UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2006
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-21802
N-VIRO INTERNATIONAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 34-1741211
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3450 W. Central Avenue, Suite 328
Toledo, Ohio 43606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 535-6374
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to the filing requirements for the past 90 days.
Yes X No
----
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
----
As of August 4, 2006, 3,715,559 shares of N-Viro International
Corporation $ .01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
N-Viro International Corporation
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
2006 2005 2006 2005
----------- ----------- ----------- -----------
Revenues $ 952,337 $1,018,040 $1,981,155 $2,154,486
Cost of revenues 554,406 782,500 1,231,131 1,571,796
----------- ----------- ----------- -----------
Gross Profit 397,931 235,540 750,024 582,690
Operating expenses:
Selling, general and administrative 431,700 367,918 913,192 717,080
----------- ----------- ----------- -----------
Operating loss (33,769) (132,378) (163,168) (134,390)
Nonoperating income (expense):
Interest income 1,756 1,030 4,281 2,148
Interest expense (4,049) (8,667) (8,684) (15,852)
Loss from equity investment in joint venture - (67,823) - (123,526)
----------- ----------- ----------- -----------
(2,293) (75,460) (4,403) (137,230)
----------- ----------- ----------- -----------
Loss before income taxes (36,062) (207,838) (167,571) (271,620)
Federal and state income taxes - - -
----------- ----------- -----------
Net loss $ (36,062) $ (207,838) $ (167,571) $ (271,620)
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.01) $ (0.06) $ (0.05) $ (0.08)
=========== =========== =========== ===========
Weighted average common shares outstanding - basic and diluted 3,707,087 3,499,328 3,700,918 3,473,709
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
N-Viro International Corporation
Consolidated Balance Sheets
June 30, 2006 (Unaudited) December 31, 2005
-------------------------- -------------------
ASSETS
-----------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents:
Unrestricted $ 281,785 $ 224,447
Restricted 129,756 128,133
Trade Receivables, net 520,369 600,180
Prepaid expenses and other assets 206,208 204,360
-------------------------- -------------------
Total current assets 1,138,118 1,157,120
Property and Equipment, Net 488,541 382,085
Intangible and Other Assets, Net 883,617 1,037,693
-------------------------- -------------------
$ 2,510,276 $ 2,576,898
========================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 77,451 $ 80,860
Line-of-credit 31,026 80,000
Accounts payable 835,921 833,447
Deferred revenue 23,675 -
Accrued liabilities 203,790 204,109
-------------------------- -------------------
Total current liabilities 1,171,863 1,198,416
Long-term debt, less current maturities 73,936 21,209
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 7,000,000 shares; issued
3,839,059 in 2006 and 3,814,159 in 2005 38,391 38,141
Additional paid-in capital 15,365,356 15,290,831
Accumulated deficit (13,454,380) (13,286,809)
-------------------------- -------------------
1,949,367 2,042,163
Less treasury stock, at cost, 123,500 shares 684,890 684,890
-------------------------- -------------------
Total stockholders' equity 1,264,477 1,357,273
-------------------------- -------------------
$ 2,510,276 $ 2,576,898
========================== ===================
See Notes to Consolidated Financial Statements
N-Viro International Corporation
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30
2006 2005
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 234,106 $ 228,274
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (173,289) -
Expenditures for intangible assets (2,199) (1,830)
Reductions to restricted cash and cash equivalents (1,623) (50,314)
Collections on notes receivable - 43,768
---------- ----------
Net cash used in investing activities (177,111) (8,376)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under long-term obligations 88,973 -
Issuance of stock - options, warrants and private placement - 130,000
Private placement expenditures - (2,935)
Principal payments on long-term obligations (39,656) (44,856)
Net payments on line-of credit (48,974) (150,000)
---------- ----------
Net cash provided (used) in financing activities 343 (67,791)
NET INCREASE IN CASH AND CASH EQUIVALENTS 57,338 152,107
CASH AND CASH EQUIVALENTS - BEGINNING 224,447 147,549
---------- ----------
CASH AND CASH EQUIVALENTS - ENDING $ 281,785 $ 299,656
========== ==========
Supplemental disclosure of cash flows information:
Cash paid during the six months ended for interest $ 9,118 $ 26,293
========== ==========
See Notes to Consolidated Financial Statements
N-VIRO INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Basis of Presentation
The accompanying consolidated financial statements of N-Viro International
Corporation (the "Company") are unaudited but, in management's opinion, reflect
all adjustments (including normal recurring accruals) necessary to present
fairly such information for the period and at the dates indicated. The results
of operations for the six months ended June 30, 2006 may not be indicative of
the results of operations for the year ending December 31, 2006. Since the
accompanying consolidated financial statements have been prepared in accordance
with Item 310 of Regulation S-B, they do not contain all information and
footnotes normally contained in annual consolidated financial statements;
accordingly, they should be read in conjunction with the consolidated financial
statements and notes thereto appearing in the Company's Form 10-KSB for the
period ending December 31, 2005.
The financial statements are consolidated as of June 30, 2006 and December
31, 2005 for the Company. All intercompany transactions were eliminated.
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following are certain significant estimates and assumptions made in preparation
of the financial statements:
Allowance for Doubtful Accounts - The Company estimates losses for
uncollectible accounts based on the aging of the accounts receivable and
the evaluation of the likelihood of success in collecting the receivable.
The balance of the allowance at June 30, 2006 and December 31, 2005 is
$60,000 and $55,000, respectively.
Property and Equipment/Long-Lived Assets - Property and equipment is
reviewed for impairment pursuant to the provisions of Statement of
Financial Accounting Standards (or SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The carrying amount of an
asset (group) is considered impaired if it exceeds the sum of the Company's
estimate of the undiscounted future cash flows expected to result from the
use and eventual disposition of the asset (group), excluding interest
charges. Property, machinery and equipment are stated at cost less
accumulated depreciation. Management believes the carrying amount is not
impaired based upon estimated future cash flows.
