|
|
2011
|
|
2010
|
|
Buildings and leasehold improvements
|
$290,129
|
|
$121,411
|
|
Equipment
|
3,169,055
|
|
3,296,751
|
|
Furniture, fixtures and computers
|
63,838
|
|
50,089
|
|
|
3,523,022
|
|
3,468,251
|
|
Less accumulated depreciation
|
2,195,702
|
|
1,977,386
|
|
|
|
|
|
|
|
$1,327,320
|
|
$1,490,865
|
Deferred costs:
In December 2010, the Company executed a Financial Public Relations Agreement with Strategic Asset Management, Inc., or SAMI. The Company engaged SAMI as its non-exclusive financial public relations counsel for a term of three years. For its services, the Company issued SAMI 150,000 shares of the Company's unregistered common stock. The Company is recording a non-cash charge to earnings of approximately $305,000 ratably over a 36-month period starting in December 2010. For the year ended December 31, 2011, the charge to earnings was approximately $101,500.
In August 2011, the Company issued 100,000 shares of common stock and granted 100,000 stock warrants to SAMI for additional services performed in connection with the December 2010 Financial Public Relations Agreement. To reflect the entire value of the stock and warrants issued, the Company is taking a charge to earnings of $285,700 through December 2013, the ending date of the agreement. For the year ended December 31, 2011, the charge to earnings was approximately $99,200.
In December 2010, the Company executed a Consulting Agreement, with SLD Capital Corporation, or SLD. The Company engaged SLD to provide business consulting services for a term of eighteen months. For its services, the Company issued SLD 110,000 shares of the Company's unregistered common stock. The Company is recording a non-cash charge to earnings of approximately $334,000 ratably over an 18-month period starting in December 2010. For the year ended December 31, 2011, the charge to earnings was approximately $223,000.
In November, 2011, the Company executed a Consulting Agreement with Rakgear, Inc. The Company engaged Rakgear to provide business consulting services for a term of one year. For its services, the Company issued Rakgear 50,000 shares of the Company's unregistered common stock. The Company is recording a non-cash charge to earnings of $73,000 ratably over a 12-month period starting in November 2011. For the year ended December 31, 2011, the charge to earnings was approximately $10,000.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 2. Balance Sheet Data (Continued)
The following is a summary of Deferred Costs – capitalized stock value on contracts, net as of December 31:
|
|
2011
|
|
2010
|
|
Deferred costs - Rakgear, Inc., less accumulated
|
|
|
|
|
amortization (2011 - $10,139; 2010 - $-0-) |
$62,861 |
|
$ - |
|
|
|
|
|
|
Deferred costs - SAMI, less accumulated
|
|
|
|
|
amortization (2011 - $204,931; 2010 - $4,229) |
385,269 |
|
300,271 |
|
|
|
|
|
|
Deferred costs - SLD Capital, less accumulated
|
|
|
|
|
amortization (2011 - $235,518; 2010 - $12,585) |
98,882 |
|
321,815 |
|
|
|
|
|
|
|
$547,012
|
|
$622,086
|
Intangible and other assets:
The following is a summary of intangible and other assets, net as of December 31:
|
|
2011
|
|
2010
|
|
Patents and related intangibles, less accumulated
|
|
|
|
|
amortization (2011 - $103,908; 2010 - $294,327)
|
$64,581
|
|
$99,926
|
|
|
|
|
|
|
Territory rights, less accumulated amortization
|
|
|
|
|
(2011 - $-0-; 2010 - $6,470)
|
-
|
|
3,530
|
|
|
|
|
|
|
Customer list, less accumulated amortization
|
|
|
|
|
(2011 - $55,365; 2010 - $53,646)
|
7,390
|
|
9,109
|
|
|
|
|
|
|
Debenture issuance costs, less accumulated amortization
|
|
|
|
|
(2011 - $61,667; 2010 - $44,925)
|
-
|
|
16,742
|
|
|
|
|
|
|
Other
|
19,829
|
|
29,997
|
|
|
|
|
|
|
|
$91,800
|
|
$159,304
|
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 2. Balance Sheet Data (Continued)
Accrued liabilities:
|
|
2011
|
|
2010
|
|
Accrued payroll and employee benefits
|
$29,062
|
|
$32,192
|
|
Sales tax payable
|
-
|
|
177,421
|
|
Interest payable
|
10,735
|
|
16,449
|
|
|
|
|
|
|
|
$39,797
|
|
$226,062
|
During the fourth quarter of 2011, the Company recognized $174,000 of gain for the reversal of a recorded sales tax liability management determined is no longer due.
Note 3. Pledged Assets, Line-of-Credit and Long-Term Debt
During 2011, the Company maintained a line of credit with Monroe Bank + Trust, or the Bank, up to $400,000 bearing interest at the Wall Street Journal Prime Rate (3.25% at December 31, 2011) plus 0.75%, but in no event less than 5.00%, and secured by a first lien on all our assets (except equipment), with a new maturity date of August 15, 2012. Two certificates of deposit totaling $141,430 from the Bank are held as a condition of maintaining the line of credit. At December 31, 2011, we had $100,000 of borrowing capacity under the credit facility.
