SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT

Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934

Check the appropriate box:
[ ] Preliminary Information Statement [ ]Confidential, for use of the
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[X] Definitive Information Statement

GS CleanTech Corporation
------------------------------------------------
(Name of Registrant as Specified In Its Charter)

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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
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GS CLEANTECH CORPORATION
One Penn Plaza, Suite 1612
New York, New York 10119

INFORMATION STATEMENT

To the Holders of Our Voting Stock:

The purpose of this Information Statement is to notify you that the holders
of shares representing a majority of the voting power of GS CleanTech
Corporation have given their written consent to a resolution adopted by the
Board of Directors of GS CleanTech to amend the certificate of incorporation of
GS CleanTech so as to increase the number of shares of authorized common stock
from 250,000,000 shares to 500,000,000 shares. We anticipate that this
Information Statement will be mailed on January 16, 2007 to shareholders of
record. On or after February 5, 2007, the amendment to the Certificate of
Incorporation will be filed with the Delaware Secretary of State and become
effective.

Delaware corporation law permits holders of a majority of the voting power
to take shareholder action by written consent. Accordingly, GS CleanTech will
not hold a meeting of its shareholders to consider or vote upon the proposed
amendment to GS CleanTech's certificate of incorporation.

WE ARE NOT ASKING YOU FOR A PROXY.
YOU ARE REQUESTED NOT TO SEND US A PROXY.

January 16, 2007 KEVIN KREISLER, President

VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS

We determined the shareholders of record for purposes of this shareholder
action at the close of business on December 18, 2006 (the "Record Date"). The
table below lists the authorized voting stock as of the Record Date, the number
of shares of each class that were outstanding on the Record Date, and the voting
power of each class.

Security Authorized Outstanding Voting Power
- -------- ---------- ----------- ------------
Common Stock 250,000,000 249,827,813 249,827,813
Series D Preferred Stock 1,000,000 1,000,000 999,311,252
------------
1,249,139,065

The following table sets forth information regarding the voting stock
beneficially owned by any person who, to our knowledge, owned beneficially more
than 5% of any class of voting stock as of December 18, 2006. Mr. Kreisler is
the only officer and the only member of the Board of Directors of GS CleanTech.

Amount and Nature of Beneficial Ownership
Name and Address Percentage Series D Percentage Percentage of
of Beneficial Owner(1) Common of Class Preferred of Class Voting Power
- ------------------- --------- ----------- --------- ----------- ------------

Kevin Kreisler(2) -- 0% 1,000,000 100% 80%
- -----------------------------------
<FN>

(1) The address of each shareholder is c/o GS CleanTech Corporation, One Penn
Plaza, Suite 1612, New York, New York 10119.

(2) All shares listed for Kevin Kreisler are owned of record by GreenShift
Corporation, of which Mr. Kreisler is Chairman and majority shareholder.
</FN>

AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED COMMON STOCK

On December 18, 2006, GS CleanTech's Board of Directors approved an
amendment to GS CleanTech's Certificate of Incorporation. On December 18, 2006,
the holder of a majority of the voting power of the outstanding voting stock
gave its written consent to the amendment. The amendment will be filed and
become effective approximately twenty days after this Information Statement is
mailed to the shareholders.

At the December 18, 2006 Record Date, 249,827,813 of the currently
authorized 250,000,000 common shares are issued and are outstanding, leaving
only 172,187 available for issuance. The effect of the amendment will be to
increase the number of authorized shares of common stock, $0.001 par value, from
250,000,000 to 500,000,000.

The Board of Directors and the majority shareholder have approved the
increase in authorized common stock in order to provide GS CleanTech with
flexibility in pursuing its long-term business objectives. The primary long-term
reasons for the increase are:

- Management expects that in the future it will pursue opportunities to
obtain the capital GS CleanTech needs in order to fully implement its
business plan. A reserve of both common and preferred shares available
for issuance from time-to-time will enable GS CleanTech to entertain a
broad variety of financing proposals.

- Management may utilize the additional shares in connection with
corporate acquisitions, joint venture arrangements, or for other
corporate purposes, including the solicitation and compensation of key
personnel. GS CleanTech is not, at this time, engaged in negotiating
or effecting any acquisitions or similar transactions.

In addition, there are outstanding debentures issued by GS CleanTech that
are convertible, at the instance of the debt-holders, into GS CleanTech common
stock. There are also warrants and options issued by GS CleanTech that are
exercisable for common stock. The following table shows the derivative
securities currently outstanding that may result in the issuance of more than
1,000,000 common shares:

Issue Principal Shares
Derivative Security Date Amount Issuable
------------------- ---- ------ --------

Convertible Secured Notes 12/19/03 $ 400,000 20,000,000(1)
Secured Convertible Debenture 4/21/06 $2,102,147 42,553,583(2)
Secured Convertible Debenture 4/13/06 $4,400,000 89,068,826(2)
Secured Convertible Debenture 7/1/06 $1,900,000 41,036,717(3)
Related Party Convertible Debenture Various $ 606,363 13,096,393(3)
Warrants 4/13/06 -- 50,000,000(4)
Options Various -- 49,700,427(5)
----------
305,455,946
------------------------
<FN>

(1) The principal amount and accrued interest on the Convertible Secured
Notes are convertible by the holder into common stock at a conversion
rate equal to the lesser of $0.02 or 80% of the closing market price
of the Company's common stock for the 10 days prior to conversion, as
defined in the Notes. At a conversion rate of $0.02 on December 18,
2006, the Convertible Secured Notes could be converted into 20,000,000
common shares. The Notes are past-due and are currently convertible.

(2) The principal amount and accrued interest on the Secured Convertible
Debenture issued in April 2006 are convertible by the holder into
common stock at a conversion rate equal to the lesser of $0.10 or 90%
of the volume weighted average market price of the Company's common
stock for the 30 days prior to conversion, as defined in the Notes. At
$0.0494 (90% of the volume weighted average price for the 30 days
prior to December 18, 2006), the Convertible Secured Debentures could
be converted into 42,553,583 and 89,068,826 common shares,
respectively.

(3) The principal amount and accrued interest on the Secured Convertible
Debenture issued in July 2006 and the Related Party Convertible
Debentures are convertible by the holder into common stock at a
conversion rate equal to average of the three lowest closing prices of
the Company's common stock for the 30 days prior to conversion. At
$0.0463 (average of the three lowest closing prices for the 30 days
prior to December 18, 2006), the Secured Convertible Debenture issued
in July 2006 could be converted into 41,036,717 common shares and the
Related Party Convertible Debentures could be converted into
13,096,393 common shares.

(4) There are four five-year Warrants that were issued in connection with
the sale of the Secured Convertible Debentures on April 13, 2006. One
permits the purchase of 7,500,000 shares at $0.10 per share. One
permits the purchase of 7,500,000 shares at $0.15 per share. One
permits the purchase of 15,000,000 shares at $0.20 per share. One
permits the purchase of 20,000,000 shares at $0.25 per share. The
Warrants expire on April 13, 2011.

(5) There are employee stock options that were issued and unexercised for
49,700,427 with a weighted average exercise price of $0.12.
</FN>

All of the foregoing derivative securities are currently exercisable, and
the notes and debentures will remain exercisable until satisfied. In the event
that any of the foregoing derivative securities were converted or exercised, GS
CleanTech would not be able to issue the requisite common stock, and would be in
default, unless the number of authorized common shares is increased. Conversion
of those debentures would improve GS CleanTech's balance sheet by reducing its
debt to equity ratio, and increase its ability to obtain future financing.
However, conversion would also dilute the interest of current shareholders in
the equity in GS CleanTech. The additional authorized common stock is necessary
to accommodate those conversions, should they occur.

The amendment of the Certificate of Incorporation will increase the number
of common shares available for issuance by the Board of Directors from 172,187
to 250,172,187. The Board of Directors will be authorized to issue the
additional common shares without having to obtain the approval of GS CleanTech's
shareholders. Delaware law requires that the Board use its reasonable business
judgment to assure that GS CleanTech obtains "fair value" when it issues shares.
Nevertheless, the issuance of the additional shares would dilute the
proportionate interest of current shareholders in GS CleanTech. The issuance of
the additional shares could also result in the dilution of the value of shares
now outstanding, if the terms on which the shares were issued were less
favorable than the current market value of GS CleanTech common stock.

The amendment of the Certificate of Incorporation is not being done for the
purpose of impeding any takeover attempt, and Management is not aware of any
person who is acquiring or plans to acquire control of GS CleanTech.
Nevertheless, the power of the Board of Directors to provide for the issuance of
shares of common stock without shareholder approval has potential utility as a
device to discourage or impede a takeover of GS CleanTech. In the event that a
non-negotiated takeover were attempted, the private placement of stock into
"friendly" hands, for example, could make GS CleanTech unattractive to the party

seeking control of GS CleanTech. This would have a detrimental effect on the
interests of any stockholder who wanted to tender his or her shares to the party
seeking control or who would favor a change in control.

No Dissenters Rights

Under Delaware law, shareholders are not entitled to dissenters' rights
with respect to the amendment of the Certificate of Incorporation to increase
the authorized capital stock.

* * * * *

FINANCIAL INFORMATION
---------------------

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

In addition to historical information, this Information Statement contains
forward-looking statements, which are generally identifiable by use of the words
"believes," "expects," "intends," "anticipates," "plans to," "estimates,"
"projects," or similar expressions. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's opinions only as of the date hereof. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Readers should carefully review the risk factors
described in other documents that GS CleanTech files from time to time with the
Securities and Exchange Commission, including the Annual Report on Form 10-KSB
for the year ended December 31, 2005.

OVERVIEW

GS CleanTech Corporation ("we," "our," "us," "GS CleanTech," or the "Company")
provides applied engineering and technology transfer services based on clean
technologies and process innovations that make it cost-effective and easy to
recycle and reuse resources.

We focus on incremental advances in technologies and business practices that
enable increased and sustainable profits on relatively small infrastructure
investments by enhancing manufacturing efficiencies, improving resource
utilization and minimizing waste. Our offerings include:

o Technology Transfer - we provide our clients with innovative clean
technologies for use at their sites in return for various forms of
license fees and royalties.

o Equipment Sales - we provide our clients with proprietary equipment
based on our technologies on the basis of rental, lease or purchase
terms.

o Process Engineering Services - we provide specialized process
engineering services bundled with our technology and/or equipment
sales.

COMPANY BACKGROUND

The Company was formed in 1984 as KBF Pollution Management, Inc. ("KPMI") and
was merged with its wholly owned subsidiary, Veridium Corporation in 2003.
Veridium changed its name to GS CleanTech Corporation in July 2006.

We conduct these operations through our wholly-owned subsidiary, GS Industrial
Design, Inc. We also own several clean technology investments through our
wholly-owned venture group, GS CleanTech Ventures, Inc. These investments
include minority investments in General Hydrogen Corporation (about 3%), Ovation
Products Corporation (about 12%), and majority stakes in General Ultrasonics
Corporation (about 70%) and GS EnviroServices, Inc. (about 100%). Nearly all of
our revenues are generated by GS Industrial Design, Inc. and GS EnviroServices,
Inc.

GS Industrial Design

Our industrial design group is primarily focused on delivering our technologies
and process innovations to the North American Ethanol Production Industry with a
view towards maximizing the yield of traditional corn-based ethanol production.
As we move beyond our current efforts in the Ethanol Production Industry, we
intend to market our technologies and process innovations to other industries
including the agriproducts, power generation, petrochemical refining, and
municipal and industrial waste processing industries.

While GS Industrial Design currently accounted for about 6% of our revenue
during the three months ended September 30, 2006, this division has executed a
number of technology transfer agreements and has developed a pipeline of what we
believe to be high probability sales. GS Industrial Design's revenues can be
expected to increase as a percentage of our overall sales if we successfully
deploy our technologies under our executed agreements and if we are able to
successfully convert our sales prospects into additional technology deployments.

GS Industrial Design's revenues during the quarter were primarily attributable
to the sale of equipment to ethanol facilities for technology deployments that
served as early adopter installations of our corn oil extraction technology.

GS EnviroServices

The remainder of our revenues, or about 94% of our revenue during the three
months ended September 30, 2006, was generated by our GS EnviroServices
subsidiary. GS EnviroServices is a diversified industrial and hazardous waste
management and environmental services company that specializes in providing its
clients with the following cost-effective and environmentally friendly
management services:

o Transportation and distribution of industrial and hazardous wastes;

o Site remediation and industrial cleaning projects;

o Engineering and consulting services; and,

o Environmental, health and safety compliance.