Equity Method Investment - The Company accounts for its investments in
joint ventures under the equity method. The Company periodically evaluates
the recoverability of its equity investments in accordance with Accounting
Principals Board Opinion, or APB, Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stock." As of November 2005, the
Company had fully recognized it's share of the equity investment in it's
joint venture to the extent of its investment, including any Notes
Receivable. After that date, the Company has not recorded any additional
loss even though the joint venture has continued to sustain losses, because
of a lack of basis in this investment. The Company has no other investments
accounted for under the equity method.
Intangible Assets - Intangible assets deemed to have indefinite lives
are tested for impairment by comparing the fair value with its carrying
value. Significant estimates used in the determination of fair value
include estimates of future cash flows. As required under current
accounting standards, the Company tests for impairment when events and
circumstances indicate that the assets might be impaired and the carrying
value of those assets may not be recoverable. The Company is also
amortizing the capitalized cost of obtaining its credit facility, for the
additional collateral required and evidenced by a warrant to purchase
50,000 shares of the Company's common stock. The Company estimated this
cost at February 26, 2003 to be $30,000, and is amortizing this over 4
years by the straight-line method.
Fair Value of Financial Instruments - The fair values of cash,
accounts receivable, accounts payable and other short-term obligations
approximate their carrying values because of the short maturity of these
financial instruments. The carrying values of the Company's long-term
obligations approximate their fair value. In accordance with SFAS No. 107,
"Disclosure About Fair Value of Financial Instruments," rates available at
balance sheet dates to the Company are used to estimate the fair value of
existing debt. Income Taxes - The Company assumes the deductibility of
certain costs in income tax filings and estimates the recovery of deferred
income tax assets.
Stock Options - Through December 31, 2005, the Company accounted for
stock-based compensation issued to its employees and directors in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost was recognized through that
period for the stock option plans, as all options granted under the plans
have an exercise price equal to the market value of the underlying common
stock on the date of the grant, except for the options granted in May, 2004
to Michael Nicholson, which is explained further in Note 4,
"Contingencies". The fair value of options granted was determined using the
Black-Scholes option pricing model. In December 2004, SFAS No. 123R,
"Accounting for Stock-Based Compensation" was issued and changed the
accounting for transactions in which an entity obtains employee services in
a share-based payment transaction. For Small Business issuers such as the
Company, the Statement is effective as of the beginning of the first
interim period or annual reporting period that begins after December 15,
2005. The adoption of this standard is reflected in the current period by
the expensing of existing stock options granted in 2004 that vest through
2008 to current optionees, and options granted in the current period to
directors for a board meeting. The Company is uncertain as to any future
grants in the current year to employees or others that may be approved by
the Board.
The following table illustrates the effect on net income (loss) and net income
(loss) per share if the Company had applied the fair value recognition
provisions of Financial Accounting Standards Board (or FASB) Statement No. 123,
"Accounting for Stock-based Compensation" to stock-based employee compensation:
Three Months Ended June 30 Six Months Ended June 30
--------------------- ----------------------
2006 2005 2006 2005
--------- ---------- ---------- ----------
Net loss, as reported $(36,062) $(207,838) $(167,571) $(271,620)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (2005 only) - (54,724) - (81,498)
--------- ---------- ---------- ----------
Pro forma net loss $(36,062) $(262,562) $(167,571) $(353,118)
========= ========== ========== ==========
Loss per share:
Basic and diluted - as reported $ (0.01) $ (0.06) $ (0.05) $ (0.08)
========= ========== ========== ==========
Basic and diluted - pro-forma $ (0.01) $ (0.07) $ (0.05) $ (0.10)
========= ========== ========== ==========
Note 2. Related Party Transactions
On March 1 and June 1, 2006, the Company each time issued 12,500 shares of
unregistered common stock to Timothy Kasmoch, Chief Executive Officer, pursuant
to the terms of his employment agreement agreed to in February, 2006. See Note
4, "Contingencies".
Note 3. Long-Term Debt
The Company presently has a $695,000 credit facility with Monroe Bank +
Trust, or the Bank. This senior debt credit facility is comprised of a $295,000
four year term note at 7.5% and a line of credit up to $400,000 at Prime (8.25%
at June 30, 2006) plus 1.5% and secured by a first lien on all assets of the
Company. Two certificates of deposit totaling $125,000 from the Bank are held
as a condition of maintaining the facility. The Company has currently renewed
the line of credit through October 2006, and is not in violation of any
financial covenants. At June 30, 2006, the Company had $368,974 of borrowing
capacity under the credit facility. The amount owed on the term note as of June
30, 2006 was approximately $62,400 and this term note is expected to be paid in
full in March 2007.
Note 4. Contingencies
The Company leases its executive and administrative office in Toledo, Ohio,
under a lease that extends through February 2007. The Company believes its
relationship with its lessor is satisfactory. The total minimum rental
commitment for the six months ending December 31, 2006 and 2007 is approximately
$18,600 and $6,200, respectively. The total rental expense included in the
statements of operations for the six months ended June 30, 2006 and 2005 is
approximately $18,600 and $18,900, respectively. The Company also leases
various equipment on a month-to-month basis.
In March 2006, the Company's Board of Directors approved a Consulting
Agreement with DJH Holdings, LLC, a company owned by Daniel J. Haslinger, a
current member of the Board and up until February 14, 2006, the Company's Chief
Executive Officer. The consulting arrangement is for a six-month term, is
terminable by DJH Holdings, LLC upon fifteen (15) days notice or by us upon
ninety (90) days notice. Payments under the Consulting Agreement are $9,000 per
month. The Consulting Agreement is effective as of February 13, 2006. A copy
of the Consulting Agreement was attached to a Form 8-K as Exhibit 10.1, filed by
us March 20, 2006.
In March 2006, the Company's Board of Directors approved a Consulting
Agreement with Carl Richard, a current member of the Board. The term of the
Consulting Agreement is one (1) year, is terminable by Mr. Richard upon fifteen
(15) days notice or by us upon ninety (90) days notice. Payments under the
Consulting Agreement are $1,600 per month. The Consulting Agreement is
effective as of February 13, 2006. A copy of the Consulting Agreement was
attached to a Form 8-K as Exhibit 10.2, filed by us March 20, 2006.