Long-term debt at December 31, 2011 and 2010 is as follows:
|
|
2011
|
|
2010
|
|
Notes payable - banks
|
$209,527
|
|
$365,703
|
|
Notes payable - equipment vendors
|
279,379
|
|
203,027
|
|
Convertible debentures, net of discount of $24,553 in 2011 and $52,326 in 2010
|
430,447 |
|
667,674
|
|
|
919,353
|
|
1,236,404
|
|
Less current maturities
|
367,190
|
|
1,005,473
|
|
|
|
|
|
|
|
$552,163
|
|
$230,931
|
During 2011, the Company borrowed a total of $163,853 from two lenders to purchase insurance policies for general, property and directors & officers’ insurance coverage during the year. A total of two term notes were issued, ranging from 6% to 6.6% interest for a term not more than one year, monthly payments totaling $16,844 and each are unsecured. The total amount owed on these notes as of December 31, 2011 was approximately $46,200 and these notes are expected to be paid in full on the applicable maturity date, the last of which is August 2012.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 3. Pledged Assets, Line-of-Credit and Long-Term Debt (Continued)
From the beginning of 2006 through 2011, the Company borrowed a total of $1,677,100 from ten lenders to purchase processing and automotive equipment. As of December 31, 2011, a total of thirteen term notes are outstanding, ranging from 6.2% to 10.9% interest for terms ranging three to five years, monthly payments totaling approximately $26,000 and all secured by equipment. The total amount owed on all equipment-secured notes as of December 31, 2011 was approximately $442,000 and all notes are expected to be paid in full on the applicable maturity date, the last of which is in March 2016.
In 2009 the Company approved an offering of up to $1,000,000 of Convertible Debentures (the “Debentures”), convertible at any time into the Company’s unregistered common stock at $2.00 per share. The Debentures are issuable in $5,000 denominations, are unsecured and have a stated interest rate of 8%, payable quarterly to holders of record. The Company has timely paid all accrued interest due to all Debenture holders of record as of each quarter-end date starting in July 2009. At any time, the Company may redeem all or a part of the Debentures at face value plus unpaid interest.
During 2009 the Company issued $765,000 of Debentures to a total of twenty-three accredited investors, and one investor converted $10,000 of Debentures into unregistered common stock. During 2010 the Company issued $55,000 of Debentures, and three investors converted a total of $90,000 of Debentures into unregistered common stock. The Debentures matured at June 30, 2011, however fifteen investors holding Debentures totaling $365,000 elected to replace them with new ones that now mature at June 30, 2013. All other features of the “expired” Debentures remained the same in the replacement ones, except for the new maturity date. Of the four investors totaling $355,000 who did not replace their existing Debentures with new ones, two investors totaling $215,000 had their Debentures repaid; one investor converted $50,000 into unregistered common stock (at June 30, 2011) and one holding $90,000 of Debentures has not made a final decision. As of December 31, 2011, the Company held $455,000 of Debentures.
Because the fair market value of the Company’s common stock (the underlying security in the Debentures) may have been above the conversion price of $2.00 per share at the date of issuance, the Company was required under GAAP to record a discount given for certain (now) “expired” Debentures sold, which totaled $184,975. The discount was then required to be amortized as a period expense over the periods the Debentures were scheduled to be outstanding, which averaged 20 months, through the maturity date of June 30, 2011. For the year ended December 31, 2011 and 2010, amortization expense on the “expired” Debentures amounted to $52,326 and $108,334, respectively.
For periods subsequent to June 30, 2011, the Company is required under GAAP to record a discount totaling $32,737 for certain Debentures replaced, and a gain on debt modification during the quarter ended June 30, 2011. The discount is required to be amortized as a period expense over the next eight quarters the Debentures are scheduled to be outstanding. For the six months ended December 31, 2011 these “replacement” debentures have been outstanding, amortization expense amounted to $8,184.
Approximate aggregate maturities of long-term debt for the years ending December 31 are as follows: 2012 - $567,000; 2013 - $460,000; 2014 - $59,000; 2015 - $27,000; 2016 - $6,000.
Note 4. Related Party Transactions
On August 1, 2011, the Company borrowed $200,000 with a Promissory Note payable to a related party of Timothy Kasmoch, the Company’s President and Chief Executive Officer, at 12% interest prepaid for a period of three months, renewable for an additional three months by the prepayment of additional interest and secured by certain equipment. Mr. Kasmoch has personally guaranteed the repayment of this Note. The Company extended the Note on October 30, 2011 and again on January 30, 2012, and is now due April 30, 2012. The Company expects to extend the Note on or before the due date but pay the Note in full during 2012.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 4. Related Party Transactions (Continued)
During the year ended December 31, 2010 the Company advanced funds for operating capital of $9,000 to its joint venture limited liability company, Mahoning Valley N-Viro. Mahoning Valley N-Viro is owned 50% by the Company and 50% by SouthSide Environmental Group of Struthers, Ohio. As no financial activity occurred in Mahoning Valley N-Viro during 2010 and 2011 and the outlook unlikely of having future operations, the Company determined that the total $24,325 loaned by the Company to date would not be repaid and wrote down the investment to a net realizable value of zero as of December 31, 2011.