Headquartered in Sandwich, Massachusetts, GS EnviroServices operates out of five
strategically located service centers including its RCRA Part B Permitted
Treatment, Storage and Disposal facility.

The table and below discussions should be read in conjunction with the Financial
Statements in this information statement. Percentage of total revenues in the
table below are presented net of discontinued operations.

Percentage of Total Revenues
For the Period Ended,
-----------------------------
9/30/06 9/30/05
-------- --------

Revenue ................................................ 100.0% 100.0%
Cost of revenue ........................................ 69.7 68.9
----- -----
Gross profit ........................................ 30.3 31.1

Selling expenses ....................................... 6.8 5.9
Research and development ............................... 0.7 --
General and administrative expenses .................... 31.6 20.2
Stock based compensation ............................... 13.4 --
----- -----

Total operating expenses ............................ 52.5 26.2
----- -----

Income (loss) from operations .......................... (22.2) 4.9

Other income and expense ............................... 1.0 0.3
Amortization of deferred finance costs ................. (0.6) --
Write down of investment ............................... (3.3) --
Accretion of debt discounts ............................ (39.4) --
Change in derivative liabilities ....................... 23.0 --
Interest expenses - due to parent ...................... (1.0)
Interest expense ....................................... (3.9) (4.9)
----- -----

Total other income (expense) ........................ (24.2) (4.6)

Income (loss) before provision for income taxes ........ (45.6) 0.3
Provision for income taxes .......................... 0.9 0.1
----- -----

Net (loss) continuing operations ....................... (47.3) 0.2
===== =====

RESULTS OF OPERATIONS
---------------------

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 VERSUS THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005
- --------------------------------------------------------------

Revenues

Total revenues were $4.5 million for the three months ended September 30, 2006,
matching revenue of $4.5 million for the three months ended September 30, 2005.
Total revenues for the nine months ended September 30, 2006 were $13.5 million
corresponding to an increase of $0.7 million, or 5.4% over the nine months ended
September 30, 2005 revenues of $12.9 million. Revenue from discontinued
operations of $68,880 and $211,506 for the three and nine months ended September
2006 and $63,347 and $283,008 for the three and nine months ended September 2005
have been removed from these figures. The Company recorded revenue of $1,607,329
associated with a large scale project in the first nine months of 2005. Net of
this large scale project, total revenues increased $0.5 million and $2.3 million
in the three and nine months ended September 30, 2006. Included in the revenues
for nine months ended 2006 are revenues of 439,723 attributable to the
acquisition of a subsidiary in 2006.

Cost Of Revenues

Cost of revenues for the three months ended September 30, 2006 were $3.1
million, or 69.6% of revenue, as compared to $3.1 million, or 69.4% of revenue
for the same period in 2005. Cost of revenues for the nine months ended
September 30, 2006 were $9.4 million, or 69.7% of revenue compared to $8.8
million, or 68.9% of revenue for the same period in 2005. Costs of revenues from
discontinued operations of $89,806 and $286,544 for the three and nine months
ended September 30, 2006 and $683,853 and $2,138,258 for the three and nine
months ended September 30, 2005 have been removed from these figures. The change
in cost of revenues over the first nine months is attributable to a large
budgeted lower margin project which occurred in the first six months of 2005 as
well as unfavorable economic factors in 2006 which the company has addressed. In
addition, included in the cost of revenue for nine months ended 2006 is $388,201
or 2.7% of revenue attributable to the acquisition of a subsidiary (GIDC) in
2006.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended
September 30, 2006 were $1.9 million, or 42.8% of revenue, as compared to $1.2
million, or 25.6% of revenue for the same period in 2005. Selling, general and
administrative expenses for the nine months ended September 30, 2006 were $7.1
million, or 52.5% of revenue compared to $3.4 million, or 26.2% of revenue for
the same period in 2005. Included in the nine months ended September 30, 2006
was $2,249,401 in stock based compensation or 16.6% of revenue. In addition to
the stock based compensation, increase in selling, general and administrative
expenses is also due to new acquisitions acquired in January 2006 representing
$848,347 or 6.3% of revenue and July 2006 representing $414,217 or 3.1% of
revenue. Selling, general and administrative expenses from discontinued
operations of $0 and $380,282 for 2006 and 2005 respectively have been removed
from the above figures.

Depreciation And Amortization

Depreciation and amortization expenses for the three months ended September 30,
2006 was $55,717 or 1.2% of revenue, as compared to $52,172 or 1.2% of revenue
for the same period in 2005. Depreciation and amortization expenses for the nine
months ended September 30, 2006 was $170,586 or 1.3% of revenue, as compared to
$126,335 or 1.0% of revenue for the same period in 2005. Depreciation expense
from discontinued operations of $792 and $5,136 for the three and nine months
ended September 2006 and $101,764 and $300,259 for the three and nine months
ended September 2005 have been removed from these figures.

Interest Expense

Interest expense for the three months ended September 30, 2006 was $197,843, or
4.4% of revenue, as compared to $207,045 or 4.6% of revenue for the same period
in 2005. Interest expenses for the nine months ended September 30, 2006 were
$524,858, or 3.9% of revenue, as compared to $627,685 or 4.9% of revenue for the
same period in 2005. Interest expense for the three and nine months ended
September 30, 2006 for derivatives in the amount of $1,487,978 and $5,323,704
have been excluded from these figures. Interest expense from discontinued
operations for the three and nine months ended September 30, 200 in the amount
of $2,431 and $9,183 have been removed from the above figures. In addition,
interest expense due to parent was $52,978 and $126,973 for the three and nine
months ended September 2006.

Net Income or Loss

Net loss from continuing operations for the three months ended September 30,
2006, was $(0.1) million, or (2.6)% of revenue, as compared to a profit from

continuing operations of $23,060 or 0.5% of revenue from the same period in
2005. Net loss from continuing operations for the nine months ended September
30, 2006, was $(6.4) million, or (47.3)% of revenue, as compared to a profit
from continuing operations of $34,396 or 0.3% of revenue from the same period in
2005. Net loss from discontinued operations of $34,707 and $41,072 for the three
and nine months ended September 2006, and $3,110,913 and $3,286,436 for the
three and nine months ended September 2005 have been removed from the above
figures. The net loss realized during the nine period was due primarily to the
adjustments to the fair market value of the derivative liability instruments,
interest and amortization charges associated with financing and issuance of
stock based compensation.

Debentures Due To Cornell Capital Partners

As of September 30, 2006 we had three convertible debentures due to Cornell
Capital. The conversion feature on these debentures is variable based on
trailing market prices and therefore contains an embedded derivative. We value
the conversion feature at the time of issuance using the Black-Scholes Model and
record a note discount and derivative liability for the calculated value. We
recognize interest expense for accretion of the note discount over the term of
the note. The derivative liability is valued at the end of each reporting period
and results in a gain or loss for the change in fair value. Due to the volatile
nature of our stock, the change in the derivative liability and the resulting
gain or loss is usually material to our results.

The principal amount on our three convertible debentures due to Cornell Capital
was $8,493,047 as of September 30, 2006 and the unamortized note discount was
$6,086,825. For the quarter ended September 30, 2006, we recognized interest
expense for accretion of the debt discount of $1,120,985 and a gain for the
change in fair value of the derivative of $1,534,014 for these debentures. The
derivative liability as of September 30, 2006 was $3,429,360 for the three
debentures due to Cornell Capital.

THE YEAR ENDED DECEMBER 31, 2005 VERSUS THE YEAR ENDED DECEMBER 31, 2004
- ------------------------------------------------------------------------

Critical Accounting Policies And Estimates

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

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

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

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

Revenues

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

Cost of Revenues

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

Selling, General and Adimistrative Expenses

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

Depreciation and Amortization

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

Interest Expense

Interest expenses for the year ended December 31, 2005 were $0.8 million, or
6.0% of revenue, as compared to $0.9 million, or 9.0% of revenue in 2004.
Decrease in interest is attributable to GS CleanTech's various financings
completed during 2005 and the elimination of GS CleanTech's factoring facility
with Prestige Capital Corporation and a nine month decrease in the interest rate
charged by GCS Investments. The Prestige facility was paid off entirely in March

2004 upon closing of the Laurus Financing. Interest expense from the
discontinued operations at the New Jersey facility of $0.04 million in 2004 has
been removed from the above figures.

Loss On Impairment Of Assets - Patents

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

Loss On Impairment Of Assets - Equipment

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

Loss On Impairment Of Assets - Goodwill

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

Forgiveness Of Accrued Interest

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

Net Loss

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

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Our primary sources of liquidity are cash provided by operating, investing and
financing activities. For the nine months ended September 30, 2006, net cash
used by our operating activities was $4.5 million as compared to the net cash
used by our operating activities of about $870,000 as of the nine months ended
September 30, 2005.

The Company's capital requirements consist of general working capital needs,
scheduled principal and interest payments on debt, obligations and capital
leases and planned capital expenditures. The Company's capital resources consist
primarily of cash generated from operations and proceeds from issuance of debt
and common stock. The Company's capital resources are impacted by changes in
accounts receivable as a result of revenue fluctuations, economic trends, and
collection activities. At September 30, 2006 the Company had cash of about
$757,000. This cash represents a decrease of $2,001,000 from the quarter ended
June 30, 2006.

Cash Flows for the Nine Months Ended September 30, 2006

Our operating activities during the first nine months of 2006 used $4.5 million
in cash. Accounts receivable at September 30, 2006, net of allowance for
doubtful accounts, totaled $3.2 million as compared to the September 30, 2005,
balance of $3.1 million. Inventories at September 30, 2006 totaled 1.8 million
as compared to the September 30, 2005 balance of $0. Accounts payable at
September 30, 2006 totaled $3.2 million as compared to the September 30, 2005,
balance of $2.9 million. Accrued expenses at September 30, 2006 totaled $1.8
million as compared to the September 30, 2005 balance of $1.6 million. The
increase in accounts payable is primarily due to the acquisition of and GSID in
January 2006 GC Clean Tech Ventures in July of 2006. The increase in inventories
is due to the acquisition of GSID in January 2006.

For the nine months ended September 30, 2006, we used $355,315 from investing
activities, and we provided net cash from financing of $5.2 million. We used
these funds to further provide working capital for operations. Our financing
arrangements are discussed further below in this Item 2 and in more detail in
financing arrangements.

Cash Flows For 2005

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

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

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

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

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

Years Ended December 31,
2006 2007 2008 2009 2010 Total
--------------------------------------------------------------------------------
Long and short term debt and capital

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

Going Concern

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

The Company had a negative working capital position of $(11.0) million at
September 30, 2006 which includes 3.6 million in derivative instruments (net).

Stockholder Matters

Stockholders' impairment was $5.0 million at September 30, 2006, as compared to
an impairment of $5.0 million of stockholders equity at September 30, 2005.

As of September, 2006, the Company did not have sufficient shares of common
stock authorized to accommodate conversion of all outstanding preferred stock,
options, warrants and convertible debt.

