
Exercise
Price
Common Stock Warrants Range
------------------------------------- ------------ ------------
<S> <C> <C>
Outstanding at January 1, 1998 49,356,425 $ .01 - 1.00
1998:
Granted 14,712,853 .105 - .180
Exercised (1,211,111) .01 - .125
Expired (250,000) 1.00
Loan & Security Agreement
Conversion (33,530,973) .01 - .499
----------- ------------
Outstanding at December 31, 1998 29,077,194 .01 - 1.00
1999:
Granted 7,691,907 .001 - .499
Expired (100,000) 1.00
------------ ------------
Outstanding at December 31, 1999 36,669,101 $ .01 - 1.00
=========== ============
</TABLE>
Effective December 31, 1997, the Board of Directors created the Series B
Cumulative preferred Stock (as discussed in Note J) and issued 245,344 warrants
for this Preferred Stock to the lender under the Loan and Security Agreement to
replace 4,916,720 common stock warrants already issued to them. The warrants
expire on November 18, 2000, and have a $10 exercise price. During 1999 and
1998, 41,473 and 154,163 of these warrants were exercised by the holder and
zero and 666 warrants were cancelled due to recalculation of the warrant
entitlement, respectively.
Effective December 31, 1997, the Board of Directors created the Series CI
Preferred Stock and issued 115,184 warrants for this Preferred Stock to a
Convertible Debenture holder to replace 3,430,555 common stock warrants already
issued to them. The warrants expire on December 31, 2001, and have a $10
exercise price. No warrants have been exercised to date.
Effective December 31, 1997, the Board of Directors created the Series CII
Preferred Stock and issued 41,893 warrants for this Preferred Stock to a
Convertible Debenture holder to replace 1,680,647 common stock warrants already
issued to them. The warrants expire on December 31, 2001, and have a $10
exercise price. No warrants have been exercised to date.
38
<PAGE> 39
NOTE L - STOCK WARRANTS - CONTINUED
Preferred warrants issued and exercised are summarized as follows:
<TABLE>
<CAPTION>
Equivalent #
Common
Shares on
Preferrred Preferred
Preferred Exercise Share
Share Warrants Price Conversion
------------------------------ ---------------- ---------- ------------
<S> <C> <C> <C>
Outstanding at January 1, 1998
Series B 245,344 $ 10.00 4,916,720
Series CI 115,184 $ 10.00 3,430,555
Series CII 41,893 $ 10.00 1,680,647
--------- ----------
402,421 10,027,922
1998 Exercised:
Exercised Series B (154,163) $ 10.00 (3,089,443)
Cancelled Series B (665) (13,347)
--------- ----------
Outstanding at December 31, 1998 247,593 6,925,132
1999 Exercised:
Exercised Series B (39,371) $ 10.00 (788,999)
Cancelled Series B (2,102) (42,104)
--------- ----------
Outstanding at December 31, 1999 206,120 6,094,029
--------- ----------
Series B 49,043 982,827
Series CI 115,184 3,430,555
Series CII 41,893 1,680,647
--------- ----------
206,120 6,094,029
========= ==========
</TABLE>
39
<PAGE> 40
NOTE M - INCOME TAXES
There is no income tax provision for the years ended December 31, 1999 and 1998
due to net operating losses for which no benefit is currently available. The
Company has net operating loss carry forwards of approximately $16,791,000 at
December 31, 1999, available to offset future taxable income from 2000 through
2020.
The Company has determined that in 1995 a change of ownership occurred as
defined in the Internal Revenue Code 382 and related Treasury Regulations.
After elimination of net operating loss carry forwards of approximately
$10,920,000, the Company has approximately $16,791,000 remaining net operating
loss carry forwards.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets are presented below:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ -------------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carry forwards $ 6,297,000 $ 5,608,000
----------- -----------
Less valuation allowance (6,297,000) (5,608,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
NOTE N - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest amounted to $22,350 and $4,435 for 1999 and 1998,
respectively.
During 1999, the Company issued 11,782,810 common and 40 preferred shares in
exchange for debt conversion in the amount of $405,495. In 1999, the Company
issued 16,663,963 common shares in conversion of convertible securities in the
amount of $1,675,983. In 1999, the Company issued 1,770,164 common shares in
exchange for interest expense and services of $796,391 and $185,027,
respectively.
During 1998, the Company issued 450,000 common shares in exchange for a note
receivable of $22,500. The Company issued 34,273,473 common shares in exchange
for debt conversion in the amount of $1,754,666. In 1998, $100,000 of preferred
stock and $72,889 of stock warrants (representing 911,111 warrants) were
converted into 1,184,170 shares of common stock.
40
<PAGE> 41
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has financial instruments, none of which are held for trading
purposes. The Company estimates that the fair value of all financial
instruments at December 31, 1999 and 1998, do not differ materially from the
aggregate carrying value of its financial instruments recorded in the
accompanying consolidated balance sheet. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value, and,
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
NOTE P - SUBSEQUENT EVENTS
(1) Offering Proceeds
Subsequent to year-end, the Company received $1,267,000 in proceeds from
convertible debenture offerings. The debentures have a term of three years, a
stated annual interest rate of 10% payable annually. The interest can be
converted at the option of the Issuer into Company stock at a rate of 2/3 of
the average price as defined in the agreement. The principal can be converted
into Company common stock at the option of the Holder. The conversion price is
at a rate of 2/3 of the average price as defined with minimum share conversion
prices from $.065 in the first year to $.15 in year three. The Company plans to
utilize these funds to partially fund operations.
(2) Acquisition of Business by Subsidiary
In January, 2000 one of the Company's wholly-owned subsidiaries entered into an
agreement to purchase 50% of a Company in exchange for a cash payment of
$30,000 and the potential issuance of options exercisable into 1,000,000 of
Veridien common stock. The vesting of these options is subject to a schedule of
future events extending through the year 2001.
41
<PAGE> 42
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Carter & Cartier P.A., CPA's, who audited our financial statements for the
fiscal years ended December 31, 1997 and December 31, 1998, have audited our
financial statements for the fiscal year ended December 31, 1999. There has
been no change in our accountants and there have been no disagreements with
respect to any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
42
<PAGE> 43
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS. The position(s) held by each of our executive
officers and Directors as of March 21, 2000 are shown in the following table.