Also during 2011 and 2010, the Company paid Terri Kasmoch, the spouse of President and Chief Executive Officer Timothy Kasmoch, outside consulting fees for business development, web site and company media marketing and stock promotion efforts for the Company, and as an employee with the same duties starting in the 4th quarter of 2010.
During the year ended December 31, 2011, the Company rented and purchased equipment, and contracted for repair services with Tri-State Garden Supply dba Gardenscape, a company owned and managed by the extended family of the Company’s Chief Executive Officer, Timothy Kasmoch.
During the year ended December 31, 2010, the Company paid Thomas L. Kovacik, a member of the Board of Directors, a fee for consulting services. The fee was paid with 10,000 stock options at an exercise price of $3.53, which vested immediately and are exercisable over 10 years. To reflect the value of the options, the Company recorded an expense of $31,421. The fee was exclusive of director fees and expenses paid for with cash and stock options.
The following table summarizes these payments for 2011 and 2010 and the balance to each of any monies owed as of December 31, 2011:
|
Payee
|
Year
|
Consulting fees
|
Gross Payroll
|
Rental, Equipment and Repairs
|
Total
|
Account payable balance at December 31
|
|
Terri Kasmoch
|
2011
|
$ -
|
$52,000
|
$ -
|
$52,000
|
$ -
|
|
Terri Kasmoch
|
2010
|
10,685
|
10,833
|
-
|
21,518
|
-
|
|
Gardenscape
|
2011
|
-
|
-
|
15,214
|
15,214
|
12,500
|
|
Thomas L. Kovacik
|
2010
|
31,421
|
-
|
-
|
31,421
|
-
|
Note 5. Equity Transactions
In January 2010, the Company executed a Placement Agent Agreement, or the Agreement, with Burnham Hill Partners of New York, NY, or BHP. The Company engaged BHP as its placement agent in connection with the issuance of debt or equity securities through a transaction exempt from registration for a term of six months from the date of the Agreement. For its services, the Company issued BHP 10,000 shares of the Company's unregistered common stock. The shares were issued in a private transaction pursuant to an exemption under Section 4(2) of the Securities Act of 1933. If the Company had secured a financing placement through BHP, the Company would have issued common stock placement warrants equal to 8% of the number of common stock shares issued in the financing, for a term of seven years and would have been exercisable at 120% of the price paid per share by the investors. The Company accounted for this transaction by recording a deferred current asset of $30,000 that was amortized ratably over the subsequent six month period the services were rendered in 2010.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 5. Equity Transactions (continued)
In December 2010, the Company issued 110,000 shares of unregistered Common Stock to SLD Capital Corporation (“SLD”), as compensation for services rendered by SLD to the Company under a Consulting Agreement, effective as of December 10, 2010. The agreement is for a term of eighteen months from the effective date. More details of this Agreement are contained in Note 2.
In July 2010, the Company executed a Purchase Agreement, License and Development Agreement and Registration Rights Agreement (the “Agreements”), with VC Energy I, LLC of Las Vegas, NV, or VC Energy. Concurrently, the Company sold VC Energy 200,000 shares of the Company's unregistered common stock at a price of $2.50 per share, issued VC Energy 200,000 warrants exercisable at $2.75 per share, and also granted VC Energy an option to acquire another 400,000 shares of the Company’s unregistered common stock at a price of $2.50 per share, and 400,000 warrants exercisable at $2.75 per share.
In September 2010, the Company executed Amendment Number 1, effective September 15, 2010 (the “Amendment”) to the Purchase Agreement with VC Energy. The purpose of the Amendment was to modify certain of the purchase terms in the Purchase Agreement, and VC Energy exercised its option to purchase 200,000 shares of the Company’s common stock for $500,000 which VC Energy paid for by delivering its unsecured promissory note to the Company for $500,000, payable in installments over a 12 month period, with the first $200,000 of such installments due bi-weekly between September 30, 2010 and December 30, 2010 and the final $300,000 due September 15, 2011. The promissory note provided for acceleration in the event of default and a default interest rate of 8% per annum. The Company also delivered 200,000 warrants to purchase shares of its common stock at an exercise price of $2.50 per share. Under the Amendment, the Company transferred all 200,000 shares and 200,000 warrants to an Escrow Agent, and the shares and warrants were to be released ratably to VC Energy as installments payments due the Company were received. VC Energy made all installment payments due through December 2010, and the escrow agent delivered 80,000 shares and 80,000 warrants to VC Energy, with the remaining shares and warrants continuing to be held by the escrow agent. In addition, VC Energy’s option to purchase the remaining 200,000 shares of the Company’s common stock was extended to December 31, 2010 and then a second time to March 1, 2011, on the same terms as the original Purchase Agreement. VC Energy did not exercise the purchase option for the additional 200,000 shares on or before March 1, 2011. At each extension date, the Company recorded a deemed dividend for the increase in value of the purchase option as a reduction to Accumulated Deficit and an increase to the Additional Paid In Capital accounts, totaling $150,387 in 2010.