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2006 (UNAUDITED)

ASSETS: 9/30/06
-----------
Current assets:

Cash .......................................................... $ 756,659
Loans receivable-affiliate .................................... 182,140
Accounts receivable, net ...................................... 3,243,765
Unbilled Revenue .............................................. 266,848
Costs and earnings in excess of billings, current ............. 61,184
Prepaid expenses and other current assets ..................... 277,106
Inventory ..................................................... 1,776,735
------------
Total current assets .................................. 6,564,437

Property and equipment, net ...................................... 1,556,698

Other Assets:
Deposits ...................................................... 135,063
Costs and earnings in excess of billings, non current ......... 223,569
Permits, net .................................................. 181,046
Property held for sale ........................................ 59,298
Deferred financing costs, net ................................. 379,167
Assets of discontinued operations ............................. 99,300
Investments in unconsolidated subsidiaries, at cost ........... 1,500,295
Goodwill ...................................................... 4,271,630
------------
Total other assets ........................................ 6,849,368
------------

TOTAL ASSETS ..................................................... $ 14,970,503
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Short term borrowings ......................................... $ 16,975
Short term borrowings - due to parent ......................... 1,142,757
Interest payable - due to parent .............................. 144,079
Accounts payable .............................................. 3,208,246
Accrued expenses .............................................. 1,795,445
Current maturities of long-term debt .......................... 167,465
Current obligations of capital lease .......................... 24,038
Notes payable to non affiliated parties ....................... 335,475
Billings in excess of earnings ................................ 1,949
Deferred revenue .............................................. 125,000
Line of credit ................................................ 1,196,972
Current portion of convertible debentures, net of discount .... 1,800,171
Current convertible debentures - due to parent ................ 606,364
Liability for derivative instruments .......................... 6,222,632
Federal/State income tax payable .............................. 90,000
Liabilities of discontinued operations ........................ 742,628
------------
Total current liabilities ................................. 17,620,196

Long-term debt, net of current maturities ........................ 296,997
Accrued expenses, non current .................................... 114,462
Deferred revenue, non current .................................... 336,798
Notes payable to non affiliated parties .......................... 111,679
Convertible debentures, net of current portion and net of discount 733,333
------------
Total long term liabilities: .............................. 1,593,269
------------

Total liabilities: ........................................ 19,213,465

Minority interest in consolidated subsidiary ..................... 775,000

Stockholders' equity:
Convertible preferred stock, $0.001 par value:
Series A: 1,254,244 shares issued and outstanding ........... 1,255
Series B: 438,650 shares issued and outstanding ............. 439
Series D: 1,000,000 shares issued and outstanding ................ (1,000)
Common stock, $0.001 par value, 250,000,000 authorized;
249,828,213 issued and 249,828,213 outstanding ................ 249,829

F-1

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2006 (UNAUDITED)

Additional paid-in capital .................................... 52,518,621
Accumulated deficit ........................................... (57,789,106)
------------
Total stockholders' equity ................................ (5,017,962)
------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $ 14,970,503
============

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

F-2

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)

For the three months ending For the nine months ending
-------------------------------------------------------------------
9/30/06 9/30/05 9/30/06 9/30/05
-------------------------------------------------------------------

Revenues: ..................................... $ 4,529,556 $ 4,513,793 $ 13,551,586 $ 12,858,880
Cost of revenues ........................... 3,153,066 3,133,073 9,443,593 8,855,589
------------- ------------- ------------- -------------
Gross profit .................................. 1,376,490 1,380,720 4,107,993 4,003,291

Operating expenses:
Selling expenses ............................ 284,149 254,554 920,816 764,340
Stock based compensation .................... -- -- 2,249,401 --
Research and development .................... 21,012 -- 55,957 --
General and administrative .................. 1,635,103 902,267 3,885,280 2,602,763
------------- ------------- ------------- -------------
Total operating expenses ...................... 1,940,264 1,156,821 7,111,454 3,367,103

Operating (loss) income ....................... (563,774) 223,899 (3,003,461) 636,188

Other income (expense):
Miscellaneous income ........................ 2,140 545 10,913 16,336
Gain on forgiveness of interest expense ..... -- -- 125,484 17,711
Gain (Loss) on equipment disposal ........... 500 6,259 (40,302) 6,290
Amortization of deferred financing costs .... -- (75,833) --
(37,917)
Change in value of derivative instruments ... 2,663,344 -- 3,109,018 --
Amortization of debt discount ............... (1,487,978) -- (5,323,704)
Interest expense - due to parent ............ (52,978) -- (126,973) --
Write down of investment .................... (436,667) -- (436,667) --
Interest expense ............................ (197,843) (207,045) (524,859) (627,685)
------------- ------------- ------------- -------------
Total other income (expense), net ......... 452,601 (200,241) (3,282,923) (587,348)

Income/Loss before provision for income taxes . (111,173) 23,658 (6,286,384) 48,840
Provision for income tax, net ................. 6,884 (598) (121,193) (14,444)
------------- ------------- ------------- -------------
Income/Loss from continuing operations ........ $ (118,057) $ 23,060 $ (6,407,577) $ 34,396
============= ============= ============= =============

Discontinued operations:
Income (loss) from discontinued operations
$ (34,707) $ (3,110,913) $ (75,541) $ (3,289,477)
Gain on disposal, discontinued operations .. -- -- 34,469 3,041
------------- ------------- ------------- -------------
Total discontinued operations .......... (34,707) (3,110,913) (41,072) (3,286,436)
------------- ------------- ------------- -------------

Net Income/Loss ............................... $ (152,764) $ (3,087,853) $ (6,448,649) $ (3,252,040)

Preferred Dividends ........................... -- -- $ (681,594) --
Net income/loss attributable to shareholders .. $ (152,764) $ (3,087,853) $ (7,130,243) $ (3,252,040)

Basic loss attributable to common shareholders, $ (0.00) $ (0.03) $ (0.02)
continuing operations ......................... $ (0.00)
Basic loss attributable to common shareholders, $ (0.00) $ (0.07) $ (0.03) $ (0.10)
discontinued operations
Basic loss attributable to common shareholders, $ (0.00) $ (0.07) $ (0.03)
net ........................................... $ (0.08)
Weighted average shares of common stock
outstanding basic and dilutive ................ 230,103,087 47,094,043 230,103,087 41,429,503

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

F-3

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
AND SEPTEMBER 30, 2005 (UNAUDITED)

9/30/06 9/30/05
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss ............................................................ $(6,448,649) $(3,252,041)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization .................................... 170,586 126,334
Write down of long term investment ............................... 436,667
Bad debt recovery ............................................... 53,674 63,282
Stock-based compensation ........................................ 2,249,401 158,026
Settlement of debt ............................................... (166,667) --
Change in net assets of discontinued operations .................. (583,080) 2,690,847
Loss on disposal of fixed assets ................................. 40,302 (14,386)
Gain on forgiveness of debt ..................................... (125,485) (67,197)
Amortization of deferred finance costs ........................... (75,833) --
Amortization of BCF - related party .............................. 15,124 --
Change in fair value of derivative instruments ................... (3,109,018) --
Accretion of debt discounts ...................................... 5,323,704 --

Changes in assets and liabilities,
(Increase) in accounts receivable .............................. (530,562) (655,378)
Decrease in excess of billings ................................. (1,074) (43,357)
Increase (decrease) in unbilled revenue ........................ 293,228 (124,292)
(Increase) decrease in inventories ............................. (1,776,735) 244
Decrease (increase) in prepaid expenses and other current assets (118) 83,712
Increase in billings in excess of earnings ..................... 1,949 63,461
Increase in accounts payable ................................ 367,421 209,081
Decrease in deferred revenue ................................... (86,368) (41,048)
Increase in deferred taxes ..................................... 90,000 --
Increase (decrease) in other liabilities ....................... (234,490) 58,562
Decrease in accrued expenses ................................ (422,233) (126,111)
----------- -----------
Net cash used in operating activities ........................ (4,518,256) (870,261)
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES

Deposits ......................................................... (3,438) (89,063)
Permits .......................................................... -- (16,500)
Restricted cash released from restrictions ...................... 29,254 --
Loans to affiliates .............................................. (182,140) --
Additions to and acquisition of property, plant and equipment .. (198,991) (123,675)
----------- -----------
Net cash used in investing activities ........................ (355,315) (229,238)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from convertible debenture, net of financing costs ...... 4,597,870 417,707
Repayment of convertible debentures ............................. (78,000) --
Proceeds from convertible debenture - due to parent .............. 606,364 280,195
Net proceeds from short term borrowings - related party ......... 512,892 53,784
Repayment of short-term borrowings .............................. (5,436) (259,356)
Proceeds from notes payable - non affiliated parties ............. 186,012 1,909
Repayment of long-term debt, net ................................. (172,348) (191,395)
Repayment of term financing ......................................... (100,000) --
Proceeds from issuance of common stock ........................... -- (75,000)
Investment in subsidiary ......................................... (261,327) --
Purchase of treasury stock ....................................... -- (340,624)
Conversion of minority interest ................................ (50,000) --
Collection of stock subscription receivable ...................... -- 175,000
----------- -----------
Net cash (used in) provided by financing activities .......... 5,236,027 62,220

(Decrease) Increase in cash ......................................... 362,458 (1,037,279)

Cash at beginning of period ......................................... 394,201 1,096,327
----------- -----------

Cash at end of period ............................................... $ 756,659 $ 59,048
=========== ===========

9/30/06 9/30/05
------------------------

Supplemental Disclosure of cash flow information

Cash paid during the period for Interest .............................. $ 524,858 $ 55,770

Supplemental disclosure of non-cash investing and financing activities:
Payment of Laurus financing/accrued interest with
proceeds of Cornell Capital financing ............................ 2,193,047 --
Deferred financing costs paid with proceeds
of Cornell Capital financing ..................................... 455,000 --
Convertible debentures conversions into common stock .............. 1,310,900 --
Other long-term debt conversions into common stock ................ 2,110,000 --
Payables settled in stock ......................................... 33,580 174,369
Vehicles purchased via financing .................................. 71,145 --

Acquisition/investment of business through following:
Issuance of common stock .......................................... -- 75,000
Incurrence of term financing ...................................... -- 128,000
Incurrence of convertible debentures (Laurus Master Fund) .......... -- 408,750

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

F-5

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1 BASIS OF PRESENTATION

The consolidated interim financial statements included herein have been prepared
by GS CleanTech corp. ("GS CleanTech" or "the Company"), pursuant to the rules
and regulations of the Securities and Exchange Commission with regard to
Regulation S-B and, in the opinion of management, include all adjustments which,
except as described elsewhere herein, are of a normal recurring nature,
necessary for a fair presentation of the financial position, results of
operations, and cash flows for the periods presented. The results for interim
periods are not necessarily indicative of results for the entire year. The
financial statements presented herein should be read in connection with the
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2005.

2 GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company incurred a loss
of $6,448,649 for the nine months ended September 30, 2006. As of September 30,
2006 the Company had $756,659 in cash, and current liabilities exceeded current
assets by $11,055,759 including $3,620,857 in derivative liability instruments
(net). These matters raise substantial doubt about the Company's ability to
continue as a going concern.

Management's plans include raising additional proceeds from debt and equity
transactions to fund operations and to increase revenue and cut expenses to
reduce the loss from operations. There can be no assurances that GS CleanTech
will be able to eliminate both its working capital deficit and its operating
losses. The accompanying financial statements do not contain any adjustments
which may be required as a result of this uncertainty.

3 SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

For the period ended September 30, 2006, the accompanying consolidated financial
statements include all accounts of GS CleanTech Corporation and its
subsidiaries:

o GS EnviroServices - owns 100% of the environmental services divisions
of Jones Environmental Services, NE, Enviro-Safe Corporation, and
EnviroSciences of Delaware.

o GS Industrial Design - owns 100% of the process engineering division.

o GS CleanTech Ventures - owns 70% of General Ultrasonics, 10% of
Ovation Products Corp, and 3% of General Hydrogen Corp. Ovation
Products Corp. and General Hydrogen Corp. were integrated into GS
CleanTech Ventures using the Cost Method of accounting (see cost
method accounting for unconsolidated subsidiaries below).

All significant inter company balances and transactions were eliminated in
consolidation. The financial statements for the period ended September 30, 2006
have been consolidated to include the accounts of GS Industrial Design,
EnviroSciences of Delaware, and GS CleanTech Ventures beginning January 2006. In
addition, the financial statements for the period ended September 2005 have been
consolidated to include the accounts of EnviroSciences of Delaware as of January
of 2005.

COST METHOD OF ACCOUNTING FOR UNCONSOLIDATED SUBSIDIARIES

The Company's subsidiary GS CleanTech accounts for its 10% investment in Ovation
Products Corp. (Ovation) and its 3% investment in General Hydrogen Corp.
(General Hydrogen) under the cost method. Application of this method requires
the Company to periodically review this investment in order to determine whether
to maintain the current carrying value or to write off some or all of the
investment. While the Company uses some objective measurements in its review,
the review process involves a number of judgments on the part of the Company's
management. These judgments include assessments of the likelihood of Ovation and
General Hydrogen to obtain additional financing, to achieve future milestones,
make sales and to compete effectively in its markets. In making these judgments
the Company must also attempt to anticipate trends in Ovation's and General
Hydrogen's respective industry as well as in the general economy. There can be
no guarantee that the Company will be accurate in its assessments and judgments.
To the extent that the Company is not correct in its conclusion it may decide to
write down all or part of the investment.

F-6

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price is fixed
or determinable, and collection is reasonably assured.

The Company provides environmental services that involve transportation and
disposal of industrial waste. Revenues for the transportation and disposal of
waste using the Company as the transporter that is disposed of at a third party
location are recognized when the waste is delivered to the third party for
processing and disposal. Revenues for the transportation and disposal of
industrial waste using a third party transporter that is disposed of at the
third party location are recognized when the waste is delivered to the third
party location for processing and disposal. Revenues for the transportation and
disposal of industrial waste that is disposed of at the Company's facility is
recognized when the Company has received the waste at its facility due to the
fact that the customer has no additional recourse and no additional services are
provided to the customer after the waste is received.