In March 2006, the Company's Board of Directors approved a First Amendment
to a Consulting Agreement dated July 1, 2004 with Terry J. Logan, a current
member of the Board. The existing Consulting Agreement was scheduled to expire
on June 30, 2006, and was extended an additional two (2) years from that date.
The existing Consulting Agreement was filed as an exhibit to the Form 8-K filed
on July 2, 2004 by N-Viro International Corporation. All other terms of the
existing Consulting Agreement have been retained, with the exception of Section
5.4, referring to Dr. Logan's stock option compensation, which has been deleted
by the First Amendment. Dr. Logan will continue to be compensated at a base fee
of $87.50 per hour. The First Amendment to the Consulting Agreement is
effective as of February 13, 2006. A copy of the Consulting Agreement was
attached to a Form 8-K as Exhibit 10.3, filed by us March 20, 2006.
In February 2006, the Company executed an Employment Agreement with Timothy
R. Kasmoch. Mr. Kasmoch is now employed by the Company as President and Chief
Executive Officer, and is a member of the Company's Board of Directors. The
Company and Mr. Kasmoch agreed primarily to enter into an employment arrangement
which is for a one-year term, for $60,000 per year plus 50,000 unregistered
shares of stock in the Company. The Employment Agreement is terminable with or
without cause, and is effective at the date of agreement. A copy of the
Employment Agreement was attached to a Form 8-K as Exhibit 10.1, filed by us
February 21, 2006.
In August 2003, the Company entered into a Settlement Agreement with Mr. J.
Patrick Nicholson and negotiated a new consulting agreement (the "Agreement").
The Agreement was scheduled to expire in August 2008, and Mr. Nicholson was
required to provide future services to be eligible for compensation. Mr.
Nicholson was also entitled to payments of $48,000 per year for non-competition
and $6,000 per year for office space reimbursement, in addition to life and
health insurance coverage similar to the provision contained in his 1999
employment and consulting agreements.
In June 2005, Mr. Nicholson filed a Demand for Arbitration, seeking damages
of $50,000 from the Company, based on a claimed breach of the Consulting
Agreement. Mr. Nicholson also seeks rescission of the Agreement and
reinstatement of a prior agreement between him and the Company, which was in
effect prior to the order by the Delaware Chancery Court terminating a
shareholder derivative suit. This arbitration proceeding was previously
reported in a Form 10-QSB filed August 15, 2005. The Company is vigorously
contesting Mr. Nicholson's claims in this proceeding. Discovery is still in
process, and a hearing on the matter is likely to be scheduled for late
September 2006.
On July 13, 2005, the Company's Board of Directors voted to terminate for
cause the Consulting Agreement with J. Patrick Nicholson, based on numerous
specific instances of violations of the terms of the Consulting Agreement by
him. The Consulting Agreement, filed as Exhibit B to the Form 8-K filed August
29, 2003, contained a term ending no earlier than five years from the date of
the contract. Mr. Nicholson is a reporting beneficial owner of approximately
10.6% of the Company's outstanding common stock, as of the date of his Form SC
13D/A filed August 9, 2006. Mr. Nicholson was being paid an aggregate of over
$92,000 per year under the Consulting Agreement, exclusive of any other payouts
earnable. In November 2005, Mr. Nicholson filed an amended complaint pertaining
to his Demand for Arbitration, which added as an additional claim wrongful
termination.
On January 27, 2006, J. Patrick Nicholson applied to the Delaware Chancery
Court for an order to compel the Company to allow him access to inspect its
corporate and business books and records and its stockholder list, pursuant to a
request under Section 220 of the Delaware General Corporation Law. No monetary
relief is sought in this action. The Company contends that the documents sought
by Mr. Nicholson in this action far exceed those to which he is entitled under
Section 220, and principally relate to his claims in the arbitration described
above. The Company is vigorously defending this action and have filed a response
in the Delaware Chancery Court, but no discovery has been conducted, and no
relief has been granted as of the date of this Form 10-QSB.
On July 11, 2006, J. Patrick Nicholson and N-Viro Energy Systems, Inc.
filed a Complaint with Jury Demand in the United States District Court for the
Northern District of Ohio, against the Company and the following members of the
Board of Directors and/or stockholders: Daniel J. Haslinger, Phillip Levin, R.
Francis DiPrete, Terry J. Logan, Ophir Holdings, Inc., Strategic Asset
Management, Inc., Robert A. Cooke and the Cooke Family Trust. The Complaint is
seeking undeterminable damages and other relief from the named defendants, based
on a claimed breach of fiduciary duty, common law fraud and violations of
Section 10(b)(5) of the Securities Exchange Act of 1934. A response to this
Complaint is due by August 25, 2006. The Company is and plans to continue to
vigorously contest this action, and furthermore, feels that the allegations are
without basis and part of a continuing dispute between J. Patrick Nicholson and
the Company.
In June 2003, the Company entered into an Employment Agreement (the
"Agreement") with Michael G. Nicholson, the Chief Development Officer and a
member of the Board of Directors of the Company. The employment agreement will
expire in June 2007, and future compensation amounts are to be determined
annually by the Board of Directors. The agreement was disclosed in a filing on
June 10, 2003 on Form 8-K. In the third quarter of 2004, the Company and Mr.
Nicholson renegotiated primarily the stock option portion of the Agreement, and
amended the Agreement. Because these options were priced lower than the fair
market value as of that date, the Company is required to take a charge to
earnings totaling approximately $68,400 ratably through June, 2007, the ending
date of his employment agreement
The Company operates in an environment with many financial risks,
including, but not limited to, major customer concentrations, customer contract
termination provisions, competing technologies, infringement and/or
misappropriation of intellectual property rights, the highly competitive and, at
times, seasonal nature of the industry and worldwide economic conditions.
Various federal, state and governmental agencies are considering, and some have
adopted, laws and regulations regarding environmental protection which could
adversely affect the business activities of the Company. The Company cannot
predict what effect, if any, current and future regulations may have on the
operations of the Company.