Biographical information for each is set forth following the table. Our current
Directors (other than Mr. Chester, who was appointed February 7, 2000) were
elected at the Annual Meeting held on November 6, 1998. Each Director serves
for a one-year term and until a successor is elected and has qualified.
Currently, our Directors are not compensated for their services, although their
expenses in attending meetings are reimbursed.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Russell Van Zandt 59 Chairman of the Board of Directors
Rene A. Gareau 58 Vice Chairman of the Board of Directors
Paul L. Simmons 71 Founder and Director
Sheldon C. Fenton 48 President and CEO/Director
Martin E. Kovnats 48 Director
Alfred A. Ritter 56 Director
Mark E. Schlussel 59 Director
Andrew T. Libby, Jr. 51 Executive Vice President, COO & CFO,
Secretary/Director
Kenneth J. Chester 53 Managing Director of Operations/Director
</TABLE>
MARK E. SCHLUSSEL was first named to the Board of Directors on April 3, 1995.
Since January 1995 he has served Of Counsel to the law firm of Pepper Hamilton
& Scheetz in Detroit, Michigan. Previously, he was a partner at the law firm of
Miller Canfield in Detroit, Michigan.
Mr. Schlussel was appointed Chairman of Medi-I-Bank, Inc. in 1996 and CEO in
1998. He was a board member of the Great Lakes Health Plan from 1996 to 1998.
Currently, he is Trustee of Immerman and Embargement Foundations, and Chairman
of the Jewish Fund. Mr. Schlussel was graduated with a Bachelor of Arts from
Wayne State University in 1962 and a Juris Doctor from the University of
Michigan Law School in 1965. He was admitted to practice before the U.S.
Supreme Court in 1982.
RENE A. GAREAU was first named to the Board of Directors on March 13, 1996.
Since 1989, Mr. Gareau has been Chairman of the Board of Sarasota Quay, a real
estate management company located in Sarasota, Florida, specializing in
property and asset management for commercial properties. From 1982 to 1989, Mr.
Gareau was the Chairman of a private Canadian real estate development company
involved
43
<PAGE> 44
in the development and syndication of residential condominium and commercial
projects in a number of Canadian provinces. From 1981 to 1982 he was President
of Bank of America (Canada) with responsibilities for overseeing all retail and
mortgage banking operations in Canada. From 1974 to 1981 he was Senior Vice
President of Citicorp-Citibank in their International Division. He had
responsibilities in corporate and consumer banking with assignments in Asia,
Europe, South America, and the U.S.A.
PAUL L. SIMMONS has been a member of the Board of Directors since our
incorporation in 1991. He is a recognized authority by both the industry and
the FDA in plant manufacturing validation and certification, as well as
manufacturing plant and process design for the genetic, pharmaceutical, bulk
pharmaceutical chemical, device and diagnostic industries. Mr. Simmons (with
his wife, Diane) is the founder of our Company, commencing with one of our
predecessors, ROST, Inc. founded in 1980.
Mr. Simmons served in a consulting capacity for manufacturing plant and process
design and regulatory compliance to more than 45 major biotech, pharmaceutical
and device firms, in 72 plant locations in the U.S., U.K., Europe and the Far
East. Mr. Simmons has formulated and designed many of the
qualification/validation programs and testing methods now in use in the
industry. He is a noted author, having written many technical papers for
national trade journals, as well as the writing and publication of a long list
of technical and procedural manuals. As a lecturer, Mr. Simmons has addressed
more than 55 trade and professional associations in 26 states and several
foreign countries, including the Parenteral Drug Association, Pharmaceutical
Manufacturer's Association, Association for Professionals In Infection Control,
Quality Control Managers Association, Philadelphia Academy of Pharmaceutical
Sciences, Biotech 84, Scale-up 84, Interphex and FDA Small Business Seminars.
On October 6, 1998, Mr. Simmons filed a Petition for Reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Middle District of Florida, docketed to Number 98-17181-8P1. Mr.
Simmons' Plan of Reorganization was confirmed (approved) by the Court on
December 27, 1999, which order operated as a discharge of all debts except as
covered by the Plan.
SHELDON C. FENTON is President and CEO. Mr Fenton was first named to the Board
of Directors on June 3, 1998. Since 1981 Mr. Fenton has been President and CEO
of Tanlon Corporate Holdings Ltd. (and predecessor corporations), located in
Toronto, Canada. Tanlon is privately owned, fully integrated management
services company. They are involved with another of private and public
companies, providing them with expertise and assistance, notably in the areas
of capitalization and management. The group also has knowledge and experience
in the areas of strategic acquisitions, real estate development and
syndication, financing for private and public ventures, as well as asset and
property management. They are regarded as specialists in the areas of
structuring and restructuring of investments and negotiation with lenders and
other corporate stakeholders.
44
<PAGE> 45
Mr. Fenton is also an officer and director of Dunvegan Mortgage Corporation, a
company which has been a primary lender to the Company, as described under
"Principal Shareholders."
From 1979-1981 Mr. Fenton was employed by the Canadian Imperial Bank of
Commerce alternatively as Solicitor and Manager. In 1977-1978 he practiced
corporate and real estate law with the firm of Day Wilson & Campbell in
Toronto, Canada and in 1976-1979 worked as a financial consultant for FF.
Management in Toronto, Canada.
Mr. Fenton was graduated with honors with a Bachelor of Science degree from the
University of Toronto in 1974 and was graduated from the Faculty of Law with an
L.L.B. degree from the University of Western Ontario, Canada.
MARTIN E. KOVNATS was first named to the Board of Directors on October 28,
1997. Mr. Kovnats has been a partner with the Securities Law Group of the law
firm of Aird & Berlis in Toronto, Canada since 1995. He practices primarily in
the area of mergers and acquisitions and debt and equity financings.
Previously, he practiced law for sixteen years with the law firm of Goodman and
Carr, also located in Toronto. Mr. Kovnats is a past president of the
Securities Advisory Committee, appointed by the Ontario Securities Commission.