The Company also provides environmental services and process engineering
services on fixed priced contracts. Revenue from fixed priced contracts is
recognized on the percentage of completion method, measured by the percentage of
actual costs incurred to the estimated costs to complete. Changes in job
performance and job conditions may affect total estimated costs and result in
revisions to costs and revenues that affect future periods. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.

The asset, "costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "billings in excess of costs and estimated earnings on uncompleted
contracts," represents billings in excess of revenues recognized.

The liability "deferred revenue" represents amounts invoiced to customers for
deposits and partial payments on orders or projects not complete for delivery.
The revenue, along with the project costs, is recognized upon delivery or
completion of the project for the customer.

INVENTORIES

Due to the long lead times to obtain some components, GS Industrial Design, Inc.
maintains an inventory of centrifuges and related parts. Inventories are stated
at the lower of cost or market, with cost being determined by the first-in,
first-out (FIFO) method.

LONG-LIVED ASSETS

The Company assesses the valuation of components of its property and equipment
and other long-lived assets whenever events or circumstances dictate that the
carrying value might not be recoverable. The Company bases its evaluation on
indicators such as the nature of the assets, the future economic benefit of the
assets, any historical or future profitability measurements and other external
market conditions or factors that may be present. If such factors indicate that
the carrying amount of an asset or asset group may not be recoverable, the
Company determines whether impairment has occurred by analyzing an estimate of
undiscounted future cash flows at the lowest level for which identifiable cash
flows exist. If the estimate of undiscounted cash flows during the estimated
useful life of the asset is less than the carrying value of the asset, the
Company recognizes a loss for the difference between the carrying value of the
asset and its estimated fair value, generally measured by the present value of
the estimated cash flows.

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company reviews its Goodwill annually at December 31 each year for possible
impairment and more frequently if events or changes in circumstances indicate
Goodwill might be impaired. The fair value of the Company's reporting units is
analyzed using a discounted cash flow valuation approach. The discounted cash
flow calculation is made utilizing various assumptions and estimates regarding
future revenues and expenses, cash flow and discount rates. The assumptions used
are sometimes significantly different than historical results due to the
Company's

F-7

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

current business initiatives. If the Company fails to achieve results in line
with the assumptions used, intangible assets may be impaired. At December 31,
2005 the Company had only one reporting unit but has made certain acquisition
during 2006 resulting in additional reporting units. Significant assumptions
used in the Company's annual impairment analysis for the year ended December 31,
2005 include a discount rate of 19% and a long-term growth rate of 5%. Possible
impairment may exist if the fair value computed using the discounted cash flow
valuation approach is lower than the carrying amount of the reporting unit
(including goodwill). Further analysis would be required if possible impairment
exists by comparing the implied fair value of the reporting unit, which is the
excess of the fair value of the reporting unit over amounts assigned to the
reporting units assets and liabilities, to the carrying amount of goodwill. If
the carrying amount of the reporting unit goodwill is greater than the implied
fair value, an impairment loss equal to the difference would be recorded and
goodwill would be written down.

4 STOCKHOLDERS EQUITY

The Company accounts for stock, stock options and stock warrants issued for
services and compensation by employees under the fair value method. For
non-employees, the fair market value of the Company's stock on the date of stock
issuance or option/grant is used. The Company determined the fair market value
of the warrants/options issued under the Black-Scholes Pricing Model. Effective
January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) 123R, SHARE-BASED PAYMENT, which establishes
accounting for equity instruments exchanged for employee services. Under the
provisions of SFAS 123(R), share-based compensation cost is measured at the
grant date, based on the fair value of the award, and is recognized as an
expense over the employee's requisite service period (generally the vesting
period of the equity grant). Prior to January 1, 2006, the Company accounted for
share-based compensation to employees in accordance with Accounting Principles
Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
related interpretations. The Company also followed the disclosure requirements
of SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company elected to
adopt the modified prospective transition method as provided by SFAS 123(R) and,
accordingly, financial statement amounts for the prior periods presented in the
Form 10-QSB have not been restated to reflect the fair value method of expensing
share-based compensation.

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

F-8

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4 STOCKHOLDERS EQUITY (CONTINUED)

SUPPLEMENTAL DISCLOSURE FOR STOCK-BASED COMPENSATION

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

On March 31, 2006, the Company issued 40,000,000 stock options as part the stock
based employee compensation plan, including 10,000,000 stock options to Kevin
Kreisler, the Company's Chief Executive Officer. Activity under the Plan and
issuances of options and/or warrants for the quarter ended September 30, 2006 is
as follows:

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

Outstanding at December 31, 2004 9,700,427 $ 0.47
Granted at fair value -- --
Forfeited -- --
Exercised -- --
------------ ---------------
Outstanding at December 31, 2005 9,700,427 0.47
Granted at fair value 40,000,000 0.04
Forfeited (22,943) --
Exercised -- --
------------- ---------------
Outstanding at September 30, 2006 49,700,427 $ 0.12

STOCK ISSUANCES

During the third quarter of 2006 there were no common stock issuances.

INCREASE IN AUTHORIZED

On March 24, 2006, the Company's Board of Directors approved an amendment to the
Company's Certificate of Incorporation. On March 24, 2006, the holder of a
majority of the voting power of the outstanding voting stock gave its written
consent to the amendment. The amendment will be filed and will become effective
approximately twenty days after the Company's Information Statement is mailed to
the shareholders. The effect of the amendment will be to increase the number of
authorized shares of common stock, $0.001 par value, from 250,000,000 to
500,000,000.

5 RELATED PARTY TRANSACTIONS

CONVERTIBLE DEBENTURES ISSUED TO GREENSHIFT

During the three months ended September 30, 2006, the Company received $286,611
from Greenshift leaving a balance at September 30, 2006 of $1,749,121 including
convertible debentures issued to GreenShift in the amount of $606,363 in 2005
and 2006. Interest in the amount of $144,079 was accrued at a rate of 8%.
GreenShift is an 80% shareholder of GS CleanTech and is controlled by Kevin
Kreisler, Chairman and Chief Executive Officer of GS CleanTech.

During 2005, the Company's subsidiary ESI entered into a Management Services
Agreement with GreenShift Corporation, its parent, under which GreenShift agreed
to provide management assistance, financial support, and business development
services. The agreement is for a term of five years and provides for GreenShift
to receive $150,000 per year. As of September 30, 2006 the remaining balance due
of $269,980 was converted into a convertible debenture.

F-9

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5 RELATED PARTY TRANSACTIONS (CONTINUED)

TRANSACTIONS WITH FORMER ESI STOCK HOLDERS AND FORMER EMPLOYEES

As part of the acquisition of the Company's subsidiary ESI, the Company acquired
Northvale Properties, Inc. ("Northvale") owned a building and land in Northvale,
New Jersey, which has environmental contamination. Northvale was owned by ESI
stockholders and former employees.

The Northvale property was sold in 2001 for $1.8 million, of which $1.5 million
was paid at closing and applied to the amount owed to ESI. The $300,000 balance
due from the buyer of the property was paid in August 2002 ($200,000) and
October 2002 ($100,000) as final payment for all remaining remediation costs.
The property may be eligible for the Brownfields rebate from the State of New
Jersey. The purchaser of the property has assigned the rights to these rebates
to the Company if in fact the property is eligible for the rebates. However the
amount and timing of any such rebates will depend on the ultimate use of the
property. Revenues recognized related to Northvale project for professional
services for nine months ended September 30, 2006 and 2005 were $ 259,794 and
$333,165 respectively.

GREENSHIFT TRANSFER OF SHARES OF COMMON STOCK

During the nine months ended September 30, 2006, Greenshift Corporation (the
parent company) transferred 588,235 shares of its common stock to the
Corporation the Company's subsidiary ESI with a cost basis of $30,000. The
Company realized a gain on the sale of these marketable securities of $105,645
and is included in additional paid in capital.

GREENSHIFT CONVERSION OF PREFERRED STOCK TO COMMON STOCK

On February 10, 2006 GreenShift Corporation converted 1,609,590 shares of Series
A Preferred Stock and Series B Preferred Stock into 63,633,322 shares of common
stock.

ISSUANCE OF SERIES D PREFERRED STOCK TO GREENSHIFT

On March 24, 2006 GS CleanTech issued 1,000,000 shares of Series D Preferred
Stock to GreenShift Corporation. In consideration of the Series D shares,
GreenShift Corporation surrendered 750,000 shares of GS CleanTech's Series C
Preferred Stock and 63,633,322 shares of GS CleanTech common stock.

On July 1, 2006, GS CleanTech acquired from its majority shareholder, GreenShift
Corporation, 100% of the outstanding capital stock of GS EnviroServices, Inc.
(f/k/a GreenWorks Corporation) and 100% of the outstanding capital stock of GS
CleanTech Ventures, Inc. In exchange for the shares in GS EnviroServices and GS
CleanTech Ventures, GS CleanTech assumed GreenShift's obligations under certain
debentures in the principal amount of $1,900,000. GS CleanTech has also agreed
to amend the Series D Preferred Stock now held by GreenShift to increase the
portion of GS CleanTech's equity represented by the Series D shares from 70% to
80%.

TRANSACTIONS WITH FAMILY MEMBERS OF KEVIN KREISLER

In February 2006, Serenity Capital, LLC, purchased from GCS Investments $500,000
in convertible debt issued by GS CleanTech. During the period ended March 31,
2006, Serenity effected conversions totaling $100,000, corresponding to
5,000,000 shares of the Company's common stock. During the second quarter 2006
Serenity effected additional conversions totaling $100,000 into a total of
5,000,000 shares of the Company's common stock. Serenity is owned by a family
member of the Company's chairman.

In February 2006, Cyrus Capital, LLC, purchased from GCS Investments $500,000 in
convertible debt issued by GS Clean Tech. During the period ended March 31,
2006, Cyrus effected conversions totaling $280,000, corresponding to 14,000,000
shares of the Company's common stock. During the second quarter 2006 Cyrus
effected additional conversions totaling $120,000 into a total of 6,000,000
shares of the Company's common stock. Cyrus is owned by a family member of the
Company's chairman.

OTHER RELATED PARTY TRANSACTIONS

During the nine months ended September 2006, Candent Corporation loaned $250,000
to General Ultrasonics. The president of Candent is the wife of the Company's
chairman. All of the issued and outstanding capital stock of Candent is held in
trust for the benefit of its president.

F-10

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6 FINANCING ARRANGEMENTS

The following is a summary of the Company's financing arrangements as of
September 30, 2006:

Short-term borrowings
Vendor composition plans ............................. $ 16,975
Short term loans - due to parent ..................... 1,142,757
-----------
Total short term borrowings ........................ $ 1,159,732

Current maturities of long-term debt:
Note payable - due to non affiliated parties ......... 335,475
Line of credit ....................................... 1,196,972
Vehicle loans and other current obligations ......... 167,465
-----------
Total current maturities of long-term debt ........ $ 1,669,912

Current portion of convertible debentures:
Cornell Capital convertible debenture (April 21, 2006) $ 2,102,147
Cornell Capital convertible debenture (July 1, 2006) . 1,900,000
Convertible debenture - related party ................ 606,363
Convertible debenture - Serenity Capital, LLC ........ 300,000
Convertible debenture - Cyrus Capital, LLC ........... 100,000
Total Note Discounts .............................. (2,601,976)
-----------
Total current portion of convertible debentures .. $ 2,406,534

Long-term debt:
Vehicle loan, net of current ......................... 296,997
Notes payable - due to non-affiliated parties ........ 111,679
-----------
Total long-term debt .............................. 408,676

Convertible debentures, non-current
Cornell Capital convertible debenture (April 13, 2006) 4,400,000
Note Discount ........................................ (3,666,667)
-----------
Total convertible debentures, non-current .......... $ 733,333

The following chart is presented to assist the reader in analyzing the Company's
ability to fulfill its fixed debt service requirements (net of note discounts)
of as of September 30, 2006 and the Company's ability to meet such obligations:

Year Amount
- ---- --------
2006 - 2007 $ 7,852,369
2007 - 2008 225,339
2008 - 2009 4,503,223
2009 - 2010 75,368
2010 - 2011 20,529
-------------
Total minimum payments due under current
and long-term obligations $ 12,676,828
=============

SHORT TERM BORROWINGS

TERM FINANCING

The Company had certain term financing totaling $100,000 as of December 2005.
$50,000 was paid in the first quarter of 2006 and the remainder was paid in the
third quarter 2006.