Note 5. New Accounting Standards
In June 2006, the Financial Accounting Standards Board issued Accounting
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109", which clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with FASB Statement No. 109, Accounting for Income Taxes. This
Interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This Interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The Interpretation is effective
for fiscal years beginning after December 15, 2006. The Company does not expect
the application of the provisions of Interpretation No. 48 to have a material
impact on its financial position, results of operations or cash flows.
Note 6. Segment Information
Earnings Variation Due to Business Cycles and Seasonal Factors. The
Company's operating results can experience quarterly or annual variations due to
business cycles, seasonality and other factors. The market price for its common
stock may decrease if its operating results do not meet the expectations of the
market.
For the second quarter of 2006, approximately 45% of the Company's revenue is
from management operations, 45% from other domestic operations, 7% from foreign
sources and 3% from research and development grants. Sales of the N-Viro
technology are affected by general fluctuations in the business cycles in the
United States and worldwide, instability of economic conditions (such as the
current conditions in the Asia Pacific region and Latin America) and interest
rates, as well as other factors. In addition, operating results of some of the
Company's business segments are influenced by particular business cycles and
seasonality, as well as other factors such as interest rates.
Competition. The Company conducts business in a highly competitive market
and has fewer resources than most of its competitors. Businesses in this market
compete within and outside the United States principally on the basis of price,
product quality, custom design, technical support, reputation, equipment
financing assistance and reliability. Competitive pressures and other factors
could cause the Company to lose market share or could result in decreases in
prices, either of which could have a material adverse effect on its financial
position and results of operations.
Risks of Doing Business in Other Countries. The Company conducts business
in markets outside the United States, and expects to continue to do so. In
addition to the risk of currency fluctuations, the risks associated with
conducting business outside the United States include: social, political and
economic instability; slower payment of invoices; underdeveloped infrastructure;
underdeveloped legal systems; and nationalization. The Company has not entered
into any currency swap agreements which may reduce these risks. The Company may
enter into such agreements in the future if it is deemed necessary to do so.
Current economic and political conditions in the Asia Pacific and Middle East
regions have affected the Company outlook for potential revenue there. The
Company cannot predict the full impact of this economic instability, but it
could have a material adverse effect on revenues and profits.
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which segregates its
business by product category and service lines. The Company's reportable
segments are as follows:
Management Operations - The Company provides employee and management
services to operate the Toledo Wastewater Treatment Facility.
Other Domestic Operations - Sales of territory or site licenses and
royalty fees to use N-Viro technology in the United States.
Foreign Operations - Sale of territory or site licenses and royalty
fees to use N-Viro technology in foreign operations.
Research and Development - The Company contracts with Federal and
State agencies to perform or assist in research and development on the Company's
technology.
The accounting policies of the segments are the same as the Company's
significant accounting policies. Fixed assets generating specific revenue are
identified with their respective segments and are accounted for as such in the
internal accounting records. All other assets, including cash and other current
assets and all long-term assets, other than fixed assets, are not identified
with any segments, but rather the Company's administrative functions. All of
the net nonoperating income (expense) are non-apportionable and not allocated to
a specific segment. The Company accounts for and analyzes the operating data
for its segments generally by geographic location, with the exception of the
Management Operations and Research and Development segments. The Management
Operations segment represents both a significant amount of business generated as
well as a specific location and unique type of revenue.
The domestic and foreign operations segments differ in terms of environmental
and municipal legal issues, nature of the waste disposal infrastructure,
political climate and availability of funds for investing in the Company's
technology. These factors have not changed significantly over the past several
years and are not expected to change in the near term.
The Research and Development segment accounts for approximately 3% of the
total year-to-date revenue of the Company, and is unlike any other revenue in
that it is generated as a result of a specific project to conduct initial or
additional ongoing research into the Company's emerging technologies.
The table below presents information about the segment profits and segment
identifiable assets used by the chief operating decision makers of the Company
for the periods ended June 30, 2006 and 2005 (dollars in thousands):
Management Domestic Foreign Research &
Operations Operations Operations Development Total
------------------------------- ----------- ------------ ------------- ------
Quarter Ended June 30, 2006
---------------------------------------------------------------------------------
Revenues $ 432 $ 424 $ 66 $ 30 $ 952
Cost of revenues 218 297 2 37 554
Segment profits 214 127 64 (7) 398
Identifiable assets 381 104 - - 485
Depreciation 17 3 - - 20
Quarter Ended June 30, 2005
---------------------------------------------------------------------------------
Revenues $ 338 $ 657 $ - $ 23 $1,018
Cost of revenues 265 491 7 19 782
Segment profits 73 166 (7) 4 236
Identifiable assets 257 56 - - 313
Depreciation 15 4 - - 19
Six Months Ended June 30, 2006
---------------------------------------------------------------------------------
Revenues $ 885 $ 970 $ 66 $ 60 $1,981
Cost of revenues 474 689 6 62 1,231
Segment profits 411 281 60 (2) 750
Identifiable assets 381 104 - - 485
Depreciation 34 6 - - 40
Six Months Ended June 30, 2005
---------------------------------------------------------------------------------
Revenues $ 680 $ 1,417 $ 13 $ 45 $2,155
Cost of revenues 486 1,041 7 38 1,572
Segment profits 194 376 6 7 583
Identifiable assets 257 56 - - 313
Depreciation 31 6 - - 37
A reconciliation of total segment revenues, cost of revenues, and segment
profits to consolidated revenues, cost of revenues, and segment information to
the consolidated financial statements for the periods ended June 30, 2006 and
2005 is as follows (dollars in thousands):
Qtr. Ended Six Months Ended
June 30 June 30
---------------- ----------------
2006 2005 2006 2005
------- ------- ------- -------
Segment profits:
Segment profits for reportable segments $ 398 $ 236 $ 750 $ 583
Corporate selling, general and administrative expenses (432) (368) (913) (717)
Other income (expense) (2) (76) (4) (138)
------- ------- ------- -------
Consolidated loss before taxes $ (36) $ (208) $ (167) $ (272)
======= ======= ======= =======
Identifiable assets:
Identifiable assets for reportable segments $ 485 $ 313 $ 485 $ 313
Corporate property and equipment 4 8 4 8
Current assets not allocated to segments 1,138 1,315 1,138 1,315
Intangible and other assets not allocated to
segments 883 1,067 883 1,067
Consolidated assets $2,510 $2,703 $2,510 $2,703
======= ======= ======= =======
Depreciation and amortization:
Depreciation for reportable segments $ 20 $ 19 $ 40 $ 37
Corporate depreciation and amortization 35 37 70 75
------- ------- ------- -------
Consolidated depreciation and amortization $ 55 $ 56 $ 110 $ 112
======= ======= ======= =======
Note 7. Investment in Florida N-Viro, L. P.