Mr. Kovnats was graduated with a Bachelor of Science from the University of
Manitoba in 1972 and an L.L. B. from the University of Manitoba in 1975. Mr.
Kovnats has lectured on securities, commercial law and border issues, and has
published articles on equity investments, acquisitions and securities law.
Since 1979, he has been a member of the Canadian Bar Association and the Law
Society of Upper Canada.
ANDREW T. LIBBY, JR. was named Executive Vice President, COO, CFO, and
Corporate Secretary on July 31, 1998. From November 1994 until joining the
Company, he was the owner of Financial Management Consultants, Inc., a
management and consulting firm specializing in helping manufacturing and
distribution companies. From June 1994 to November 1994 he served as CFO and
Corporate Secretary of Veridien Corporation. Previously, he held a series of
positions with different companies and governmental agencies in the area of
finance and accounting. From 1987 to 1994 he served as Director of Finance and
Accounting at University Medical Service Association, Inc., and Medical
Services Support Corporation. Mr. Libby was graduated from the University of
Tampa with an MBA in 1981 and was graduated from the University of South
Florida with a Bachelor of Arts in Management in 1971 and a Bachelor of Arts in
Accounting in 1976. He holds licenses as a CPA, a Certified Internal Auditor
(CIA) and is a licensed mortgage broker.
ALFRED A. RITTER was first named to the board of Directors on March 26, 1993.
Mr. Ritter has been the co-owner and director of EXPORATLAS, Lisbon, Portugal
since 1981. The company is an import/export firm involved in the paper and pulp
industry. Since 1996, Mr. Ritter has been the owner and director of TEOTONIO
INVESTMENTS, a commercial real estate and project development company based in
Vaduz, Liechtenstein. Additionally, since 1996, Mr. Ritter has been owner and
director of EUROVENTOS, which is developing alternative energy sources in
Portugal. Mr. Ritter has held positions with Credit Suisse in Zurich,
Switzerland, the Bank of London and South America, in London, England, and
Lloyd's Bank Ltd. in New York City. He currently operates a securities private
placement and investment management company in Lisbon, Portugal, and Vaduz,
Liechtenstein.
RUSSELL D. VAN ZANDT was first named to the Board of Directors on October 28,
1997. Mr. Van Zandt was graduated in 1962 with a BA in Mathematics from St.
Michael's College in Vermont, and was graduated in 1973 with an MBA from
Florida Atlantic University in Florida. He also completed course work in 1975
for a doctorate in Business Administration from George Washington University in
Washington, DC.
45
<PAGE> 46
Mr. Van Zandt is currently President and CEO of Ela Medical in Plymouth, MN.
Ela Medical is a manufacturer and marketer of pacemakers and inplantable
defibrillators. Previously Mr. Van Zandt had been a corporate Vice President at
Datascope Corp., a NASDAQ listed company engaged in the health care and medical
device products industry. On behalf of Datascope Corp., he had alternately
headed two divisions as President. From 1996 to 1998, he was President of the
Intervascular, Inc. Division, which for manufactures and markets vascular
grafts and patches on a worldwide basis. From July 1992 through September 1996
he was President of the Cardiac Assist Division which manufactures and markets
intra-aortic balloon pumps and catheters. From November 1969 until August 1992,
Mr. Van Zandt worked with C.R. Bard, Inc., a health care and medical device
company listed on the New York Stock Exchange. He started as personnel director
at a division level and rose through the company's ranks to reach, in 1992, the
position of President of Bard Vascular Systems Division.
KENNETH J. CHESTER was named to the Board of Directors on February 6, 2000. On
that date he was also appointed Managing Director of Operations. Mr. Chester
oversees the daily operations of the Company, particularly in the areas of
sales and marketing and development of strategic business alliances.
From 1998 to January 2000, Mr. Chester was self employed as a business and
marketing consultant for a number of companies in the health care and related
industries, including Veridien Corporation. Prior to that, Mr. Chester was an
officer of Schein Pharmaceutical, Inc., where he served in that capacity from
1984 through 1998. Schein is a manufacturer and distributor of generic drugs.
Mr. Chester most recently held the position of Senior Vice President of
Business Development. Prior to his employment with Schein, Mr. Chester held
various positions with Pfizer.
Mr. Chester graduated from Monmouth University in Monmouth, New Jersey in 1969
with a Bachelor of Arts in Business Administration.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
In March 2000, the following officers, directors and/or ten percent beneficial
owners filed Form 5's in lieu of not having filed Form 4's with respect to the
following transactions:
On May 21, 1999, Russell D. Van Zandt, a director purchased 100,000 shares of
Common Stock at a purchase price of $.10 per share in a private placement.
On July 22, 1999, Andrew T. Libby Jr., Executive Vice President, COO, CFO
Secretary and a director converted debt to Common Stock. Mr. Libby was also
issued employment related Warrants on December 31, 1999.
On October 1, 1999, Warrants held by Mark E. Schlussel expired.
On December 27, 1999, Dunvegan Mortgage Corporation, a greater than 10%
shareholder, converted debt (owed to Dunvegan by Veridien) into Common Stock.
Sheldon C. Fenton, President, CEO and a director also filed a Form 5 with
respect to this transaction as he is an officer and director of Dunvegan
Mortgage Corporation.
On December 27, 1999, International Center for Technology Transfer, Inc.
converted debt (owed to ICT by Veridien) into Common Stock. Paul L. Simmons, a
director filed a Form 5 with respect to this transaction as he is an officer
and/or director of International Center for Technology Transfer, Inc.
46
<PAGE> 47
ITEM 10. EXECUTIVE COMPENSATION
Currently, our Directors are not compensated for their services, although their
expenses in attending meetings are reimbursed.
COMPENSATION OF MANAGEMENT
We have entered into a series of employment agreements with Paul Simmons. He
has a written employment agreement under which he is paid $36,000.00 annually
personally for management services. Moreover International Center for
Technology Transfer, Inc. (a company owned by Paul Simmons) receives a 3%-5%
sales commission for the service of procuring and managing accounts initiated
by ICT, Inc. We have also entered into an employment agreement with Andrew T.
Libby, Jr., our Executive Vice President, COO, CFO, and Corporate Secretary,
under which he is to be paid $130,000 annually, although he will receive only
$90,000, with the balance accrued until such time as we have sufficient cash
flow to make payment of the accruals and the full salary.