F-11

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6 FINANCING ARRANGEMENTS (continued)

NOTES PAYABLE

Notes payable to non-affiliated parties includes a loan of $125,000, which bears
interest of 3% commencing January 1, 2004. The note requires repayment of
principal and interest monthly commencing June 2005 through February 2008 with a
final principal payment of $78,538 in March 2008. The balance on this
note-payable as of September 30, 2006 is 115,016. Interest in the amount of
$2,019 has been recognized for the nine months ended September 30, 2006.

In 2003, $225,000 of financing and $15,000 of accrued interest were provided by
an additional party. A promissory note was issued bearing interest at 6% and
requiring repayment of $100,000 on or before September 30, 2004. The balance of
principal and interest payable were payable on or before September 30, 2005.
Subsequent to the payment of the $100,000 due September 30, 2004, there remained
a balance due of $140,000. In December 2004, the note-holder agreed to waive
interest from January 2004 forward. In December 2005, the note-holder agreed to
the remaining balance due ($131,420) could be paid in consecutive monthly
payments of $ 5,476 from January 2006 through December, 2007. As of September
30, 2006, the balance on this note payable was 82,137.

LINE OF CREDIT AND OTHER DEBT FINANCINGS

The Company has a credit line of $1,350,000 which bears interest at the bank's
base rate plus three-quarters of one percent. The line is secured by all
corporate assets of the Company's subsidiary f/k/a Enviro-Sciences of New Jersey
(ESI) and was subject to renewal on January 16, 2004. The line remains orally
extended since January 2004. As of September 30, 2006 there is a balance of $
1,196,972 drawn on the credit line.

The business loan agreement document underlying the credit line agreement has
the following required financial covenants, none of which is met as of September
30, 2006.

Tangible Net Worth - Minimum of $ 1,000,000
Net Worth Ratio - Minimum Ratio of 1.75 to 1
Working Capital - Minimum Ratio of $ 100,000
Current Ratio - Minimum Ratio of 1.25 to 1
Income - Minimum $ 250,000
Cash Flow Requirement - Minimum of $ 350,000
Fixed Charge Ratio - Minimum Ratio of 2 to 1
Other Ratio - Cash flow to Current maturity of LT Debt of 1.25 to 1

TRANSACTIONS INVOLVING CONVERTIBLE DEBENTURES ISSUED TO GCS INVESTMENTS

In February 2006, Serenity Capital, LLC, purchased $500,000 in debt from GCS
Investments. The conversion feature on the debenture due to Serenity is variable
based on trailing market prices and contains an embedded derivative. A note
discount of $500,000 and a derivative liability of $1,672,000 were recorded at
the assumption date. During the first and second quarter's 2006 Serenity
effected conversions totaling $200,000 into a total of 10,000,000 shares of the
Company's common stock. As of September 30, 2006, the principal amount due on
the debenture was $300,000. In the third quarter 2006 interest expense from
accretion of the debt discount was $68,182 and gain on the fair market value of
the derivative liability was $732,540. As of September 30, 2006 the derivative
liability for debenture due to Serenity was $368,160. Interest is accrued at a
rate of 5% on the principal balance. As of September 30, 2006, $7,875 of
interest is accrued on this debenture. Serenity is owned by a family member of
the Company's chairman.

In February 2006, Cyrus Capital, LLC, purchased $500,000 in debt from GCS
Investments. The conversion feature on the debenture due to Cyrus is variable
based on trailing market prices and contains an embedded derivative. A note
discount of $500,000 and a derivative liability of $1,672,000 were recorded at
the assumption date. During the first and second quarter of 2006, Cyrus effected
conversions totaling $400,000 into a total of 20,000,000 shares of the Company's
common stock. As of September 30, 2006, principal amount due on the debenture
was $100,000. In the third quarter 2006 interest expense from accretion of the
debt discount was $22,727 and gain on the fair market

F-12

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6 FINANCING ARRANGEMENTS (CONTINUED) value of the derivative liability was
$224,180. As of September 30, 2006 the derivative liability for the debenture
due to Cyrus was $122,720. Interest is accrued at a rate of 5% on the principal
balance. As of September 30, 2006, $3,394 of interest is accrued on this
debenture. Cyrus is owned by a family member of the Company's chairman.

TRANSACTIONS WITH CORNELL CAPITAL PARTNERS

On April 13, 2006, GS CleanTech entered into a Securities Purchase Agreement
with Cornell Capital Partners, LP, under which Cornell purchased a Convertible
Debenture in the amount of $4,400,000. The Debenture was issued as of April 13,
2006. Cornell paid the $4,400,000 purchase price on April 19, 2006. The Company
paid $440,000 in deferred finance costs and $15,000 in structuring fees as part
of this transaction. The conversion price of the Debenture shall be equal to the
lesser of $0.10 per share or 90% of the volume weighted average price of the
Company's common stock for the thirty days preceding conversion, with the
conversion price reduced, at the holders option, to the price for which the
Company issues common stock or convertible instruments to any other party.
Cornell will be entitled to convert the Debenture on the basis of the conversion
price into GS CleanTech common stock, provided that Cornell cannot convert into
shares that would cause Cornell to own more than 4.99% of GS CleanTech's
outstanding common stock. The Debenture will bear interest at 5% per annum.
Accrued interest and the principal amount will be payable on April 1, 2009. GS
CleanTech's obligations under the Debenture are secured by a pledge of all of
its assets, subject to Cornell's agreement to subordinate its security interest
to any line of credit that GS CleanTech obtains from a bank or other financial
institution. The proceeds of the Debenture may only be used by GS CleanTech to
support the deployment by GS CleanTech's wholly owned subsidiary, GS Industrial
Design, Inc. ("GSID"), of its various technologies, specifically including
GSID's Corn Oil Extraction and CO2 BioReactor technologies. The Company agreed
to issue to Cornell a five year Warrant to purchase 7,500,000 common shares at
$0.10 per share, a five year Warrant to purchase 7,500,000 common shares at
$0.15 per share, a five year Warrant to purchase 15,000,000 common shares at
$0.20 per share, a five year Warrant to purchase 20,000,000 common shares at
$0.25 per share. The Company may redeem the debentures at any time for an amount
equal to 120% of the outstanding principal and accrued interest. The conversion
feature on this debenture due to Cornell Capital Partners, LP (dated April 13,
2006) is variable based on trailing market prices and contains an embedded
derivative. A note discount of $4,400,000 and a derivative liability of
$14,958,108 were recorded at the assumption date. In the third quarter ended
September 30, 2006, interest expense from accretion of the debt discount was
$366,667 and gain on the fair market value of the derivative liability was
$560,560. As of September 30, 2006 the derivative liability for debentures due
to Cornell Capital Partners, LP was $3,429,360 and interest of $102,055 has been
accrued.

On April 21, 2006 Cornell Capital Partners, LP purchased from Laurus Master
Fund, Ltd. the Secured Minimum Borrowing Note and the Revolving Note that GS
CleanTech issued to Laurus on March 31, 2004. The aggregate debt, including
accrued interest and penalties, was $2,193,047. Subsequently GS CleanTech agreed
with Cornell Capital Partners to amend the Revolving Note such that its terms
are now identical to the Secured Minimum Borrowing Note. The debenture will bear
interest at a rate of the prime lending rate plus 5%. GS CleanTech also agreed
to modify the conversion feature of the two Notes. The Notes, as modified, may
be converted by Cornell Capital Partners into common stock at a conversion rate
equal to the lesser of (a) $0.10 per share or (b) 90% of the lowest VWAP for the
thirty trading days preceding conversion. The conversion feature on this
debenture due to Cornell Capital Partners, LP (dated April 13, 2006) is variable
and contains an embedded derivative. A note discount of $2,193,047 and a
derivative liability of $18,444,715 were recorded at the assumption date. On May
2, 2006, Cornell Capital Partners, LP effected conversions totaling $90,900,
corresponding to 3,000,000 shares of the Company's common stock. Interest
expense from accretion of the debt discount was $490,308 and gain on the fair
market value of the derivative liability was $16,699,597 for the quarter ended
June 30, 2006. In the third quarter ended September 30, 2006, interest expense
from accretion of the debt discount was $525,534 and gain on the fair market
value of the derivative liability was $673,444. As of September 30, 2006 the
derivative liability for debentures due to Cornell Capital Partners, LP was
$1,071,674 and interest of $124,214 has been accrued.

On July 1, 2006, GS CleanTech assumed from GreenShift Corporation, 100% of the
outstanding capital stock of GS EnviroServices, Inc. (f/k/a GreenWorks
Corporation) and 100% of the outstanding capital stock of GS CleanTech Ventures,
Inc. GS EnviroServices, Inc. which owns an environmental engineering business
called Enviro-Sciences (of Delaware) Corporation. GS CleanTech Ventures holds
equity stakes in General Hydrogen Corporation, General Ultrasonics Corporation,
Ovation Products Corporation, and Aerogel Composite, Inc. In

F-13

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6 FINANCING ARRANGEMENTS (CONTINUED)

exchange for the shares in GS EnviroServices and GS CleanTech Ventures, GS
CleanTech assumed GreenShift's obligation of a Securities Purchase Agreement
with Cornell Capital Partners, LP in the principal amount of $1,900,000. GS
CleanTech has also agreed to amend the Series D Preferred Stock now held by
GreenShift to increase the portion of GS CleanTech's equity represented by the
Series D shares from 70% to 80%. GS CleanTech also agreed to assume the
conversion feature of the Notes. The Note, as assumed is convertible into GS
CleanTech's common stock at the lesser of $0.10 per share or the average of the
three lowest closing market prices of GS CleanTech's common stock for the thirty
days preceding conversion provided that the shareholder may not convert any
portion of its debentures where such conversion would bring the shareholder to
greater than 4.95% of GS CleanTech's outstanding common stock, in which case the
relevant number of conversion shares are held in escrow by the Company pending
compliance with this limitation. The Debenture will bear interest at 5% per
annum. Accrued interest and the principal amount will be payable on April 1,
2008. The conversion feature on this debenture due to Cornell Capital Partners,
LP (dated April 17, 2006) is variable and contains an embedded derivative. A
note discount of $1,471,740 and a derivative liability of $1,471,740 were
recorded at the assumption date. Interest expense from accretion of the debt
discount was $228,784 and gain on the fair market value of the derivative
liability was $300,010 was recorded for the quarter ended September 30, 2006. As
of September 30, 2006 the derivative liability for the debenture due to Cornell
Capital Partners, LP was $1,171,730 and interest of $23,750 has been accrued.

RELATED PARTY CONVERTIBLE NOTE

During 2005, GS CleanTech borrowed $280,196 from GreenShift Corporation in the
form of a convertible promissory note at a rate of 8%. The note is due on
September 30, 2006. Based on the terms of the conversion option, the debt was
determined to contain a beneficial conversion feature, recorded as a discount on
the debt of $20,165, amortizable over the term of the debt. A total of $20,165
has been recorded based on the amortization of the discount in 2006. As of
September 30, 2006 the debt discount has been amortized in full. GreenShift is
an 80% shareholder of GS CleanTech and is controlled by Kevin Kreisler, Chairman
and Chief Executive Officer of GS CleanTech.

CONVERTIBLE PROMISSORY NOTE - BERGER

In May 2005, GS CleanTech acquired the assets of NCES. As part of this
acquisition, GS CleanTech assumed a convertible promissory note in the amount of
$128,000 payable to Robert Berger. This note was due and payable November 10,
2005. The payee may elect at any time to convert any or all of the outstanding
principal into common stock equal to the amount due divided by the average
closing price of such common stock for the (30) day prior period to the date of
the exercise of this conversion. In November 2005, the Company made a payment of
$50,000 reducing this note to $78,000. During the three months ended June 30,
2006, a $58,160 reduction of this note was effected by agreement with Mr. Berger
in exchange for services performed on his behalf. The $19,839 balance of the
note is in default and is immediately due and payable. Based on the terms of the
note, it was determined that the conversion option was an embedded derivative
conversion feature. Accordingly, the company recognized a liability for this
derivative conversion feature of $52,800, recorded as a debt discount which was
fully amortized over the term of this short term debt in 2005. The derivative
liability was marked to fair value at June 30, 2006 resulting in an accounting
gain of $23,043 for the change in fair value of the derivative liability. On
September 11, 2006 the Company paid the remaining balance due on this
convertible debenture.

F-14

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7 OPERATING LEASE COMMITMENTS

As part of the acquisition of Company's subsidiary ESI, the Company assumed
leases on certain office space and equipment under operating leases. In June
2004, ESI began discussions with the managing agents for the Mt Arlington
headquarters space regarding the need to reduce the office rent expense in light
of the reduced revenue base and reduced staffing. In July, a revised lease was
signed effective August 1, 2004 through the end of the original lease term
wherein ESI reduced the space it occupied and received a corresponding reduction
in the office rent charged.