Florida N-Viro, L.P. was formed in January 1996 pursuant to a joint venture
agreement between the Company and VFL Technology Corporation (VFL). The Company
owns a 47.5% interest in the joint venture and accounts for its investment under
the equity method. The Company has recognized its share of the joint venture's
losses to the extent of its investment. Any additional losses passed through
from the joint venture were recorded as an increase to the allowance against the
Note Receivable, through November 2005, when the total losses matched the value
of the Notes. After that date, the Company has not recorded any additional loss
even though Florida N-Viro continued to sustain losses, because of a lack of
basis in this investment.
Condensed financial information of Florida N-Viro, L.P. for the quarters
ended June 30, 2006 and 2005 is as follows:
For the Quarter Ended June 30
-----------------------------
2006 2005
--------- ----------
Net sales $353,972 $ 292,875
Gross profit (loss) (25,439) (79,253)
Loss from continuing operations (65,034) (142,781)
Net loss (65,034) (142,781)
Item 2. Management's Discussion and Analysis or Plan of Operation
Forward-Looking Statements
This 10-QSB contains statements that are forward-looking. We caution that
words used in this document such as "expects," "anticipates," "believes," "may,"
and "optimistic," as well as similar words and expressions used herein, identify
and refer to statements describing events that may or may not occur in the
future. These forward-looking statements and the matters to which they refer
are subject to considerable uncertainty that may cause actual results to be
materially different from those described herein. There are numerous factors
that could cause actual results to be different than those anticipated or
predicted by us, including: (i) a deterioration in economic conditions in
general; (ii) a decrease in demand for our products or services in particular;
(iii) our loss of a key employee or employees; (iv) regulatory changes,
including changes in environmental regulations, that may have an adverse affect
on the demand for our products or services; (v) increases in our operating
expenses resulting from increased costs of labor and/or consulting services; and
(vi) a failure to collect upon or otherwise secure the benefits of existing
contractual commitments with third parties, including our customers. This list
provides examples of factors that could affect the results described by
forward-looking statements contained in this Form 10-QSB; however, this list is
not exhaustive and many other factors could impact the Company's business and it
is impossible to predict with any accuracy which factors could result in
negative impacts. Although we believe that the forward-looking statements
contained in this Form 10-QSB are reasonable, we cannot provide you with any
guarantee that the anticipated results will not be adverse and that the
anticipated results will be achieved. All forward-looking statements in this
Form 10-QSB are expressly qualified in their entirety by the cautionary
statements contained in this section and you are cautioned not to place undue
reliance on the forward-looking statements contained in this Form 10-QSB. In
addition to the risks listed above, other risks may arise in the future, and we
disclaim any obligation to update information contained in any forward-looking
statement.
Overview
We incorporated in April, 1993, and became a public company on October 12,
1993. Our business strategy is to market the N-Viro Process, which produces a
sludge product with multiple commercial uses having an "exceptional quality" as
defined in the Section 503 Sludge Regulations under the Clean Water Act of 1987.
To date, our revenues have been derived primarily from the licensing of the
N-Viro Process to treat and recycle wastewater sludge generated by municipal
wastewater treatment plants and from the sale to licensees of the alkaline
admixture used in the N-Viro Process. We also operate N-Viro facilities for
third parties on a start-up basis and currently operate one N-Viro facility on a
contract management basis.
Results of Operations
Total revenues were $952,000 for the quarter ended June 30, 2006 compared
to $1,018,000 for the same period of 2005. The net decrease in revenue is due
primarily to a decrease in alkaline admixture sales and service fees and, a
decrease in miscellaneous revenue. Our cost of revenues decreased to $554,000
in 2006 from $782,000 for the same period in 2005, and the gross profit
percentage increased to 42% from 23% for the quarters ended June 30, 2006 and
2005, respectively. This increase in gross profit percentage is primarily due
to the increase in foreign royalty fee revenue, and increased profitability of
the facility management fee operations. Operating expenses increased for the
comparative period, while our share of the loss of a joint venture, our interest
in Florida N-Viro, L.P., decreased for the same period of 2006. These changes
collectively resulted in a net loss of approximately $36,000 for the quarter
ended June 30, 2006 compared to a net loss of $208,000 for the same period in
2005, a decrease in the net loss of approximately $172,000.
Comparison of Three Months Ended June 30, 2006 with Three Months Ended June 30,
2005
Our overall revenue decreased $66,000, or 6.5%, to $952,000 for the quarter
ended June 30, 2006 from $1,018,000 for the quarter ended June 30, 2005. The
net decrease in revenue was due primarily to the following:
a) Sales of alkaline admixture decreased $91,000 from the same period
ended in 2005;
b) Revenue from the service fees for the management of alkaline admixture
decreased $122,000 from the same period ended in 2005;
c) Our processing revenue, including facility management revenue, showed a
net increase of $153,000 over the same period ended in 2005;
d) Miscellaneous revenues decreased $14,000 from the same period ended in
2005; and
e) Research and development revenue increased $8,000 from the same period
ended in 2005.
Our gross profit increased $162,000, or 69%, to $398,000 for the quarter
ended June 30, 2006 from $236,000 for the quarter ended June 30, 2005, and the
gross profit margin increased to 42% from 23% for the same periods. The
increase in gross profit margin is primarily due to the increase in
approximately $66,000 of foreign royalty fee revenue at virtually no cost, and
increased profitability of the facility management fee operations. The foreign
source royalty fee represents past royalties due from a licensee for the years
2002 through 2006, but will not be collected from the licensee in the future.
The increase in profitability from the management fee operations was partially
due to a shutdown for part of the quarter ended in 2005 not repeated in the same
quarter in 2006.