In August 2011, the Company and VC Energy signed a Termination Agreement and terminated the License and Development Agreement dated June 29, 2010, the Promissory Note dated September 15, 2010 and the Escrow Agreement dated September 15, 2010. Included in these agreements was VC Energy’s option to purchase the unpaid balance of 120,000 shares of the Company’s common stock for $300,000. All other agreements between the Company and VC Energy remain in force, except to the extent the provisions contained in them are inconsistent with the terms and conditions of the Termination Agreement. In September 2011, the Company cancelled the 120,000 shares of common stock that were returned by operation of the Termination Agreement.
In both the VC Energy Agreements and the Amendment, the Company accounted for the warrants issued within the transaction with a provision that protects holders from declines in the stock price (“down-round” provisions) as a derivative security at fair value with future changes in fair value recorded in earnings. As of December 31, 2011, the Company has recorded a liability of $12,196 to reflect the fair value of the outstanding warrants. The Company will be periodically required to re-measure the fair value of the remaining warrants at the Balance Sheet date, with adjustments in the value recorded through the income statement as a gain or loss. During the twelve months ended December 31, 2011 and 2010, the Company recorded a gain of $732,280 and a loss of $140,326, respectively, on the revaluation and partial cancellation from the two issuances of the warrants to the end of the period, which includes the gain in 2011 from the cancellation of 120,000 warrants as a result of the Termination Agreement.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 5. Equity Transactions (continued)
In December 2010, the Company issued 150,000 shares of unregistered Common Stock to Strategic Asset Management, Inc., (“SAMI”), as compensation for services rendered by SAMI to the Company under a Financial Public Relations Agreement, effective as of December 15, 2010. The agreement is for a term of two years from the effective date. More details of this Agreement are contained in Note 2.
In August 2011, the Company issued 100,000 shares of common stock to SAMI for additional services performed in connection with the December 2010 consulting agreement. To reflect the entire value of the stock issued, the Company is taking a charge to earnings of $150,000 through December 2013, the ending date of the consulting agreement. For the twelve months ended December 31, 2011, the charge to earnings was $52,100. The Company also granted 100,000 stock warrants in connection with this transaction. All the warrants are exercisable over a five year term, vest immediately and were priced at a premium over the fair market value of the Company’s common stock as of the date of the grant, or $1.65 per warrant. To reflect the entire value of the stock warrants granted, the Company is taking a charge to earnings totaling approximately $136,000 through December 2013. For the twelve months ended December 31, 2011, the charge to earnings was approximately $47,100.
In November 2011, the Company issued 50,000 shares of unregistered common stock to Rakgear, Inc. for business consulting services. To reflect the entire value of the stock issued, the Company is taking a non-cash charge to earnings of $73,000 ratably through December 2013, the ending date of the agreement. For the twelve months ended December 31, 2011, the charge to earnings was approximately $10,000.
During 2011, we sold a total of 70,863 shares of unregistered restricted stock to five non-beneficial owners for total gross cash proceeds of $112,400. These proceeds were all used for operating expenses. Simultaneously and subject to the same terms and conditions, we issued a total of 64,263 warrants to two non-beneficial owners to acquire shares of our common stock at a price above the purchase price each owner paid for our common stock, which was the fair market value of the stock on the date of each transaction. In all instances the shares and the warrants issued and sold were in a private offering transaction pursuant to an exemption under Section 4(2) of the Securities Act of 1933 for transactions by an issuer not involving a public offering.
Also during 2011, the Convertible Debentures matured, fifteen investors elected to replace their Debentures with new ones, two investors had theirs repaid and one investor converted $50,000 into 25,000 shares of unregistered common stock. The amount of Debentures outstanding at the end of 2011 was $455,000, convertible at $2.00 per share or 227,500 shares. More details on these transactions can be found in Note 3.
In addition to its first stock option plan approved in 1993, the Company has a stock option plan approved in May 2004, amended in June 2008 and again in August 2009 (the “2004 Plan”), for directors and key employees under which 2,500,000 shares of common stock may be issued. The Company also has a stock option plan approved in July 2010 (the “2010 Plan”), for directors and key employees under which 5,000,000 shares of common stock may be issued. Unless otherwise stated in the stock option agreement, options are 20% vested on the date of grant, with the balance vesting 20% per year over the next four years, except for directors whose options vest six months from the date of grant. Options were granted in 2011 from the 2010 Plan and in 2010 from the 2004 Plan at the approximate market value of the stock at date of grant, as defined in each of the plans.
Pursuant to their respective five-year employment agreements, in March 2010 a total of 890,000 stock options were granted to the three executive officers of the Company. Twenty percent of the options vested immediately on the date of grant, with the balance of the options to vest in equal annual installments over the next four years on the anniversary date of the original grant. These options were granted pursuant to the 2004 Plan, are for a period of ten years and are intended as Incentive Stock Options. To reflect the value of the stock options granted for the employment services provided, the Company is taking a charge to
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 5. Equity Transactions (continued)
earnings totaling approximately $2,358,000 through March 2014. For the years ended December 31, 2011 and 2010, this charge was $471,539 and $844,840, respectively.
In August 2011, the Company granted 500,000 stock options to its Chief Executive Officer, Timothy Kasmoch. The options are for a period of ten years, are pursuant to the 2010 Plan, are exercisable at $1.63 and vest immediately. To reflect the value of the stock options granted, the Company took an immediate charge to earnings during the third quarter of 2011 totaling approximately $720,000.