In April, 2006, the Company renegotiated its lease for office space at the Mount
Arlington office, which supersedes the former lease starting April 1, 2006. The
revised lease extends the term through April 30, 2010. The following is a
schedule of future minimum rental payments on office space (exclusive of common
area charges) required under this new operating lease:

April 1, 2006 - December 31, 2006 $ 85,082
January 1, 2007 - December 31, 2007 $ 116,395
January 1, 2008 - December 31, 2008 $ 120,191
January 1, 2009 - April 30, 2010 $ 41,750

Rent expense of $ 81,210 and $ 68,188 was recorded by the Company for the nine
months ended September 30, 2006 and 2005 respectively. In addition to the base
rent, the Company also pays for utilities and for its share of increases in
operating costs over a base period.

The following is a schedule of future minimum rental payments on operating
leases on office equipment that have initial or non-cancelable lease terms in
excess of one year as of September 30, 2006:

January 2007 - December 31, 2007 16,926

The Company has been in negotiations with one lessor to terminate the lease
agreement signed by ESI and return all equipment in exchange for a payment of a
reduced settlement amount significantly less then the remaining stream of lease
payments due. The full remaining lease payments due, including all payments in
arrears, would have been approximately $ 107,000. The Company signed and
executed an agreement in January 2006 wherein the Company would pay 2 payments
of $ 10,500 in February and March 2006 (said payments having been made) as
settlement of all past and future charges associated with this lease.

The Company is also in negotiations with another lessor to terminate several
lease agreements for office equipment. All of the equipment under leases has
been returned to the lessor, in some cases prior to the expiration of the agreed
lease period. Approximately $ 30,000 is due on all operating leases with this
lessor thru the end of their respective terms. The Company is seeking to
negotiate a lower settlement amount but has recorded the full $ 30,000 under
current liabilities.

Further, the Company is in negotiations with this lessor to terminate a capital
lease which has an expiration date of December 2006. Again, the Company has
returned the equipment and is attempting to negotiate a settlement amount. The
payments due under the full lease agreement including those in arrears would be
approximately $25,000. The liability reflected under Capital leases payable as
of 9/30/2006 includes approximately $ 24,000 (current & non-current) for this
lease based on the normal amortization of lease payments. An additional $ 5,000
has been accrued to cover the maximum payments due if no concession is received.

8 RETIREMENT PLAN

As part of the acquisition the Company's subsidiary ESI, the Company assumed a
deferred compensation plan (401(k) plan) from ESI-NJ under which eligible
employees are permitted to elect the amount of their salary deferrals, subject
to certain statutory limitations. Currently, the Company's subsidiary provides a
10% match on all eligible employee deferrals and at its option, may add a profit
share match. The gross 401(k) matching contribution expense (before reductions
from forfeitures) for nine months ended September 30, 2006 and 2005 was $ 5,887
and $5,389 respectively.

F-15

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9 UNCOMPLETED PROJECTS

Costs and billings on uncompleted projects as of September 30, 2006 are
summarized as follows:

Costs incurred on uncompleted projects ...................................... $ 2,147,743
Estimated earnings ( losses ) ............................................... (613,783)
-----------
Less: Billings to date ..................................................... 1,249,207
-----------

Totals ............................................................. $ 284,753
===========
Included in the accompanying balance sheets under the following captions:

Costs and estimated earnings (losses) in excess of billings on uncompleted $ 284,753
projects
-----------

Net ......................................................................... $ 284,753
===========

10 DEFERRED REVENUES

The total deferred revenues at September 30, 2006 were $461,798, of which
$125,000 is shown as a current liability based on management's estimate of
progress that will be made in the next twelve months.

Deferred revenues at September 30, 2006 include $202,000 for a fixed price
project, and $259,794 for the remediation of the Northvale property.

11 PROPERTY HELD FOR SALE

The Company's subsidiary ESI purchased an industrial property in Cleveland, Ohio
from its major customer for $59,298. The site requires remediation costs before
the property can be sold. Management estimates the remediation liability to
approximate the cost of the property. As such, a remediation liability in the
amount of $59,298 has been recorded and is included in accrued expenses on the
balance sheet in the accompanying financial statements.

12 CAPITAL LEASES

The Company assumed certain capital leases entered into by Company's subsidiary
ESI having lease expirations in various years through 2006. The assets and
liabilities under capital leases are recorded at the lower of the present value
of minimum lease payments or the fair values of the asset at the inception of
the lease. The assets are amortized over the lower of their related lease terms
or their estimated productive lives. One capital lease has not matured as of
September 30, 2006 and as noted previously in Note 7 under Operating Leases, the
leased equipment has been returned and negotiations are in progress to terminate
the lease based on a reduced payment of past and future lease payments due. The
asset has been fully amortized through expense based on the return of the
equipment.

13 MEDICAL BENEFITS PROGRAM

The Company's subsidiary ESI self-insures a portion of their employee medical
benefits. The Company's exposure is limited on both an individual employee and
aggregate basis. Employees contribute a portion of the insurance costs and the
program is administered by a third party. Expenses for the company's portion of
claims plus insurance premiums for the nine month periods ended September 30,
2006 and 2005 were $169,284 and $170,427 net of amounts contributed by
employees.

Accrued employee benefits of $41,417 at September 30, 2006, has been recorded
for the cost of the "tail" for the semi self-insured plan. This "tail" only
becomes payable when the current plan is terminated. Management has no immediate
plans to terminate the plan and therefore the liability has been recorded as
non-current.

F-16

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

14 SEGMENT INFORMATION

GS CleanTech currently operates three business segments: Environmental Services
and Process Engineering. Summarized financial information about each segment is
as follows:

-------------- --------------- --------------- --------------- ---------------
Corporate Environmental Process Technology Total
Services Engineering Development
-------------- --------------- --------------- --------------- ---------------
For the three months ended
9/30/2006:

Revenue

2006 -- $ 4,264,547 $ 265,008 -- $ 4,529,555
2005 -- 4,513,793 -- -- 4,513,793

Operating Income
2006 (202,236) 423,841 (569,819) (215,561) (563,774)
2005 (248,985) 472,884 -- -- 223,899

For the nine months ended 9/30/2006:

Revenue
2006 -- 13,094,262 457,324 -- 13,551,586
2005 -- 12,858,880 -- -- 12,858,880

Operating Income
2006 (2,181,565) 839,240 (1,246,919) (414,217) (3,003,461)
2005 (286,971) 923,157 -- -- 636.188

Total Assets
2006 4,477,360 5,750,924 2,840,382 2,001,135 15,069,801
2005 4,728,124 5,766,805 -- -- 10,494,929

15 ACQUISITIONS

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

GS INDUSTRIAL DESIGN, INC.

On January 22, 2006, GS CleanTech acquired 100% of the stock of GreenShift
Industrial Design Corporation and Tornado Trash Corporation ("TTC") from
GreenShift Corporation ("GreenShift") in return for 10% of the fully diluted
stock in GS CleanTech. GreenShift Corporation previously held approximately 70%
of the fully diluted capital stock of GS CleanTech Corporation at the time of
this transaction, and due to the transfer of assets between companies under
common control these transfers were recorded at cost for accounting purposes.
GreenShift Industrial Design Corporation was subsequently renamed GS Industrial
Design, Inc. ("GSID").

GSID is an early stage company that focuses on the engineering and marketing of
clean technologies and processes that enhance manufacturing efficiencies improve
resource utilization and minimize waste. GSID's mission is to use its array of
clean technologies and applied engineering expertise that reduce waste at the
source and make it easier for people and businesses to recycle and reuse
resources.

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

F-17

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

15 ACQUISITIONS (CONTINUED)

GS ENVIROSERVICES AND GS CLEANTECH VENTURES

On July 1, 2006, GS CleanTech Corporation acquired from its majority
shareholder, GreenShift Corporation, 100% of the outstanding capital stock of GS
EnviroServices, Inc. (f/k/a GreenWorks Corporation) and 100% of the outstanding
capital stock of GS CleanTech Ventures, Inc.

GS EnviroServices, Inc. owns an environmental engineering business called
Enviro-Sciences (of Delaware) Corporation. GS CleanTech Ventures holds equity
stakes in General Hydrogen Corporation, General Ultrasonics Corporation, Ovation
Products Corporation, and Aerogel Composite, Inc.

In exchange for the shares in GS EnviroServices and GS CleanTech Ventures, GS
CleanTech assumed GreenShift's obligations under certain debentures in the
principal amount of $1,900,000. GS CleanTech has also agreed to amend the Series
D Preferred Stock now held by GreenShift to increase the portion of GS
CleanTech's equity represented by the Series D shares from 70% to 80%.

The consolidated financial statements include the financial statements of GS
EnviroServices, Inc. and GS CleanTech Ventures, Inc. Due to the fact that these
entities were acquired from GreenShift Corporation, a related party, the of
these entities are included from January 1, 2005.

16 SUBSEQUENT EVENTS

GUARANTY AGREEMENT

On October 31, 2006 GS CleanTech guaranteed the following obligations:

o 14-month Term Note in the principal amount of $6,000,000 issued by
NextGen Acquisition, Inc., to Stillwater Asset-Based Fund, LP;

o 3-year Secured Convertible Debenture in the principal amount of
$13,000,000 issued by GS AgriFuels Corporation to Cornell Capital
Partners, LP.

GS CleanTech's guaranty was secured by a pledge of its assets. The proceeds of
the financing transactions were used to fund the acquisition by GS AgriFuels
Corporation of NextGen Fuels, Inc., a current customer of GS Energy's Warnecke
Design manufacturing subsidiary.

GS AgriFuels Corporation is a subsidiary of GreenShift Corporation, which owns
80% of the equity in GS CleanTech Corporation. NextGen Acquisition, Inc., is a
subsidiary of GS AgriFuels Corporation.

17 DISCONTINUED OPERATIONS

During 2003, ESI discontinued the operations of its construction division. The
decision to dispose of this component was based on significant losses incurred
and a desire for a greater focus on its consulting division. Net sales of the
construction division for the nine-months ended September 30, 2006 and 2005 were
$ 211,506 and $283,008 respectively resulting in losses from operations of $
68,488 in 2006 and $ 23,157 in 2005.

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

F-18

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

17 DISCONTINUED OPERATIONS (CONTINUED)

The results of the construction division and recycling businesses are recorded
as discontinued operations, of which the components are as follows:

Sept 30, 2006 Sept 30, 2005
-------------- --------------

Net revenues ................................................ $ 211,859 $ 1,535,821
Cost of revenues ............................................ 286,543 1,554,255
----------- -----------
Gross profit ..................................... (74,684) (18,434)

Selling expense ............................................. -- 69,617
General and administrative expense .......................... (1,929) 310,667
----------- -----------
Total ............................................ $ (1,929) $ 380,284

Loss from operations ........................................ (72,755) (398,718)

Interest expense ............................................ $ (249) $ (23,298)
Other income and expenses ................................... -- (2,865,960)
----------- -----------
Total ............................................ (249) (2,889,258)

Loss before provision for income taxes ...................... $ (73,004) $(3,287,976)

Total provision for tax ..................................... (2,538) 1,501
----------- -----------
Net loss from discontinued operations ............ $ (75,541) $(3,289,477)
Gain on disposal of discontinued operations 34,469 3,041
----------- -----------
Total - discontinued operations .......... $ (41,072) $(3,286,436)

The results presented above for 2006 and 2005 include the operating activity for
the construction and recycling operations for the 9 month period. Assets and
liabilities of the construction and recycling businesses were reported as net
assets and net liabilities (current and net of current) of discontinued
operations at September 30, 2006. Assets and liabilities of discontinued
operations as of September 30, 2006 are as follows:

Assets of discontinued operations:

Accounts Receivable, net ......................... $ 81,671
Cost and earnings in excess of billings ....... 9,320
Machinery & equipment, net .................... 809
Deposits ...................................... 7,500
--------
Total assets of discontinued operations .. $ 99,300

Current liabilities of discontinued operations:
Accounts payable .............................. $496,453
Accrued and other liabilities ................. 246,175
--------
Total current liabilities of discontinued operations $742,268

18 CONTINGENCIES

Legal Proceedings

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

F-19

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

18 CONTINGENCIES (CONTINUED)

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

The Company received a federal grand jury subpoena from the Middle District of
Pennsylvania requiring the production of original records in regards to an
incident that occurred in February of 2004, where a tanker truck of liquid
wastes, shipped from the Company's New Jersey recycling facility by a private
carrier to a destination in Pennsylvania, overheated on the highway, causing no
injuries, but requiring emergency response services, including redirecting
traffic. The Company cooperated fully in the investigation. On July 27, 2006,
the Company was notified that the U.S. Department of Justice has officially
declined further investigation or prosecution of this case.