The following table sets forth the compensation paid to our Chief Executive
Officer or such other officer who fulfilled the duties of the Chief Executive
Officer for the periods indicated. Except for the individuals named, no
executive officers had a total annual salary and bonus of $100,000 or more.
<TABLE>
<CAPTION>
Name & Principal Other
Position Year Salary Bonus Compensation
- ------------------------ --------- --------- ----- ------------
<S> <C> <C> <C> <C>
John Priest, CEO(1) 1/97-5/97 $ 56,250 -0- $32,000
Rene Gareau, CEO 11/96-10/97 -0- -0- -0-
Vic Conant, CEO 10/97-6/98 -0- -0- -0-
Robert M. Morrow, COO 1/97-10/97 $135,000 -0- -0-
Michael B. Whiteman, COO(2) 11/97-12/97 $ 14,000 -0- -0-
Michael B. Whiteman, COO 1/98-7/98 $ 42,000 -0- -0-
Sheldon C. Fenton, President(3)
& CEO 7/98-Present -0- -0- -0-
Andrew T. Libby, Jr., COO(4) 8/98-Present $130,000 -0- -0-
</TABLE>
None of the named persons has received stock options or other such non-cash
compensation.
- ----------------------
(1) John Priest had an annual salary of $250,000. He received 250,000
common shares (restricted) upon termination. The Company assumed
liability for $32,000 obligation of Mr. Priest to a Company Director.
(2) Michael B. Whiteman had an annual salary of $84,000.
(3) Tanlon Management Services Inc.. (of which Mr. Fenton is an officer
and Director) charges the Company a management fee; however, such fee
covers the services of Tanlon employees and is not intended as
compensation for Mr. Fenton.
(4) Andrew T. Libby, Jr. had annual salary of $130,000; however, he is
paid at the rate of $90,000 per year with $40,000 accrued to be paid
when we have sufficient cash flow or significant funding is received.
OPTION GRANTS
The following table sets forth information with respect to grants of stock
options to the named officers during 1999. None of these options were exercised
during the fiscal year ended December 31, 1999.
47
<PAGE> 48
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING OPTIONS/ EXERCISE PRICE
NAME SARS GRANTED (#) ($/SHARE) EXPIRATION DATE
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Andrew T. Libby, Jr. 100,000 $0.20 December 31, 2003
Andrew T. Libby, Jr. 250,000 $0.10 August 10, 2003
Andrew T. Libby, Jr. 250,000 $0.20 December 31, 2004
</TABLE>
None of these options has been repriced.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1999, information regarding
the beneficial ownership of shares of Common Stock by each person known by the
Company to own five percent or more of the outstanding shares of Common Stock,
by each of the Officers, by each of the Directors, and by the Officers and
Directors as a group. At the close of business on December 31, 1999, there were
119,958,735 shares issued and outstanding of record, as well as 16,898,100
shares issuable in the event of the conversion of the $1,569,215 of Convertible
Debentures outstanding and the $196,657 of interest thereon as of December 31,
1999. We have used December 31, 1999 as our most recent practicable date
because that is the last date to which interest was calculated on our
Convertible Debentures.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
COMMON AS OF
NAME AND ADDRESS OF BENEFICIAL OWNERS STOCK 12/31/99(1)
- ------------------------------------- ------------ ------------
<S> <C> <C>
Mark E. Schlussel 345,750(2) 0.25%
100 Renaissance Center, 36th Floor
Detroit, MI 48243-1157x
Sheldon C. Fenton 25,478,267(3) 18.62%
160 Eglinton Avenue East, Suite 500
Toronto, Ontario M4P 3B5x
Rene A. Gareau 125,000 0.09%
4273 Boca Point Drive
Sarasota, Florida 34238x
Dunvegan Mortgage Corporation 25,095,267(4) 18.34%
222 Delaware Ave., PO Box 2306
Wilmington, Delaware 19899x
Paul L. Simmons 3,427,600(5) 2.50%
8825 Laurel Drive
Pinellas Park, Florida 33782x
</TABLE>
48
<PAGE> 49
<TABLE>
<S> <C> <C>
Russell Van Zandt 115,000 0.08%
17543 Bearpath Trail
Eden Prairie, Minnesota 55347x
Andrew T. Libby, Jr 439,217(6) 0.32%
806 South MacDill Avenue
Tampa, Florida 33609x
Martin E. Kovnats 10,000 0.01%
Aird & Berlis
BCE Place, PO Box 754x
181 Bay Street, Suite 1800x
Toronto, Ontario M5J 2T9x
Alfred A. Ritter 0 --
Rua Baronesa DeBeck
Malveira Da Serra
2750 Cascais Portugal
Kenneth J. Chester 393,254(7) 0.29%
1280 Dolphin Bay Way #401x
Sarasota, Florida 34242x
All Directors and Officers 30,334,080 22.20%
as a Group (9 persons)
</TABLE>
- ----------------------
(1) Based on 119,958,735 shares issued and outstanding as of December 31,
1999, as well as 16,898,100 shares issuable on conversion of the
Convertible Debentures and interest thereon, for a total of
136,856,835 shares.
(2) Does not include options to purchase 200,000 shares of Common Stock
from Dunvegan Mortgage Corporation at an exercise price of $.10.
(3) Includes Mr. Fenton's direct ownership of 383,000 shares, indirect
ownership of 22,333,014 shares owned by Dunvegan Mortgage Corporation,
of which Mr. Fenton is an officer and director, as well as 2,762,253
shares issuable in the event of conversion of the $471,215 of
Convertible Debentures [principal] owned by Dunvegan Mortgage
Corporation and the $116,127 of interest thereon as of December 31,
1999. Does not include 2,236,263 Convertible Debenture Warrants owned
by Dunvegan Mortgage Corporation. Also does not include 31,234,843
Series I ($.499) and Series II ($.001) Warrants previously owned by
Dunvegan Mortgage Corporation but assigned to 1192615 Ontario Limited,
owned by Mr. Fenton's brother and in which he disclaims any beneficial
interest.