More information on these equity transactions is contained in this Form 10-K under Item 11, “Executive Compensation”.
During the year ended December 31, 2011, the Company granted stock options totaling 180,000 shares, exclusive of the officers, to all outside directors. All options granted are for a period of ten years. The options became fully vested six months after the date of grant, and were priced, pursuant to the 2010 Plan, at $1.78 for a total expense of approximately $321,000, expensed ratably and fully in 2011 over the subsequent six-month period. More information on these equity transactions is contained in this Form 10-K under Item 10, “Directors, Executive Officers and Corporate Governance”.
During the year ended December 31, 2010, the Company granted additional stock options totaling 175,000 shares, exclusive of the officers: 90,000 options to outside directors, 10,000 options to an outside director acting in his capacity as a consultant and 75,000 options to three employees. All options granted are for a period of ten years. The options granted in 2010 to the directors became fully vested six months after the date of grant, and were priced, pursuant to the 2004 Plan, at a weighted average price of $3.08 for a total expense of approximately $209,000, expensed ratably over the subsequent six-month period. The options granted to the consultant vested immediately and were priced, pursuant to the 2004 Plan, at $3.53 for a total expense of approximately $31,400, expensed immediately. More information on these equity transactions is contained in this Form 10-K under Item 10, “Directors, Executive Officers and Corporate Governance”.
The options granted in 2010 to the three employees vested twenty percent on the date of grant, with the balance of the options to vest in equal annual installments over the next four years on the anniversary date of the original grant. All of the options are exercisable at $1.89 per share and were granted pursuant to the 2004 Plan and are intended as Incentive Stock Options.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 5. Equity Transactions (continued)
The following summarizes the stock options activity for the years ended December 31, 2011 and 2010:
|
|
2011
|
|
2010
|
|
|
Shares
|
Weighted Average Exercise Price
|
|
Shares
|
Weighted Average Exercise Price
|
|
Outstanding, beginning of year
|
2,273,300
|
$2.67
|
|
1,279,825
|
$2.24
|
|
Granted
|
680,000
|
$1.67
|
|
1,065,000
|
$3.16
|
|
Exercised
|
(515)
|
$1.94
|
|
(54,125)
|
$1.91
|
|
Expired/forfeited during the year
|
(27,800)
|
$1.71
|
|
(17,400)
|
$3.75
|
|
Outstanding, end of year
|
2,924,985
|
$2.44
|
|
2,273,300
|
$2.67
|
|
|
|
|
|
|
|
|
Eligible for exercise at end of year
|
2,360,985
|
$2.26
|
|
1,501,300
|
$2.41
|
|
|
|
|
|
|
|
|
Weighted average fair value per option for options granted during the year
|
$1.67 |
|
|
$3.16
|
|
|
|
|
|
|
|
|
|
Options expected to vest over the life of the Plan
|
2,924,985
|
|
|
2,273,300
|
|
The Company records compensation expense for stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes valuation model. The Company uses historical data among other factors to estimate the expected price volatility, the expected option term and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the date of grant for the expected term of the option.
The following assumptions were used to estimate the fair value of options granted:
|
|
Year Ended December 31,
|
|
|
2011
|
2010
|
|
Expected dividend yield
|
0.00%
|
0.00%
|
|
Weighted average volatility
|
203.4%
|
73.7%
|
|
Risk free interest rate
|
2.1 - 3.2%
|
2.5 - 3.6%
|
|
Expected term (in years)
|
5
|
7
|
On two occasions during 2010, all holders of N-Viro International Corporation warrants were granted an automatic extension of time to exercise their respective warrants. On one more occasion in August 2011, an automatic extension of time was granted to certain warrant holders of record to exercise their respective warrants. For all of the extensions, all other terms of the warrant remained in place, other than the expiration date. The incremental fair value associated with the extension of the warrant expiration dates has been determined using the Black-Scholes model and has been recorded as a deemed dividend to common stockholders in the accompanying Statement of Stockholders’ Equity (Deficit). For the years ended December 31, 2011 and 2010, the deemed dividend was $132,642 and $461,467 respectively.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 6. Revenue and Major Customers
Revenues for the years ended December 31, 2011 and 2010 billed through N-Viro International Corporation include revenues from one major customer, the City of Toledo, Ohio (included in the facility management, and, products and services classifications), which represented approximately 17% for 2011 and 22% for 2010 of total consolidated revenue. The accounts receivable balance due (which is unsecured) from this customer at December 31, 2011 and 2010 was approximately $1,000 and $68,000, respectively. The Company’s agreement with the City of Toledo, our largest customer for many years through 2010, was not renewed at the end of 2011. The City of Toledo’s failure to renew that agreement has had a material adverse effect on the Company’s business, financial conditions and results of operations.