The Company is subject to a number of complaints from the New Jersey Department
of Environmental Protection ("NJDEP") related to past operations at Paterson
from 1999 to 2004. The final penalty from the New Jersey Department of
Environmental Protection was settled at $272,000. As of September 30, 2006, the
Company has a reserve $213,270 to cover the balance of assessed penalties. The
Company may not have the funds available to settle the case, which could impact
continuing operations.

The Company's subsidiary ESI is the subject of several lawsuits, none of which
the Company has assumed responsibility for. It is, however, possible that the
Company may, in certain cases, be found to be responsible and may be required to
make settlements with the Plaintiffs.

The Company was a defendant in a lawsuit where a vendor was seeking damages for
non-payment in the amount of $251,291. This obligation was paid by the end-user,
a customer of the Company. The Company has reached a settlement with the
end-user. This amount is included in the $659,487 settlement discussed below.

The Company is a defendant in a lawsuit where a vendor is seeking payment for
trucking services in the amount of $56,591. A judgment has been entered against
The Company in this matter. Satisfaction of this obligation is expected to be
paid by the end-user in August 2006 pursuant to the settlement agreement reached
with the end user. This amount is included in the $659,487 settlement discussed
below.

The Company and a customer have outstanding claims against each other in
connection with remediation services, which were provided by The Company. No
action was filed and both parties executed a settlement in May of 2006 whereby
the customer will make payments directly to the Company's third party vendors
for services provided on the customer's sites. The amount agreed to is
approximately $665,000, which has been offset against accounts payable. The two
lawsuits referenced above of $251,291 and $56,591 respectively are included in
the $665,000. In conjunction with the write off of the accounts payables the
Company has also written off over $4,000,000 of current assets consisting
accounts receivables and unbilled earned revenues.

The Company is a defendant in an action that a customer filed claiming The
Company was negligent in its failure to recognize asbestos contamination in its
Phase I Environmental report and is seeking damages of $650,000. The Company's
insurance carrier is vigorously defending the matter and the amount appears to
be within policy limits. Additionally, the Company has accrued $25,000 which is
the maximum amount for which the Company would be responsible.

The Company was a defendant in this litigation where a third party claimed
injuries at a Company job site. The suit claimed the injuries were the result of
The Company's staff's negligence. A settlement was reached with The Company's
insurance carrier within The Company's policy limits and thus The Company had no
exposure to the claim.

The Company is a defendant in this litigation where the plaintiff is seeking to
recover a bankruptcy preference payment in the amount of $16,875. The Company
believes it will be required to pay this amount and therefore we have accrued
this in our financial statements.

The Company is a plaintiff in this action where it seeks to recover $225,000 for
services performed. The customer filed a counter-claim for certain alleged
damages, which was dismissed with prejudice. A trial date has yet to be
determined. The Company believes there is a reasonable likelihood that it will
be successful in this litigation for the collection of the final contract
payment plus accrued interest earned in the trust accounts.

F-20

GS CLEANTECH CORPORATION (F/K/A/ VERIDIUM CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

18 CONTINGENCIES (CONTINUED)

The Company is involved in several other complaints with vendors. Total damages
the vendors are seeking payment for is included in accounts payable. Management
does not believe there will be any additional expenses related to these
complaints.

Other Contingencies

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

Under the Company's insurance programs, coverage is obtained for catastrophic
exposures, as well as those risks required to be insured by law or contract. The
deductible per occurrence for environmental impairments is $25,000.
Environmental liability insurance is carried with policy limits of $3,000,000
per occurrence and $6,000,000 aggregate.

Viridis Capital, LLC, an affiliate of Kevin Kreisler, assumed a $75,000 debt
payable to Lakeland Bank and assigned this debt to GreenShift, another affiliate
of Kevin Kreisler. Lakeland Bank has not released the Company of this debt
obligation.

The Company has failed to comply with certain registration requirements for
stock issued to certain debt holders.

AMENDMENT TO ARTICLES OF INCORPORATION

Effective on July 18, 2006, the Corporation filed with the Delaware Secretary of
State a Certificate of Amendment of its Certificate of Incorporation. The
amendment changed the name of the corporation to "GS CleanTech Corporation."

F-21

NOTE RE FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 2005 AND 2004

During the years ended December 31, 2005 and 2004, the name of the Company was
"Veridium Corporation." The Company changed its name in July 2006. Accordingly,
the financial statements of the Company for the years ended December 31, 2005
and 2004 refer to the Company as "Veridium Corporation."

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

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

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

/s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
April 14, 2006

F-22

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

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

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

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

F-23

VERIDIUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2005

ASSETS:
Current assets:

Cash ....................................................... $ 334,128
Restricted cash ......................................... 29,254
Accounts receivable, net ................................ 2,176,383
Net current assets
of discontinuance of operations ............................ 34,562
Prepaid expenses and other current assets ............... 172,382
------------
Total current assets ................................ 2,746,709

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

Other Assets:
Net non-current assets of discontinuance of operations .. 10,552
Deposits ................................................ 104,498
Permits, net ............................................ 189,523
Goodwill, net ........................................... 4,010,303
------------
Total other assets .................................. 4,314,876
------------

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

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

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

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

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

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

Stockholders' equity:
Convertible preferred stock, $0.001 par value,
5,000,000 shares authorized:
Series A: 1,881,366 shares issued and outstanding ..... 1,881
Series B: 1,646,218 shares issued and outstanding ..... 1,646
Series C: 750,000 shares issued and outstanding ....... 750
Common stock, $0.001 par value, 250,000,000 authorized;
76,777,778 shares issued and outstanding ................ 76,778
Additional paid-in capital .............................. 41,729,483
Accumulated deficit ..................................... (46,012,242)
Treasury stock at cost, 161,266 shares of common stock .. (63,754)
------------
Total stockholders' equity (deficit) ................ (4,265,458)
------------

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

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

F-24

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

12/31/05 12/31/04
(as restated)
-----------------------------

Revenues ......................................................... $ 13,962,113 $ 10,627,940
Cost of revenues .............................................. 10,543,944 7,793,397
------------ ------------
Gross profit ................................................ $ 3,418,169 $ 2,834,543

Operating expenses:

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

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

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

Loss before provision for income taxes ........................... (1,846,063) (3,083,663)

Provision for income taxes ....................................... 19,165 15,218
------------ ------------

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

Discontinued operations:

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

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

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

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

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

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

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

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

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

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

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

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

F-25

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

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

Balance at 1/1/04 (as restated) 1,881,366 $1,881 945,992 $946 -- $ -- 23,379,916 $23,380

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

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

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

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

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

F-26

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

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

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

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

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

F-27

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

12/31/05 12/31/04
----------------------------
(as restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Continuing Operations

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

Discontinued Operations
Net loss from discontinued operations ................................... (3,832,630) (3,357,119)
Change in net assets of discontinued operations ......................... 3,012,802 1,155,559
----------- -----------
Net cash used in discontinued operations ................................ (819,828) (2,201,560)

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

CASH FLOWS FROM INVESTING ACTIVITIES

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

Net used in investing activities ................................. (335,592) (11,998)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES

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

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

Increase (decrease) in cash ............................................. (762,199) 1,006,935
Cash at beginning of year ............................................... 1,096,327 89,392
----------- -----------
Cash at end of year ..................................................... $ 334,128 $ 1,096,327
=========== ===========

The Notes to Consolidated Financial Statements are an
integral part of these statements.
F-28

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

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

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

COMPANY BACKGROUND

The Company was formed in 1984 as KBF Pollution Management, Inc. ("KPMI") and
was merged with its wholly owned subsidiary, Veridium Corporation in 2003 after
completing the acquisition of the former Environmental Services Division of R.M.
Jones & Co., Inc. ("ESD"), Enviro-Safe, Corp. ("ESC"), and Metal Recovery
Transportation, Corp., ("MRTC"). These acquisitions were completed to form a
full service environmental company, operating throughout the New England,
Northeast and Mid-Atlantic States. As of December 31, 2005 we operated out of
four service centers: our RCRA Part B permitted TSDF in Lowell, Massachusetts,
our field service operations in Sandwich and Milford, Massachusetts; and our
technical services center in Plainville, Connecticut. Veridium conducts all
commercial activities through its various subsidiaries, Veridium Environmental
Corporation ("VEC") and Veridium Recovery Systems, Inc. ("VRS"). VEC, in turn,
is the sole owner of ESD, the sole owner of Jones Environmental Services (North
East), Inc., our Massachusetts-based RCRA Part B Treatment, Storage and Disposal
Facility ("TSDF") and Enviro-Safe Corporation ("ESC") our field services
company. VRS is the sole owner of American Metals Recovery, Corp. ("AMRC"), our
discontinued New Jersey recycling operation, and MRTC, our discontinued
transportation company (see Note 4). On January 23, 2006, Veridium acquired
GreenShift Industrial Design Corporation ("GIDC") and Tornado Trash Corporation
("TTC"). GIDC was subsequently renamed to Veridium Industrial Design Corporation
("VIDC"). These acquisitions are part of the Veridium's plans to revitalize its
industrial waste recycling business model following Veridium's the
discontinuance during 2005 of the AMRC and MRTC operations.

BUSINESS STRATEGY

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

2 GOING CONCERN

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

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

F-29

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2 GOING CONCERN (continued)

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

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

PRINCIPLES OF CONSOLIDATION

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

REVENUE RECOGNITION

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

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

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

RECEIVABLES AND CREDIT CONCENTRATION

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

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

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

Accounts receivable (excluding $40,000
from discontinued operations) 2,346,000
Less: allowance for doubtful accounts
(excluding ($5,000) from discontinued ops.) (170,000)
-----------
Accounts receivable, net $ 2,176,000

The Company has a revolving line of credit which is secured with a percentage of
the accounts receivable presented above. This collateral as of December 31, 2005
was approximately $1,913,000.

CASH AND EQUIVALENTS

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

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

F-30

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

CASH AN EQUIVALENTS (continued)

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

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

NET LOSS PER COMMON SHARE

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

PROPERTY AND EQUIPMENT

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

GOODWILL AND INTANGIBLE ASSETS

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

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

DEFERRED FINANCING CHARGES AND DEBT DISCOUNTS

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

F-31

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

DERIVATIVE FINANCIAL INSTRUMENTS

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

ENVIRONMENTAL LIABILITIES

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

INCOME TAXES

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

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

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

STOCK BASED COMPENSATION

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

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

Restated
12/31/05 12/31/04
----------- ----------

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

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

F-32

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

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

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

RECLASSIFICATIONS

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

FINANCIAL INSTRUMENTS

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

NEW ACCOUNTING PRONOUNCEMENTS

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

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

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

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

4 DISCONTINUED OPERATIONS

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

F-33

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4 DISCONTINUED OPERATIONS (continued)

2005 2004
---- ----

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

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

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

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

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

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

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

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

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

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

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

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

Land $ 275,000
Buildings 400,000

F-34

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5 PROPERTY AND EQUIPMENT (continued)

Machinery and equipment 22,460
Office equipment, computers and fixtures 60,283
Leasehold improvements 169,803
Vehicles 795,762
----------
Total property and equipment $1,723,308
Accumulated depreciation and amortization (331,229)
----------
Property and equipment, net $1,392,079
==========

In May 2003, and in connection with its two acquisitions of ESD, Veridium
assumed certain non-interest-bearing term financing. The outstanding principal
balance of $100,000 is secured by a first mortgage interest in Veridium's
Lowell, MA property (see buildings above).

All property and equipment serves as collateral for the debt held by GCS
Investments (see Note 8).