(4) Includes 2,762,253 shares issuable in the event of conversion of the
$471,215 of Convertible Debentures [principal] owned by Dunvegan
Mortgage Corporation and the $116,127 of interest thereon as of
December 31, 1999. Does not include 2,236,263 Convertible Debenture
Warrants or 154,163 shares of Series B Preferred Stock.
(5) Includes Mr. Simmons' direct ownership of 2,753,000 shares and
indirect ownership of 674,600 shares owned by International Center for
Technology Transfer, Inc., of which Mr. Simmons is an Officer and
Director.
(6) Does not include 600,000 Common Stock Purchase Warrants, of which
250,000 have an exercise price of $.10 and 350,000 have an exercise
price of $.20.
49
<PAGE> 50
(7) For full disclosure, the stock holdings of Mr. Chester at December 31,
1999 have been included on this schedule even though Mr. Chester was
not appointed to the Board of Directors until February 7, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into financing transactions with Dunvegan Mortgage Corporation,
a corporation of which Sheldon C. Fenton, the Company's President/CEO and a
director, is an officer and a director. These transactions include:
1. On or about October 19, 1995, Dunvegan Mortgage Corporation
agreed to loan us $2,500,000 represented by a Master
Promissory Note collateralized by a Security Interest on all
of our assets and our subsidiaries. We have drawn down the
entire amount. As a part of the loan transaction, we agreed
to issue Dunvegan Mortgage Corporation its assigns and its
loan participants (collectively "Dunvegan") warrants such
that after exercise of all such warrants Dunvegan could own
51% of the total number of shares then issued and
outstanding, on a fully diluted basis.
2. Subsequent to the Loan and Security Agreement being fully
drawn down, Dunvegan Mortgage Corporation has loaned us funds
under Convertible Debentures. In total Dunvegan Mortgage
Corporation has advanced $ 471,215 (in 6 different advances
between June 1997 and June 1998) by way of Debentures. These
Debentures are convertible into Common Stock and had
2,236,264 Warrants attached thereto.
On September 14, 1998 Dunvegan Mortgage Corporation and loan participants
converted $1,575,166 principal of their loan under the Loan and Security
Agreement of October 19, 1995 to 33,530,973 shares of Common Stock and 154,163
shares of Series B Cumulative Preferred Stock. Dunvegan retained 20,610,551
shares of the Common Stock and distributed the balance to its loan syndicate
participants. On October 5, 1998 the balance of the loan was assigned to a
company owned by Mr. Fenton's brother and in which he disclaims any beneficial
interest.
On June 30, 1998, the Company purchased certain inventory for $104,444 (in
promissory notes) from International Center for Technology Transfer, Inc., a
corporation owned by Paul L. Simmons, a director.
In June 1998, Mark E. Schlussel, Chairman of the Board, converted $24,500 owed
to him by the Company for consulting fees, to 122,500 shares of the Company's
Common Stock, at a conversion price of $.20 per share.
Options to purchase 200,000 shares of the Company's Common Stock at a price of
$.50 per share held by Mark Schlussel, Chairman of the Board, would have
expired on October 17, 1998 but were extended to October 17, 1999 with an
adjustment of the exercise price to $.25 per share. These options expired
without being exercised on October 17, 1999.
NORPAK MANUFACTURING, INC.
During 1999 we entered into a strategic alliance agreement with a Canadian
medical products manufacturer/distribution company in which family members of
Sheldon C. Fenton, the Company's President/CEO and a director, then owned
directly or indirectly approximately 48% of the corporation.
50
<PAGE> 51
During January 2000, members of Sheldon C. Fenton's family and/or entities of
which they are officers or directors increased their ownership to a majority of
the corporation. Under the strategic alliance agreement we have agreed to
market, sell and distribute the Canadian company's products to customers in the
U.S. The Canadian company has agreed to make available to us all U.S. customers
with whom they currently do business.
TANLON MANAGEMENT SERVICES, INC.
During 1999 we utilized the services of a management company which is owned and
controlled by Sheldon C. Fenton, the Company's President/CEO and a director, to
assist with administrative and organizational functions of the Company. We owe
$120,000 for these professional services, which is intended to cover the
salaries of relevant Tanlon employees; none of the fee is intended to
compensate Mr. Fenton.
51
<PAGE> 52
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT
- ----- ----------------------
<S> <C>
*3.1 Certificate of Incorporation of VCT Acquisitions II, Inc. - Dated June
4, 1991
*3.2 Restated Certificate of Incorporation of VCT Acquisitions II, Inc. -
Dated September 13, 1991
*3.3 Certificate of Amendment of Restated Certificate of Incorporation -
November 6, 1991
*3.4 Bylaws of Veridien Corporation - 1998 as amended to date
*3.5 Certificate of the Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions of Series B Convertible Preferred Stock -