The Company’s six largest customers billed through Florida N-Viro each represent between 5% - 22% of the consolidated revenue for the Company, or a collective total of approximately 62% for these six customers for 2011 and 63% for 2010. Florida operations accounted for approximately 80% and 74% of consolidated revenue during the years ended December 31, 2011 and 2010, respectively. The accounts receivable balance due (which are unsecured) for these six Florida N-Viro customers at December 31, 2011 and 2010 was approximately $286,000 and $328,000, respectively. A seventh Florida customer, Orange County Utilities, provided approximately $367,000 or 7% of the consolidated revenue in 2011, but the agreement began December 2010 and ended March 2011. The Company does not expect Orange County to resume that agreement in the near future. At the end of 2011, the Company was notified that a Florida customer, Seminole County, who represented gross revenue of $353,000 and $402,000 in 2011 and 2010, respectively, was terminating services for the Company effective January 2012. This was approximately 6% and 8% of 2011 and 2010 gross revenue, respectively.
A substantial portion of the Company's revenue is derived from services provided under contracts and agreements with existing licensees. Some of these contracts, especially those contracts with large municipalities, provide for termination of the contract by the customer after giving relatively short notice (in some cases as little as ten days). In addition, some of these contracts contain liquidated damages clauses, which may or may not be enforceable in the event of early termination of the contracts. If one or more of these contracts are terminated prior to the expiration of its term, and the Company is not able to replace revenues from the terminated contract or receive liquidated damages pursuant to the terms of the contract, the lost revenue could have a material and adverse effect on its business and financial condition.
Note 7. Commitments and Contingencies
On March 17, 2010, the Company and Timothy R. Kasmoch, the President and Chief Executive Officer, entered into an Employment Agreement for a five-year term. Mr. Kasmoch is to receive an annual base salary of $150,000, subject to an annual discretionary increase. In addition, Mr. Kasmoch is eligible for an annual cash bonus and was granted stock options from the Company’s Second Amended and Restated 2004 Stock Option Plan. Generally, the Agreement may be terminated by the Company with or without cause or by the Employee for any reason.
On March 17, 2010, the Company and Robert W. Bohmer, the Executive Vice President and General Counsel, entered into an Employment Agreement for a five-year term. Mr. Bohmer is to receive an annual base salary of $150,000, subject to an annual discretionary increase. In addition, Mr. Bohmer is eligible for an annual cash bonus and was granted stock options from the Company’s Second Amended and Restated 2004 Stock Option Plan. Generally, the Agreement may be terminated by the Company with or without cause or by the Employee for any reason.
On March 17, 2010, the Company and James K. McHugh, the Chief Financial Officer, Secretary and Treasurer, entered into an Employment Agreement for a five-year term. Mr. McHugh is to receive an annual base salary of $125,000, subject to an annual discretionary increase. In addition, Mr. McHugh is eligible for an annual cash bonus and was granted stock options from the Company’s Second Amended and
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 7. Commitments and Contingencies (continued)
Restated 2004 Stock Option Plan. Generally, the Agreement may be terminated by the Company with or without cause or by the Employee for any reason.
The Company’s executive and administrative offices are located in Toledo, Ohio. Through April 2011, the Company operated under a month to month lease at its former location. The total rental expense for this former location included in the statements of operations for the years ended December 31, 2011 and 2010 is approximately $12,800 and $38,500, respectively. In April 2011, the Company signed a 68 month lease with a new lessor in Toledo. The total minimum rental commitment for the year ending December 31, 2012 is approximately $37,400, for 2013 is $30,600 and for the years 2014 through 2016 is $40,800 each year. The total rental expense for this current location included in the statements of operations for the year ended December 31, 2011 is approximately $15,600. The Company also leases various equipment on a month-to-month basis.
In October 2010, the Company began to lease property in Emlenton, Pennsylvania under a lease with A-C Valley Industrial Park, for one year. After September 2011, the Company operated under a month to month lease agreement. The total rental expense included in the statements of operations for the years ended December 31, 2011 and 2010 is $23,000 and $6,000, respectively.
In June 2009, the Company began to maintain an office in West Unity, Ohio under a lease with D&B Colon Leasing, LLC, for one year. In June 2010, the Company renewed the lease for an additional year through May 31, 2011, and is currently operating under a month to month lease. The total rental expense included in the statements of operations for each of the twelve months ended December 31, 2011 and 2010 is $30,000.
The Company maintains an office in Daytona Beach under a lease with the County of Volusia, Florida, which was renewed in March, 2009 for five years. The total minimum rental commitment for the years ending December 31, 2012 through 2013 is $48,000 each year, and for 2014 is $12,000. The total rental expense included in the statements of operations for each of the years ended December 31, 2011 and 2010 is $48,000.
The Company also leased processing equipment at its Florida location which began in February 2008 under a three-year lease. The total rental expense included in the statements of operations for the years ended December 31, 2011 and 2010 is approximately $3,900 and $46,200, respectively. In February 2011, the Company purchased the equipment through a financing arrangement with an equipment leasing company.
Management believes that all of the Company’s properties are adequately covered by insurance.
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.