Our operating expenses increased $64,000, or 17%, to $432,000 for the
quarter ended June 30, 2006 from $368,000 for the quarter ended June 30, 2005.
The increase was primarily due to an increase of approximately $51,000 in
employee payroll and related expenses, $39,000 in legal fees and $25,000 in the
write-off of fixed assets abandoned during the quarter. The increase in
operating expenses was partially offset by a decrease of $30,000 in stockholder
relations fees, as a result of deferring the annual meeting until November,
2006, and $16,000 in travel and sales-related expenses. Of the overall increase
in operating expenses of $64,000 for the quarter ended, approximately $43,000
was the result for issuing stock or stock options to be used as payment for the
expense, $5,000 of this the result of a change in the rules for accounting - See
Note 1 "Stock Options", in Part I Notes to Consolidated Financial Statements.
As a result of the foregoing factors, we recorded an operating loss of
$34,000 for the quarter ended June 30, 2006 compared to an operating loss of
$132,000 for the quarter ended June 30, 2005, a decrease in the loss of
approximately $98,000.
Our net nonoperating expense decreased by $73,000 to net nonoperating
expense of $2,000 for the quarter ended June 30, 2006 from net nonoperating
expense of $75,000 for the quarter ended June 30, 2005. The decrease in
nonoperating expense was primarily due to a reduction in the recognition of
losses from our investment in Florida N-Viro, L.P., to a loss of $-0- in 2006
from a loss of $68,000 in 2005.
We recorded net loss of approximately $36,000 for the quarter ended June
30, 2006 compared to a net loss of $208,000 for the same period ended in 2005, a
decrease in the loss of approximately $172,000.
For the quarter ended June 30, 2006 and 2005, we have not fully recognized
the tax benefit of the losses incurred in prior periods. Accordingly, our
effective tax rate for each period was zero.
Comparison of Six Months Ended June 30, 2006 with Six Months Ended June 30, 2005
Our overall revenue decreased $173,000, or 8%, to $1,981,000 for the six
months ended June 30, 2006 from $2,154,000 for the six months ended June 30,
2005. The net decrease in revenue was due primarily to the following:
a) Sales of alkaline admixture decreased $145,000 from the same period
ended in 2005;
b) Revenue from the service fees for the management of alkaline admixture
decreased $208,000 from the same period ended in 2005;
c) Our processing revenue, including facility management revenue, showed a
net increase of $204,000 over the same period ended in 2005;
d) Miscellaneous revenues decreased $40,000 from the same period ended in
2005; and
e) Research and development revenue increased $15,000 from the same period
ended in 2005.
Our gross profit increased $167,000, or 29%, to $750,000 for the six months
ended June 30, 2006 from $583,000 for the six months ended June 30, 2005, and
the gross profit margin increased to 38% from 27% for the same periods. The
increase in gross profit margin is primarily due to the increase in
approximately $66,000 of foreign royalty fee revenue at virtually no cost, and
increased profitability of the facility management fee operations. The foreign
source royalty fee represents past royalties due from a licensee for the years
2002 through 2006, but will not be collected from the licensee in the future.
The increase in profitability from the management fee operations was partially
due to a shutdown for part of the second quarter ended in 2005 not repeated in
the same quarter in 2006.
Our operating expenses increased $196,000, or 27%, to $913,000 for the six
months ended June 30, 2006 from $717,000 for the six months ended June 30, 2005.
The increase was primarily due to an increase of approximately $92,000 in
employee payroll and related expenses, $75,000 in legal fees, $25,000 in the
write-off of fixed assets abandoned during the quarter, $20,000 in consulting
expense and $15,000 in director-related stock options expense. Of the overall
increase in operating expenses of $196,000, approximately $104,000 was the
result for issuing stock or stock options to be used as payment for the expense,
$37,000 of this the result of a change in the rules for accounting - See Note 1
"Stock Options", in Part I Notes to Consolidated Financial Statements. The
increase in operating expenses was partially offset by a decrease of $30,000 in
stockholder relations fees, as a result of deferring the annual meeting until
November, 2006.
As a result of the foregoing factors, we recorded an operating loss of
$163,000 for the six months ended June 30, 2006 compared to an operating loss of
$134,000 for the six months ended June 30, 2005, an increase in the loss of
approximately $29,000.
Our net nonoperating income (expense) decreased by $133,000 to net
nonoperating expense of $4,000 for the six months ended June 30, 2006 from net
nonoperating expense of $137,000 for the six months ended June 30, 2005. The
decrease in nonoperating expense was primarily due to a reduction in the
recognition of losses from our investment in Florida N-Viro, L.P., to a loss of
$-0- in 2006 from a loss of $124,000 in 2005.
We recorded net loss of approximately $168,000 for the six months ended
June 30, 2006 compared to a net loss of $272,000 for the same period ended in
2005, a decrease in the loss of approximately $104,000.
For the six months ended June 30, 2006 and 2005, we have not fully
recognized the tax benefit of the losses incurred in prior periods.
Accordingly, our effective tax rate for each period was zero.
Liquidity and Capital Resources
We had a working capital deficit of approximately $34,000 at June 30, 2006,
compared to a working capital deficit of $41,000 at December 31, 2005, resulting
in an increase in working capital of $7,000. Current assets at June 30, 2006
included cash and investments of approximately $412,000 (including restricted
cash of approximately $130,000), which is an increase of $59,000 from December
31, 2005.
Our cash flow provided by operations for the first six months of 2006,
ending June 30, 2006, was approximately $234,000, an increase of approximately
$6,000 from the same period in 2005. This increase was principally due to the
positive change in working capital of approximately $7,000.
The Company presently has a $695,000 credit facility with Monroe Bank +
Trust, or the Bank. This senior debt credit facility is comprised of a $295,000
four year term note at 7.5% and a line of credit up to $400,000 at Prime (8.25%
at June 30, 2006) plus 1.5% and secured by a first lien on all assets of the
Company. Two certificates of deposit totaling $125,000 from the Bank are held
as a condition of maintaining the facility. The Company has currently renewed
the line of credit through October 2006, and is not in violation of any
financial covenants. At June 30, 2006, the Company had $368,974 of borrowing
capacity under the credit facility. The amount owed on the term note as of June
30, 2006 was approximately $62,400 and this term note is expected to be paid in
full in March 2007.