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

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

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

F-35

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6 ACQUISITIONS

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

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

Purchase Price:

Cash paid to sellers

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

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

Total Purchase Price .............................................................. $ 611,750
Allocation of purchase price:
Fair value of assets acquired
Current assets ............................................................... $ 233,853
Property and equipment ....................................................... 175,280
Goodwill ..................................................................... 521,629
---------
Total assets acquired $ 930,762
Less: liabilities assumed
Current liabilities .......................................................... $(242,880)
Long term debt ............................................................... (76,132)
---------
Total liabilities assumed ............................................... $(319,012)

ACQUISITIONS - SUBSEQUENT EVENTS

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

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

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

F-36

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6 ACQUISITIONS (continued)

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

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

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

7 LONG-LIVED ASSETS

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

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

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

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

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

F-37

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8 FINANCING ARRANGEMENTS

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

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

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

Current portion of convertible debentures:
Laurus Master Fund, secured minimum borrowing note ........ $ 1,000,000
Laurus Master Fund, secured revolving note ................ 913,260
GCS demand note ........................................... 1,000,000
Related party convertible note ................................ 265,073
Convertible promissory note - Berger .......................... 78,000
Total current portion of convertible debentures ................ --
$ 3,256,333

Long-term debt:
GCS subordinate balloon note, 12%, due April 2007 ......... $ 1,547,500
Vehicle loans and other current obligations .................... 343,941
Total long-term debt, net of current maturities
-----------
$ 1,891,441

Convertible debt, net of current portion:
GCS debenture, 10% convertible debenture, due December 2008 $ 1,138,471
Less: debt discount ....................................... (511,560)
-----------
Total convertible debentures, net of current maturities $ 626,911

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

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

SHORT TERM BORROWINGS:

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

TERM FINANCING

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

F-38

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8 FINANCING ARRANGEMENTS (continued)

DEMAND NOTE - GCS

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

SUBORDINATED BALLOON NOTE - GCS

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

CONVERTIBLE PREFERRED DEBENTURE - GCS

In December 2003, and in connection with the requirements of the GCS Demand
Note, GCS' affiliates converted $1.184 million in debt into convertible
preferred debt securities of Veridium (the "GCS Debenture"). This instrument is
to be paid at a rate equal to 2% of Veridium's gross annual revenue on a
quarterly basis, provided that such payments, together with the interest
payments paid to GCS on the GCS Demand Note, do not exceed 30% of Veridium's
EBITDA for such year. These payments shall continue to be made until the sum of
all such payments is equal to $1.184 million, at which time this instrument will
automatically convert into 30,000 shares of Subsidiary

F-39

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8 FINANCING ARRANGEMENTS (CONTINUED)

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

CONVERTIBLE NOTES - LAURUS MASTER FUND

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

RELATED PARTY CONVERTIBLE NOTE

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

CONVERTIBLE PROMISSORY NOTE - BERGER

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

F-40

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8 FINANCING ARRANGEMENTS (CONTINUED)

VEHICLE LOANS

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

9 MINORITY INTEREST

As a condition precedent to Veridium's closing of the Senior Loan, Veridium's
pre-consolidation New World Recycling ("NWR") notes totaling $925,000 ("the NWR
Debt") were, on December 19, 2003, converted into 92,500 shares of a non-voting
class of preferred equity in Veridium's American Metals Recovery, Corp. ("AMRC")
subsidiary, the Subsidiary Preferred Equity, with a par value of $0.001.
Subsidiary Preferred Equity holders were to receive a quarterly dividend ranging
from 3% to 5% of AMRC's annualized revenue, limited to 30% of AMRC's operating
income. AMRC failed to generate operating income in 2005 and 2004, therefore no
dividends were payable in December 2005 and 2004. The shares could not be
liquidated or transferred. Shares of Subsidiary Preferred Equity could be
converted at the holder's option at fixed conversion price based on average
closing price for the 60 day trading period prior to April 2, 1999. There was no
expiration date associated with the conversion option. In December 2004,
$100,000 of the Minority Interest was converted into 500,000 shares of
Veridium's common stock and a five-year option to purchase 250,000 shares of
Veridium's common stock at $0.10 per share.

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

10 RELATED PARTY TRANSACTIONS

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

CERTAIN INVESTMENTS RECEIVED DURING 2005

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

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

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

F-41

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10 RELATED PARTY TRANSACTIONS (CONTINUED)

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

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

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

Compensation During 2005 and 2004

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

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

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

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

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

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

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

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

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

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

F-42

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10 RELATED PARTY TRANSACTIONS (CONTINUED)

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

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

Compensation During 2005 and 2004

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

TRANSACTIONS WITH THE COMPANY'S INDEPENDENT BOARD MEMBERS

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

Compensation During 2005 and 2004

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

DURING 2004, STEPHEN LEWEN AND JAMES HANRAHAN RECEIVED 258,900 FIVE YEAR OPTIONS
EXERCISABLE AT $0.05 PER SHARE
- --------------------------------------------------------------------------------

for their services as members of the board of directors.

OTHER RELATED PARTY TRANSACTIONS

Additional Transactions with Immediate Family Members of Kevin Kreisler

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

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

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

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

11 COMMITMENTS AND CONTINGENCIES

EMPLOYMENT AGREEMENTS

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

OPERATING LEASES

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

F-43

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11 COMMITMENTS AND CONTINGENCIES (continued)

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

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

CAPITAL LEASES

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

Total minimum lease payments ..................................... $33,353

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

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

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

2005
Equipment .............................. $394,000
Less: accumulated amortization ......... 238,389
Less: Discontinuance of operations ..... 155,255
--------
Equipment under capital leases, net $ --

LEGAL PROCEEDINGS

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

F-44

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11 COMMITMENTS AND CONTINGENCIES (continued)

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

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

OTHER CONTINGENCIES

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

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

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

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

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

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

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

12 INCOME TAXES

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

2005
Deferred Tax Asset:
Net operating loss carry forwards ....... $6,106,000
Allowance for doubtful accounts ......... 101,000
Severance ............................... --
Property, equipment and intangible assets 5,210,000
----------
F-45

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12 INCOME TAXES (continued)

Total deferred tax assets 11,417,000
Less: Valuation allowance (11,417,000)
------------
Net deferred tax assets . $ --
============

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

AUTHORIZATION

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

ANTI-DILUTION AND PRICE PROTECTION AGREEMENTS

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

13 STOCKHOLDERS' EQUITY

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

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

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

At December 31, 2005, a consultant was owed $64,250, payable in common stock,
which is price protected so that the ultimate proceeds will equal the remaining
contract obligation. The accrued obligation would require 3,212,500

F-46

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13 STOCKHOLDERS' EQUITY (continued)

shares if settled at December 31, 2005. In addition, the Company has recorded a
derivative liability at December 31, 2005 for the price-protected feature, fair
valued at $29,102.

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

STOCK OPTIONS AND WARRANTS

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

STOCK OPTION AND ISSUANCE PLANS

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

F-47

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13 STOCKHOLDERS' EQUITY (continued)

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

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

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

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

$0.40 to $0.99 8,953,900 5.90 0.27 6,408,900 0.30
$1.00 to $8.00 746,527 3.89 2.39 746,527 2.39
--------------- -----------------
9,700,427 7,155,427
- --------------------------------------------------------------------------------------------------------------------

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

Weighted
Average Exercisable
Number of Remaining Weighted ---------------------------------
Range of Exercise Prices Options Contractual Average Number of Weighted Average
Outstanding Life Exercise Price Options Exercise Price
- --------------------------------------------------------------------------------------------------------------------
Number of Options Weighted Average
Exercise Price
- --------------------------------------------------------------------------------------------------------------------

$0.40 to $0.99 8,953,900 5.90 0.27 6,408,900 0.30
$1.00 to $8.00 746,527 3.89 2.39 746,527 2.39
--------------- ------------------
9,700,427 7,155,427

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

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

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

F-48

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13 STOCKHOLDERS' EQUITY (continued)

DEBT AND OTHER LIABILITIES SETTLED WITH COMMON STOCK

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

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

STOCK AND OPTIONS ISSUED FOR SERVICES

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

EXERCISE OF STOCK OPTIONS

No options were exercised during 2005 and 2004.

INVESTMENT ACTIVITY

In the year 2005, there were no investment activities.

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

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

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

SERIES A PREFERRED STOCK

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

SERIES B PREFERRED STOCK

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

F-49

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13 STOCKHOLDERS' EQUITY (continued)

2004. During 2004, an additional 815,226 shares of Series B Preferred Stock were
issued in connection with the transactions detailed above. During 2005, 225,000
shares were issued for services and subsequently converted into common stock
(see below). The preferred shares could not be converted into common stock until
December 31, 2005 in the absence of a change of control or other merger or
acquisition event. Each share of Series B Preferred Equity may be converted by
the holder into twenty-five shares of common stock and are subject to customary
anti-dilution adjustments. The holders would be entitled to cumulative dividend
rights equal to that of twenty-five common shareholders upon the declaration of
dividends on common stock, and have voting privileges of five votes to every one
common share. Certain of the series B shares owned by Greenshift are price
protected in the amount of $516,968. Shares owned by James Green are dilution
protected in the amount equivalent to 10% of the fully diluted capital stock.
There is no expiration date associated with the conversion option. At all times
prior to conversion, each share of Series B Preferred Equity has the equivalent
voting power of twenty-five shares of Veridium's common stock. Each share of
Series B Preferred Equity entitles its holder to receive cumulative annual cash
or stock dividends as defined in the agreement.

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

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

SERIES C PREFERRED STOCK

The Series C Preferred Stock acquired by GreenShift (see above) in December 2004
could not be converted into common stock until December 31, 2005 in the absence
of a change of control or other merger or acquisition event. Each share of
Series C Preferred Stock may then be converted into twenty-five shares of common
stock, subject to certain anti-dilution and price-protection adjustments that
are specified in the Certificate of Designation of the Series C Preferred Stock.
The adjustments to contingently convertible shares are determined annually at
each "Adjustment Date" on December 31, 2005 and 2006. There is no expiration
date associated with the conversion option. Based on the anti dilution
provisions of the Series C Preferred Stock the Company measured the potentially
convertible shares at the initial Adjustment Date of December 31, 2005 and,
consequently, the company recognized a beneficial conversion feature of
$1,038,630 due to the incremental intrinsic value of the additional issuable
shares at December 31, 2005. At all times prior to conversion, each share of
Series C Preferred Stock has voting power equivalent to twenty-five shares of
all Veridium's common stock. The holders would be entitled to cumulative
dividend rights equal to that of twenty-five common shareholders upon the
declaration of dividends on common stock, and have voting privileges of five
votes to every one common share.

STOCK REDEMPTIONS

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

BENEFICIAL CONVERSION FEATURE

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

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

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

F-50

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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

2005 2004
-------------------------
Cash paid during the year for the following:

Interest ........................................................ $ 542,144 $ 339,914
Income Taxes
Supplemental Schedule of Non-Cash Investing and Financing Activities:

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

Common stock issued upon settlement of payables ................. 41,750 --
Common stock issued upon conversion of preferred stock .......... 8,500 --
Settlement of related party accounts payable
nd debt with the issuance of stock ............................ 223,632 105,107
Redemption of related party stock via related party loan ........ 116,667 --
Value of warrants issued for deferred financing
costs in connection with senior loan ........................... -- 7,268
Value of beneficial conversion feature on convertible debt ...... 20,165 --
Value of beneficial conversion feature on
convertible preferred stock ................................. 3,647,083 2,608,453
Recognition of liabilities on derivative instruments ......... 151,114 --
Equity issued for deferred financing costs ...................... -- 82,500
Conversion of subordinate loan into equity ...................... -- 454,171
Deferred financing costs associated with stock issuance ......... -- 50,000
Issuance of warrants for deferred financing costs ............... -- 489,229
Settlement of accounts payable with short term notes ............ -- 603,814
Debt issued in connection with deferred financing costs ......... -- 30,500
Acquisition of equipment and/or vehicles with long-term debt .... 306,565 120,998
Asset capitalized as part of asset retirement cost .............. -- 99,130
In connection with the NCES acquisition:
Net assets acquired including goodwill,
excluding cash equivalents .................................. $ 574,978 --
Less: Short term note payable issued .............................. (128,000) --

Fair value of common stock issued .................. (75,000) --
----------- -----------
Net cash paid at acquisition ........................................ $ 371,948 --
In connection with the Laurus transaction:
Debenture paid .................................................. -- 250,000
Payment of subordinate loan ..................................... -- 500,000
Payment of term financing ....................................... -- 100,000
Payment of accounts receivable due factor ....................... -- 470,762
Prepaid expenses paid ........................................... -- 16,945
Deferred financing costs paid ................................... -- 179,376

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

F-51

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15 RETIREMENT PLAN

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

16 SUBSEQUENT EVENTS

ACQUISITION

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

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

SHARE ISSUANCES

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

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

17 RESTATEMENT

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

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

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

F-52

VERIDIUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17 RESTATEMENT (continued)

$2,608,453 in implied preferred dividends during the year ended December 31,
2004.

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

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

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

Year Ended December 31, 2004:
As Reported As Restated
------------ -----------

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

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

* * * * *