From time to time the Company is involved in legal proceedings and subject to claims which may arise in the ordinary course of business. The Company is not aware of any legal proceedings or material claims at this time.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 8. Income Tax Matters
The composition of the deferred tax assets and liabilities at December 31, 2011 and 2010 is as follows:
|
|
2011
|
|
2010
|
|
Gross deferred tax liabilities:
|
|
|
|
|
Property and equipment and intangible assets
|
$(19,200)
|
|
$(72,800)
|
|
Gross deferred tax assets:
|
|
|
|
|
Loss carryforwards
|
4,350,300
|
|
4,167,100
|
|
Loss on market price of derivatives
|
4,100
|
|
47,700
|
|
Section 754 basis step up
|
107,100
|
|
128,500
|
|
Allowance for doubtful accounts
|
23,800
|
|
23,800
|
|
Other
|
500
|
|
500
|
|
|
|
|
|
|
Less valuation allowance
|
(4,466,600)
|
|
(4,294,800)
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
The income tax provisions differ from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income from continuing operations for the years ended December 31, 2011 and 2010 and are as follows:
|
|
2011
|
|
2010
|
|
Computed "expected" tax expense (credit)
|
$(557,500)
|
|
$(1,009,500)
|
|
State taxes, net of federal tax benefit
|
-
|
|
-
|
|
(Decrease) increase in income taxes resulting from:
|
|
|
|
|
Change in valuation allowance
|
171,800
|
|
140,200
|
|
Net operating loss carryfoward expiration
|
-
|
|
520,300
|
|
Nondeductible stock options and warrants
|
568,400
|
|
351,800
|
|
Derivative adjustment - permanent
|
(205,400)
|
|
-
|
|
Other
|
22,700
|
|
(2,800)
|
|
|
|
|
|
|
|
$ -
|
|
$ -
|
The net operating losses available at December 31, 2011 to offset future taxable income total approximately $12,800,000 and expire principally in years 2018 - 2031. Approximately $685,000 will expire if not used to offset taxable income for the 2012 tax year.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Note 9. Fair Value Measurements and Disclosures
The Company has adopted the provisions of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) related to nonfinancial assets and liabilities on a prospective basis. ASC820 establishes the authoritative definition of fair value, sets out a framework for measuring fair value and expands the required disclosures about fair value measurement. The valuation techniques required by ASC 820 are based on observable and unobservable inputs using the following three-tier hierarchy:
|
·
|
Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
|
|
·
|
Level 2 – Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or inputs that are observable for assets or liabilities, either directly or indirectly, through market corroboration.
|
|
·
|
Level 3 – Inputs are unobservable inputs based on the Company’s own assumptions.
|
The following table summarizes the basis used to measure assets and liabilities at fair value on a recurring basis in the balance sheet:
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
|
|
|
|
|
|
|
as of December 31, 2011
|
|
Warrants
|
$0
|
$0
|
($12,196)
|
($12,196)
|
|
|
|
|
|
|
|
|
as of December 31, 2010
|
|
Warrants
|
$0
|
$0
|
($744,476)
|
($744,476)
|
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 assets for the year ended December 31, 2011:
Balance, beginning of year ($744,476)
Gain on market price change of warrants issued 732,280
Balance, end of year ($ 12,196)
Note 10. Subsequent Events
The Company has performed a review of events subsequent to the balance sheet date and no matters required disclosure.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Our history of losses has severely limited our budget to hire and train enough accounting and financial personnel needed to adequately provide this function. Consequently, we lack sufficient technical expertise, reporting standards and written policies and procedures regarding disclosure controls and procedures.
Because of the inherent limitations in all disclosure control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, disclosure controls can be circumvented by the individual acts of some persons, by collusion of two or more people and/or by management override of such controls. The design of any system of disclosure controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, disclosure controls and procedures may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Also, misstatements due to error or fraud may occur and not be detected.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in Internal Control - Integrated Framework. Based on our evaluation, our principal executive officer and our principal financial officer concluded that our internal controls over financial reporting were not effective as of December 31, 2011 for the reasons described below.
We lack personnel in accounting and financial staff to sufficiently monitor and process financial transactions in an efficient and timely manner. Our history of losses has severely limited our budget to hire and train enough accounting and financial personnel needed to adequately provide this function. Consequently, we lacked sufficient technical expertise, reporting standards and written policies and procedures. Specifically, controls were not effective to ensure that significant non-routine transactions, accounting estimates, and other adjustments were appropriately reviewed, analyzed and monitored by competent accounting staff on a timely basis.
We continue to develop and implement a remediation plan to address the material weakness. To date, our remediation efforts have included adoption of an expense reimbursement policy and the hiring of an employee to assist in the financial area of our business. However, due to our continuing lack of financial resources to hire and train accounting and financial personnel, we have not yet fully remedied this material weakness.
During the quarter ended December 31, 2011, there were no material changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
While we are not aware of any material errors to date, our inability to maintain the adequate internal controls may result in a material error in our financial statements. Further, because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This annual report does not include an audit or attestation report of our registered public accounting firm regarding our internal control over financial reporting because the attestation report requirement has been removed for “smaller reporting companies” under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Item 9B. Other Information
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance
DIRECTORS OF THE COMPANY
Currently the Board is currently composed of three Class I Directors: Carl Richard, Joseph H. Scheib and Mark D. Hagans; and three Class II Directors: James H. Hartung, Timothy R. Kasmoch and Thomas L. Kovacik (whose terms will expire upon the election and qualification of directors at the annual meetings of stockholders to be held in 2011 and 2012, respectively). At each annual meeting of stockholders, directors will be elected for a full term of two years to succeed those directors whose terms are expiring. During 2011 Joan B. Wills was a director until her resignation in December 2011. See the Form 8-K filed on December 7, 2011 for more details.