The normal collection period for accounts receivable is approximately 30-60
days for the majority of customers. This is a result of the nature of the
license contracts, type of customer and the amount of time required to obtain
the information to prepare the billing.
We are currently in discussions with several companies in the cement and
fuel industries for the development and commercialization of the patented N-Viro
fuel technology. There can be no assurance that these discussions will be
successful.
We continue to focus on the development of regional biosolids processing
facilities. Currently we are in negotiations with several privatization firms
to permit and develop independent, regional facilities.
We expect improvements in operating results for the balance of 2006 and
into 2007 partially due to realized and expected new sources of revenue.
Additionally, market developments and ongoing discussions with companies in the
fuel and wastewater industries could provide enhanced liquidity and positively
impact 2006 and 2007 operations.
We believe that current market trends and increased and more focused
emphasis on our business development efforts provide a basis for an optimistic
outlook for 2006 and beyond. The national public attack on Class B levels of
sludge treatment is rapidly moving the market to Class A technologies, of which
our patented N-Viro processes are very cost competitive, and well established in
the market place. There are currently over 35 facilities worldwide using the
N-Viro Process, most of which have been using the N-Viro process for over 10
years. The development and patenting of new technologies for animal manure
treatment, bio-fuel and nematode control have the potential to expand our
revenue base over the next five years and beyond. We believe we have sufficient
liquidity to continue operations over the next twelve months.
Off-Balance Sheet Arrangements
At June 30, 2006, we did not have any material commercial commitments,
including guarantees or standby repurchase obligations, or any relationships
with unconsolidated entities or financial partnerships, including entities often
referred to as structured finance or special purpose entities or variable
interest entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.
From time to time, during the normal course of business, we may make
certain indemnities, commitments and guarantees under which we may be required
to make payments in relation to certain transactions. These include: (i)
indemnities to vendors and service providers pertaining to claims based on our
negligence or willful misconduct and (ii) indemnities involving the accuracy of
representations and warranties in certain contracts. Pursuant to Delaware law,
we may indemnify certain officers and directors for certain events or
occurrences while the officer or director is, or was, serving at our request in
such capacity. We also have director and officer insurance coverage that limits
our exposure and enables us to recover a portion of any future amounts that we
may pay for indemnification purposes. We believe the applicable insurance
coverage is generally adequate to cover any estimated potential liability for
which we may provide indemnification. The majority of these indemnities,
commitments and guarantees do not provide for any limitation of the maximum
potential for future payments we could be obligated to make. We have not
recorded any liability for these indemnities, commitments and other guarantees
in the accompanying Consolidated Balance Sheets.
Contractual Obligations
The following table summarizes our contractual cash obligations at June 30,
2006, and the effect these obligations are expected to have on liquidity and
cash flow in future periods:
Payments Due By Period
-----------------------------------------------------------------------
Note # Total Less than 1 year 1 - 3 years 4 - 5 years after 5 years
------- -------- ----------------- ------------ ------------ --------------
Purchase obligations (1) $171,100 $ 98,300 $ 72,800 $ - $ -
Long-term debt obligations (2) 151,387 77,451 73,936 - -
Operating leases (3) 38,330 34,730 3,600 - -
Capital lease obligations - - - - -
Other long-term debt obligations - - - - -
-------- ----------------- ------------ ------------ --------------
Total contractual cash obligations $360,817 $ 210,481 $ 150,336 $ - $ -
======== ================= ============ ============ ==============
(1) Purchase obligations include agreements to purchase services that are enforceable and legally
binding on the Company and that specify all significant terms and the approximate timing of the
transaction. Purchase obligations exclude agreements that are cancelable without penalty.
(2) Amounts represent the expected cash payments of our long-term obligations.
(3) Amounts represent the expected cash payments of our operating lease obligations.
Item 3. Controls and Procedures
Disclosure Controls and Procedures
As of June 30, 2006, under the direction of our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended.
We concluded that our disclosure controls and procedures were effective as of
June 30, 2006, such that the information required to be disclosed in our SEC
reports is recorded, processed, summarized and reported within the time periods
specified by the SEC's rules and forms, and is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Internal Controls
There were no changes in our internal controls over financial reporting
during the quarter ended June 30, 2006 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
In June 2005, J. Patrick Nicholson, our former Chairman and CEO, filed a
Demand for Arbitration, seeking damages of $50,000 from us, based on a claimed
breach of a Consulting Agreement dated August 28, 2003 between us and Mr.
Nicholson. Mr. Nicholson also seeks rescission of his Consulting Agreement and
reinstatement of a prior agreement between him and us, which was in effect prior
to the order by the Delaware Chancery Court terminating a shareholder derivative
suit. This arbitration proceeding was previously reported in our Form 10-QSB
filed August 15, 2005. We are vigorously contesting Mr. Nicholson's claims in
this proceeding. Discovery is still in process, and a hearing on the matter is
likely to be scheduled for late September 2006.
On July 13, 2005, our Board of Directors voted to terminate for cause the
Consulting Agreement with J. Patrick Nicholson, based on numerous specific
instances of violations of the terms of the Consulting Agreement by him. The
Consulting Agreement, filed as Exhibit B to the Form 8-K filed August 29, 2003,
contained a term ending no earlier than five years from the date of the
contract. Mr. Nicholson is a reporting beneficial owner of approximately 10.6%
of our outstanding common stock, as of the date of his Form SC 13D/A filed
August 9, 2006. Mr. Nicholson was being paid an aggregate of over $92,000 per
year under the Consulting Agreement, exclusive of any other payouts earnable.
In November 2005, Mr. Nicholson filed an amended complaint pertaining to his
Demand for Arbitration, which added as an additional claim wrongful termination.