Dated September 11, 1998
*3.6 Certificate of Designation - Dated April 3, 1995
*3.7 Certificate of Amendment to the Certificate of Incorporation - Dated
February 16, 1996
3.8 Certificate of Amendment of Restated Certificate of Incorporation
*4.1 Debenture Sample
*4.2 General Security Agreement between Veridien Corp. and Dunvegan
Mortgage Corp.- Dated October 19, 1995
*4.3 Loan and Security Agreement between Veridien Corp. and Dunvegan
Mortgage Corp. - Dated October 19, 1995
*4.4 General Security Pledge between Veridien Corp. and Dunvegan Mortgage
Corp. - Dated October 19, 1995
*4.5 Warrant Agreement regarding Warrants to purchase Common Stock of
Veridien Corporation Series I - Dated October 19, 1995
*4.6 Warrant Agreement regarding Warrants to purchase Common Stock of
Veridien Corporation - Series II - Dated October 19, 1995
*4.7 Warrant to purchase Common Stock Series I and Series II - Dated
December 12, 1995
*4.8 Common Stock Purchase Warrant: $0.135 per share - Dated June 10, 1998
*10.1 Building Lease
*10.2 Canadian Licensing Agreement - Dated February 28, 1998
*10.3 Contract Fill and Sub-lease Agreement with Horizon Pharmaceuticals,
Inc. - Dated August 1, 1998
*10.4 Trademark - Virahol
*10.5 Trademark - Viraguard
*10.6 Trademark - Viragel
*10.7 Trademark - Vira- CD7
</TABLE>
52
<PAGE> 53
<TABLE>
<S> <C>
* 10.8 Australian Patent No. 667,930/Sterihol
* 10.9 Australian Patent No. 628,932/Virahol
* 10.10 Canadian Patent No. 1,337,329/Virahol
* 10.11 Mexican Patent No. 185,884/Virahol
* 10.12 U.K. Patent No. 2,294,639/Virahol
* 10.13 U.K. Patent No. 2,245,171/Virahol
* 10.14 U.S. Patent No. 5,405,602/Sterihol
* 10.15 U.S. Patent No. 5,145,663/Virahol
* 10.16 U.S. Patent No. 5,441,723/Virahol
* 10.17 U.S. Patent No. 5,637,307/Method of Immersion Sterilization & Organic
Cold Chemical Sterilant
* 10.18 New Zealand Patent No. 269,419/Virahol
** 10.19 Employment Agreement with Paul Simmons
***10.20 Employment Agreement with Andrew T. Libby, Jr.
** 10.21 Norpak Manufacturing Inc. Agreement
10.22 Consulting Agreement with Kenneth J. Chester
10.23 Option Agreement re: Purchase of SunSwipe, Inc.
10.24 Consulting Agreement with Robert P. Belling
* 21.1 Subsidiaries
27 Financial Data Schedule
* Exhibit filed with Form 10-SB dated March 12, 1999, File No. 0-25555.
** Exhibit filed with Amendment No. 1 to Form 10-SB, File No. 0-25555.
*** Exhibit filed with Amendment No. 1 to Form 10-QSB for the quarter
ended June 30, 1999, File No. 0-25555.
</TABLE>
53
<PAGE> 54
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VERIDIEN CORPORATION
/s/ Sheldon C. Fenton, C.E.O.
By ______________________________________________, President
Sheldon C. Fenton, C.E.O.
March 30, 2000
Date _____________________________________________
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ Sheldon C. Fenton, C.E.O.
By ______________________________________________
Sheldon C. Fenton, C.E.O.
March 30, 2000
Date _____________________________________________
/s/ Andrew T. Libby, Jr., C.F.O., C.O.O.
By ______________________________________________
Andrew T. Libby, Jr., C.F.O., C.O.O.
March 30, 2000
Date _____________________________________________
/s/ Russell D. Van Zandt, Chairman of the
Board of Directors
By _____________________________________________
Russell D. Van Zandt, Chairman of the
Board of Directors
March 30, 2000
Date _____________________________________________
By /s/ Rene A. Gareau, Vice Chairman of the
Board of Directors
_____________________________________________
Rene A. Gareau, Vice Chairman of the
Board of Directors
March 30, 2000
Date _____________________________________________
By /s/ Kenneth J. Chester, Director
_____________________________________________
Kenneth J. Chester, Director
March 30, 2000
Date _____________________________________________
54
<PAGE> 1
Exhibit 3.8
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
VERIDIEN CORPORATION
Veridien Corporation, a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Veridien Corporation
resolutions were duly adopted setting forth two proposed amendments of the
Certificate of Incorporation of said corporation, declaring said amendments to
be advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The two resolutions setting forth the proposed amendments
are as follows:
(i) RESOLVED, that Section 1 (only) of Article FOURTH of the Company's
Certificate of Incorporation be and hereby is amended to read as
follows:
FOURTH. Section 1. The total number of shares of all classes of
stock which the corporation shall have authority to issue is Two
Hundred Twenty-five Million (225,000,000) shares.
The corporation shall have authority to issue two (2) classes of
stock. Two Hundred Million (200,000,000) shares shall be common stock,
having a par value of $ .001 (hereinafter referred to as "Common
Stock") and Twenty-five Million (25,000,000) shares shall be preferred
stock issuable in series and having a par value of $ .001 (hereinafter
referred to as "Preferred Stock").
(ii) RESOLVED, that Article EIGHTH of the Company's Certificate of
Incorporation be amended so as to read as follows:
EIGHTH. The business and property of the corporation shall be
managed by a Board of Directors of not fewer than three (3) nor
more than twenty-one (21) directors, who shall be natural persons
of full age, and who shall be elected annually by the
shareholders having voting rights, for a term of one year, an
shall serve until the election and acceptance of their duly
qualified successors. In the event of any delay in holding, or
adjournment of, or failure to hold an annually meeting, the terms
of the sitting directors shall be automatically continued
indefinitely until their successors are elected and qualified.
Directors need not be residents of the State of Delaware nor
shareholders. Any vacancies, including vacancies resulting from
an increase in the number of directors, may be filled by the
.../2
<PAGE> 2
Page 2 (cont.)
Board of Directors, though less than a quorum, for the unexpired
term. The Board of Directors shall have full power, and it is
hereby expressly authorized, to increase or decrease the number
of directors from time to time, and to fill any vacancies thereby
created, without requiring a vote of shareholders.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, an
Annual Meeting of the stockholders of said corporation was duly called and held,
on November 6, 1998, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendments.
THIRD: That said amendments were duly adopted in accordance with the provision
of Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendments.
IN WITNESS WHEREOF, said Veridien Corporation has caused this certificate to be
signed by Andrew T. Libby, Jr. an Authorized Officer and the Corporate Secretary
this 24th day of March, 2000.
By: /s/ Andrew T. Libby Jr.
-----------------------------------
Andrew T. Libby Jr.
Corporate Secretary
<PAGE> 1
EXHIBIT 10.22
[VERIDIEN LOGO]
January 26, 2000
Mr. Ken Chester
1280 Dolphin Bay Way, #401
Sarasota, FL 34242
Dear Ken,
Proposed letter of agreement:
Below is a letter of intent between Veridien Corporation (VRDE) and Chester
Consulting Services (CCS) to form a marketing consulting contract in order for
CCS to assist Veridien in managing it's business operation. It is understood
that CCS will provide assisted management and consulting services for all
projects requested by VRDE. Services will be equal to or greater than one third
of a normal workweek of a senior executive. CCS assures that services rendered
will be by Kenneth J. Chester.
Services to be Rendered and Authority:
CCS shall have the authority to act and serve as a Business Advisor and
Corporate Manager concerning efforts to develop and implement strategic plans
for Veridien Corporation and its subsidiaries as directed by VRDE. CCS shall
not have the authority or right to bind the Corporation to any commitment,
contract or other obligation prior to consent. CCS will;
1. Assist in developing a strategy to sell to the designated
customer bases.
2. Assist in integration of corporate entities.
3. Use its best efforts to gain sales commitments for designated
products.
4. Provide management to designated companies as directed by
VRDE.
5. Provide general management services as requested from time to
time.
Compensation:
It is agreed that in consideration for services rendered by CCS, VRDE will
compensate CCS as follows:
As a retainer for the contract period, VRDE will provide CCS the equivalent of
$25,000 of Veridien restricted stock at the agreed price of $.07 per share
payable by February 2000.
For the year 2000, VRDE agrees to pay CCS $75,000 cash in 12 equal installments
or $6,250.00 monthly.
<PAGE> 2
This arrangement in no way supersedes the commission arrangement due CCS
pursuant to the contract signed in August 1999.
CCS shall be reimbursed for all out of pocket expenses.
All retainers are not refundable unless there is a breach of this agreement by
CCS in which event, retained will be returned prorata.
Contract period will begin January 1, 2000 and expire December 31, 2000.
Termination
Either party may terminate the contract upon written 60 days notice however,
should CCS terminate contract without cause, all payments and retainers issued
will be subject to prorated reimbursement to VRDE.
Confidentiality
Each of the parties agrees to keep any confidential information with respect to
each other and this agreement confidential and not make use thereof except as
may be required by applicable law or judicial process.
Indemnification
Each party shall indemnify and hold harmless the other, its affiliates, their
personnel and their agents against any claims, liabilities, costs and expenses
(including without limitation; attorney's fees and the time of non-offending
party's personnel involved) brought against, paid or incurred by either party
at any time and in any way arising out of or relating to the other party's
services or performance under this letter of agreement, except to the extent
finally determined to have resulted from the gross negligence or willful
misconduct of the offending party's personnel.
This letter of agreement shall be governed by and construed in accordance with
the laws of the State of Florida, USA without reference of conflicting law.
Please acknowledge your agreement to the foregoing by countersigning the letter
in the place provided below and return by fax or mail.
Accepted and agreed to for Veridien Corporation
/s/ Sheldon C. Fenton January 26, 2000
--------------------------------------------------- -----------------
Sheldon C. Fenton Date
Accepted and agreed to for Chester Consulting Services
/s/ Kenneth J. Chester January 26, 2000
------------------------------------------------- ----------------
Kenneth J. Chester Date
<PAGE> 1
EXHIBIT 10.23
[NORPAK LOGO]
January 12, 2000
Sunswipe Inc.,
3600 Pinetree Drive
Miami Beach, FL U.S.A.
Attention: Mendy Fellig
Dear Sir,
Re: Sunswipe Inc. ("Sunswipe") and Norpak (U.S.), Inc ("Norpak)
This letter shall confirm our agreement with respect to certain business
transactions to be completed by and between Norpak and Sunswipe as follows:
1. In consideration of the commitments of Norpak herein, the
parties agree that, upon the request of Norpak, all assets
and undertakings of Sunswipe, including, but not limited to
all inventories of any nature, receivables, trademarks, and
property will be sold to a new corporation ("TSC") in
exchange for the TSC shares and Veridien Corporation (VRDE)
options referred to herein. Sunswipe will receive the
following consideration on the completion of the sale (i) 50%
of the issued common stock of TSC to match issued shares to
Norpak at the time of issue to Sunswipe (ii) an option to be
arranged by Norpak to purchase 1,000,000 common shares of
VRDE at an exercise price of 10 cents per share and with a
term on the option of 25 months from the date of execution of
this agreement (the "Options"). The vesting of the Options is
conditional as follows:
1. 100,000 options vested upon execution of this
agreement;
2. 200,000 options vested upon execution of this
agreement and delivery of the security set out in
Section IV;
3. 350,000 options vested upon reaching a) sales in
year 2000 of $1,000,000 or b) $250,000 in net income
before tax, pursuant to generally accepted
accounting principals ("GAAP"), ("Net Income") in
year 2000 or c) upon reaching any of the tests set
out in 4 below;
<PAGE> 2
4. 350,000 options vested upon reaching $400,000 net
income in year 2000 or $500,000 in year 2000 and
year 2001 combined; and,
5. At time of vesting, Mendy Fellig must be employed or
providing his services on a full time basis to
either of TSC, Sunswipe and in any event to such
entity directed by Norpak.
All remaining shares of TSC would be held by Norpak or dealt
with as directed by Norpak.
In the event the assets of Sunswipe are not sold to TSC as
set out above, Norpak would have an option to acquire 50% of
the stock of Sunswipe in consideration of $100 paid by Norpak
and the commitment of the loan set out in Section VII and the
delivery of the Option to Sunswipe.
II. TSC or Sunswipe, as determined by Norpak as applicable,
("Operating Business") will purchase certain products from
Norpak and Norpak will provide certain services to Operating
Business on the following terms. In addition to the base
price of the products to be set from time to time and
additional services related thereto, Norpak will be entitled
to receive 50% of the pre-tax net income of Operating
Business. Contemporaneous with the distribution of the
pre-tax net income, of Operating Business, Operating
Business, will pay each of Mendy Fellig and Uoli Fellig an
annual fee equal to 10% of the pre-tax net income of
Operating Business to a maximum of $50,000 each for their
full time service to Operating Business or as directed by
Norpak ("Employment Fee"). As part of this Agreement Mendy
Fellig will cause new sales and business opportunities to be
marshaled through Operating Business to generate income. The
parties may establish a draw agreement satisfactory to all
parties for the payment of the Employment Fee provided
monthly cashflow permits.