On January 27, 2006, J. Patrick Nicholson applied to the Delaware Chancery
Court for an order to compel us to allow him access to inspect our corporate and
business books and records and our stockholder list, pursuant to a request under
Section 220 of the Delaware General Corporation Law. No monetary relief is
sought in this action. We contend that the documents sought by Mr. Nicholson in
this action far exceed those to which he is entitled under Section 220, and
principally relate to his claims in the arbitration described above. We are
vigorously defending this action and have filed a response in the Delaware
Chancery Court, but no discovery has been conducted, and no relief has been
granted as of the date of this Form 10-QSB
On July 11, 2006, J. Patrick Nicholson and N-Viro Energy Systems, Inc.
filed a Complaint with Jury Demand in the United States District Court for the
Northern District of Ohio, against us and the following members of our Board of
Directors and/or stockholders: Daniel J. Haslinger, Phillip Levin, R. Francis
DiPrete, Terry J. Logan, Ophir Holdings, Inc., Strategic Asset Management, Inc.,
Robert A. Cooke and the Cooke Family Trust. The Complaint is seeking
undeterminable damages and other relief from the named defendants, based on a
claimed breach of fiduciary duty, common law fraud and violations of Section
10(b)(5) of the Securities Exchange Act of 1934. A response to this Complaint is
due by August 25, 2006. We are currently and plan to continue to vigorously
contest this action, and furthermore, feel that the allegations are without
basis and part of a continuing dispute between us and J. Patrick Nicholson.
From time to time we are involved in legal actions arising in the ordinary
course of business. With respect to these matters, we believe we have adequate
legal defenses and/or provided adequate accruals for related costs such that the
ultimate outcome will not have a material adverse effect on our future financial
position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 1, 2006, we issued 12,500 shares of unregistered common stock to
Timothy Kasmoch, Chief Executive Officer, pursuant to the terms of his
employment agreement of February, 2006. See Note 4, "Contingencies".
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
(a) None
Item 6. Exhibits
Exhibits: See Exhibit Index below.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
N-VIRO INTERNATIONAL CORPORATION
Date: August 14, 2006 /s/ Timothy R. Kasmoch
------------ -----------------------
Timothy R. Kasmoch
Chief Executive Officer and President
(Principal Executive Officer)
Date: August 14, 2006 /s/ James K. McHugh
------------ --------------------
James K. McHugh
Chief Financial Officer, Secretary and Treasurer
(Principal Financial & Accounting Officer)
EXHIBIT INDEX
Exhibit No. Document
----------- --------
3.1 Amended and Restated Certificate of Incorporation, dated June 17, 1998
(incorporated by reference to Exhibit 3.2 to Form 10-K filed April 14, 2004).
3.2 Amendment to the Certificate of Incorporation of the Company, dated
November 13, 2003 (incorporated by reference to Exhibit 3.4 to Form 10-K filed
April 14, 2004).
3.3 Amended and Restated By-Laws of the Company, dated May 13, 2005
(incorporated by reference to Exhibit 3.3 to Form 10-QSB filed May 16, 2005).
3.4 Amendment to the Certificate of Incorporation of the Company, dated July
6, 2005 (incorporated by reference to Exhibit 3.4 to Form 10-QSB filed August
15, 2005).
3.5 Text of amendment to the Amended and Restated By-Laws of the Company,
dated May 13, 2005 (incorporated by reference to Exhibit 99.1 to Form 10-K filed
April 14, 2004).
3.6 Amended and Restated By-Laws of the Company, dated January 27, 2006
(incorporated by reference to Exhibit 3.2 to Form 8-K filed February 2, 2006).
10.1 Employment Agreement, dated June 14, 1999, between N-Viro International
Corporation and Terry J. Logan (incorporated by reference to Exhibit 1 to the
Form 8-K filed June 30, 1999).*
10.2 Amended and Restated Employment Agreement, dated June 6, 2003, between
N-Viro International Corporation and Michael G. Nicholson (incorporated by
reference to Exhibit 99.1 to the Form 8-K filed June 9, 2003).*
10.3 Business Loan Agreement dated February 26, 2003, between N-Viro
International Corporation and Monroe Bank + Trust; letter of credit enhancement
dated February 25, 2003 between N-Viro International Corporation and Messrs. J.
Patrick Nicholson, Michael G. Nicholson, Robert P. Nicholson and Timothy J.
Nicholson (all incorporated by reference to Exhibits 99.1 through 99.3 to the
Form 8-K filed March 3, 2003).
10.4 Settlement Agreement and Release dated August 29, 2003 between N-Viro
International Corporation and Strategic Asset Management, Inc.; Consulting
Agreement dated August 28, 2003 between N-Viro International Corporation and J.
Patrick Nicholson (all incorporated by reference to Item 5, Exhibit A and
Exhibit B of the Form 8-K filed August 29, 2003).
10.5 Financial Public Relations Agreement dated September 15, 2005 between
Strategic Asset Management, Inc. and N-Viro International Corporation
(incorporated by reference to Exhibit 10.1 of Form 8-K dated October 12, 2005).
10.6 Warrant to Purchase 120,000 Shares of Common Stock dated September 15,
2005 between Strategic Asset Management, Inc. and N-Viro International
Corporation (incorporated by reference to Exhibit 10.2 of Form 8-K dated October
12, 2005).
10.7 Employment Agreement, executed February 17, 2006 between Timothy R.
Kasmoch and N-Viro International Corporation (incorporated by reference to
Exhibit 10.1 to Form 8-K filed February 21, 2006).*
10.8 Consulting Agreement between DJH Holdings, LLC and N-Viro International
Corporation, effective February 13, 2006 (incorporated by reference to Exhibit
10.1 to Form 8-K filed March 20, 2006).*
10.9 Consulting Agreement between Carl Richard and N-Viro International
Corporation, effective February 13, 2006 (incorporated by reference to Exhibit
10.2 to Form 8-K filed March 20, 2006).*
10.10 First Amendment to Consulting Agreement dated July 1, 2004 between
Terry J. Logan and N-Viro International Corporation, effective February 13, 2006
(incorporated by reference to Exhibit 10.3 to Form 8-K filed March 20, 2006).*
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes - Oxley
Act of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes - Oxley
Act of 2002.
32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
* Indicates a management contract or compensatory plan or arrangement.