III. In determining the pre-tax net income amounts, products and
services owed to Norpak will be paid first, all other costs
for production and raw materials will be paid secondly, third
party expenses incurred or paid directly by Mendy and Uoli
Fellig will be paid thirdly, then the Employment Fee will be
paid contemporaneous with the pre-tax net income
distribution. In any event, all products purchased from
Norpak must be paid in full within six months from the
delivery of the products. Any amounts outstanding in excess
of six months would be paid for in full prior to payment of
the Employment Fee and the distribution of the pre-tax net
income. In the event that there are shareholder loans due to
Mendy Fellig or Uoli Fellig or any related party from
Sunswipe, which existed prior to the involvement of Norpak,
such loans would be repaid from Fellig's 50% of the pre-tax
net income of Operating Business. Any shareholder loans so
made subsequent to the involvement of Norpak would be repaid
prior to the pre-tax net income distribution or pursuant to
such other agreements between the parties. All such
calculations shall be made in accordance with GAAP.
<PAGE> 3
IV. Mendy Fellig agrees to personally guarantee the obligations
of Operating Business to Norpak. As well he will arrange to
secure said guarantee with a collateral mortgage on the
property referenced on Schedule A attached hereto in the
amount of $500,000. Norpak will receive a first ranking
assignment of all inventory and receivables of Operating
Business as security for Operating Business' obligations to
Norpak.
V. Norpak will oversee and control the collection of payments
made to Operating Business as an additional service to
Operating Business. Norpak is authorized to apply any
proceeds received by it on behalf of Operating Business in
payment of any amounts due to Norpak by Operating Business.
VI. Mendy Fellig and Uoli Fellig when employed or retained by
Operating Business will enter into a non-compete agreement
with Operating Business in which he will agree not to sell or
market, either directly or indirectly any products that
compete with products of Operating Business during the term
of this agreement and for a period of 1 year from the
termination of his employment with Operating Business.
VII. Norpak agrees to lend to Operating Business, up to $10,000
per month in each of the 3 months following the execution of
this Agreement. The maximum amount required to be advanced
will be $30,000 in aggregate with such advances to be made on
standard commercial terms and against a budget and business
plan approved by Norpak. This loan will be secured by the
personal guarantee of Mendy Fellig described above.
VIII. The parties hereto agree that initially Mendy Fellig will act
as President and Uoli Fellig will act as Vice President of
Operating Business with such additional Officers/Directors
appointed as are recommended by Norpak.
IX. The parties hereto also agree that the obligations of
Sunswipe under any existing contracts or agreements between
Sunswipe and Veridien Corporation may be assumed by TSC.
X. Mendy Fellig undertakes and agrees to use his best efforts to
secure third party financing for Operating Business to
finance the purchase of products from Norpak as contemplated
hereunder and other requirements of the Operating Business
and agrees to guarantee said financing if necessary.
<PAGE> 4
XI. The parties agree to execute such further documents prepared
by Norpak relating to this matter. Any legal costs with
respect to documentation will be a cost of Sunswipe or TSC as
applicable.
Yours truly,
Norpak (U.S.), Inc.,
Per:
/s/ Sheldon C. Fenton
----------------------------
Sheldon C. Fenton, President
Agreed to and accepted by:
Sunswipe Inc.
Per:
/s/ Mendy Fellig
----------------------------
Mendy Fellig
<PAGE> 5
SCHEDULE A
LEGAL DESCRIPTION OF PROPERTY - MENDY FELLIG
Orchard Sub 2&3 P.B. 8-116 Lot #6 and N15 feet of Lot #5 Block 47
Lot size 100 ft. by 200 ft.
Taken by phone December 29, 1999 Penny Takeda
Address of above property:
3600 Pinetree Drive
Miami Beach, Florida
33140 U.S.A.
<PAGE> 1
EXHIBIT 10.24
[VERIDIEN LOGO]
This Agreement, made this 1st day of August, 1999 between Robert P. Belling,
hereinafter known as Belling, and Veridien Corporation, hereinafter known as
Veridien.
Now, therefore, in consideration of the promises herein, it is agreed as
follows:
That Belling will provide consulting services to Veridien for an unspecified
period of time to analyze their product line, review their prior and current
marketing activities, and develop a comprehensive marketing plan with specific
short and long range goals and objectives, and assist in the implementation
thereof. To facilitate this process, Veridien agrees to provide Belling access
to any and all files and personnel necessary to obtain the necessary
information required to complete the plan.
Veridien agrees to pay Belling a consulting fee of $8,000 per month plus all
expenses commencing August 1, 1999. Such fee shall be paid twice monthly in
equal payments of $4,000 each, in addition to reimbursement for any and all
expenses incurred.
In addition, Belling will also engage in marketing activities to sell Veridien
products to selected large accounts, mutually agreed to by Veridien.
Commissions on gross sales volume will be based on the following schedule:
<TABLE>
<S> <C>
Up to $1,000,000 5%
$1,000,001 - $2,000,000 4%
$2,000,001 - $3,000,000 3%
$3,000,001 - $4,000,000 2%
$4,000,001 - + 1%
</TABLE>
Belling is an independent consultant and shall be individually responsible for
his income taxes, both state and federal, FICA and any other taxes.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
<TABLE>
<S> <C>
CONSULTANT VERIDIEN CORPORATION
By: /s/ Robert P. Belling By: /s/ Andrew T. Libby
----------------------- -------------------------
Robert P. Belling Andrew T. Libby
Executive VP and COO
Witness: /s/ Cheryl Ballou Witness: /s/ Cheryl Ballou
------------------- ---------------------
Name: Cheryl Ballou Name: Cheryl Ballou
--------------------- -----------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VERIDIEN CORPORATION FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 6,734
<SECURITIES> 0
<RECEIVABLES> 333,500
<ALLOWANCES> 10,564
<INVENTORY> 156,932
<CURRENT-ASSETS> 500,451
<PP&E> 754,152
<DEPRECIATION> 683,045
<TOTAL-ASSETS> 652,582
<CURRENT-LIABILITIES> 1,779,319
<BONDS> 1,569,215
0
60,194
<COMMON> 119,960
<OTHER-SE> (2,690,952)
<TOTAL-LIABILITY-AND-EQUITY> 652,282
<SALES> 415,491
<TOTAL-REVENUES> 797,077
<CGS> 335,094
<TOTAL-COSTS> 2,633,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 261,377
<INCOME-PRETAX> (2,097,444)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,097,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,097,444)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.011)
</TABLE>