The following table sets forth the names and ages of our directors.
Name
|
Age
|
Position
|
Mark D. Hagans
|
45
|
Class I Director
|
James H. Hartung
|
69
|
Class II Director, Chairman of the Board*
|
Timothy R. Kasmoch
|
50
|
Class II Director, President and Chief Executive Officer*
|
Thomas L. Kovacik
|
64
|
Class II Director*
|
Carl Richard
|
85
|
Class I Director
|
Joseph H. Scheib
|
55
|
Class I Director
|
_____________
* Directors currently nominated for re-election.
Mark D. Hagans is an attorney and partner with the law firm of Plassman, Rupp, Hagans & Newton, of Archbold, Ohio, and his practice focuses on corporation, taxation and banking law. Mr. Hagans serves on numerous Boards of directors, including the Fulton County Health Center, where he is presently chair of the Finance Committee. Mr. Hagans earned his law degree from the University of Toledo. Mr. Hagans has served as our director since December 2006 and is a member of the Board's Audit, Finance and Technology Committees. Mr. Hagans’ experience as a lawyer and businessman enables him to bring valuable resources to the Board.
James H. Hartung is the former President and Chief Executive Officer of the Toledo-Lucas County (Ohio) Port Authority, a position he held from 1994 until 2008. Mr. Hartung has served as our Director since January 2006 and is a member of the Board's Compensation and Nominating Committees. Mr. Hartung presently also serves as the Chairman of the Board/Executive Vice-President at Seasnake World Wide Marketing LLC, a marketing concern commercializing the Seasnake shipping system for the marine transportation of liquid, dry bulk, break-bulk and inter-modal container cargo; and is actively engaged in maritime/economic development consulting in domestic and international markets for Development Solutions, LLC, where he serves as a Senior Associate/Partner. Mr. Hartung’s qualifications to serve as a director and our Chairman of the Board consist of several years experience as a businessman, as an organizational leader and community organizer, and in dealings with local government and related agencies that enable him to bring valuable insights to the Board.
Timothy R. Kasmoch has been our President and Chief Executive Officer since February 2006 and a director since January 2006. Until April 1, 2007, Mr. Kasmoch was also President and CEO of Tri-State Garden Supply, d/b/a Gardenscape, a bagger and distributor of lawn and garden products, which has provided trucking and equipment services to our Company. Mr. Kasmoch is a graduate of Penn State University. Mr. Kasmoch is a member of the Board’s Finance and Technology Committees. Mr. Kasmoch’s qualifications to serve as a director of the Company consist of his experience in the soil and distribution business as well as an extensive knowledge of the transportation and trucking industry. Mr. Kasmoch’s strength is in strategic planning and he possesses a broad, fundamental understanding of the business drivers affecting us. He is the only “insider” on the Board.
Thomas L. Kovacik is the Executive Director of Transportation Advocacy Group of Northwest Ohio (“TAGNO”), a strategic planning organization working with local and Ohio transportation and economic development officials, and the President of Kovacik Consulting, a business consulting company. Mr. Kovacik was previously employed by us from 1992 to 1995 as President of Great Lakes N-Viro, at the time one of our divisions. Mr. Kovacik has also held various positions with local government, utilities and environmental companies, and earned a masters degree from Bowling Green State University in Geochemistry. Mr. Kovacik has served as our Director since December 2006, and is a member of the Board’s Compensation and Technology Committees. Mr. Kovacik’s qualifications to serve as a director of the Company consist of his experience in the environmental, government and utilities industries, and his prior position with us as a divisional president. His strength in strategic planning and transactional experience offers a unique perspective to the Board.
Carl Richard is the former Executive Vice-President of P.R. Transportation, a trucking company that was located in Toledo, Ohio, and was a consultant to us from January 2006 to April 2007. Mr. Richard served as Vice-President of C.A. Transportation from 1988 through 2000 and as Vice-President of R.O.S.S. Investments, a real estate holding company, from 1980 through 2000. Mr. Richard has served as our director since December 2004 and is a member of the Board’s Nominating Committee. Mr. Richard’s qualifications to serve as a director of the Company consist of his extensive experience in the transportation and trucking industry.
Joseph H. Scheib is the Controller for Verity Financial Group, Inc., a holding company for Verity Asset Management, Inc. and Verity Investments, Inc., a Registered Investment Advisor and a Registered Broker-Dealer, respectively. He has held this position since June 2011. Mr. Scheib was the Chief Financial Officer of Broad Street Software Group, a comprehensive software technology company located in Edenton, North Carolina, a position he held until 2010. From May 2000 until February 2003, Mr. Scheib was the Financial Operation Principal/Compliance Officer of Triangle Securities, LLC of Raleigh, North Carolina, an asset management, brokerage and investment banking firm. Mr. Scheib is a graduate of East Carolina University with a degree in accounting. Mr. Scheib has served as our Director since December 2004, and is a member of the Board’s Audit, Finance and Nominating Committees. Mr. Scheib’s qualifications to serve as a director of the Company consist of his strong financial and asset management experience and serving the Company in a financial oversight role as the Chair of the Audit Committee. Given his extensive knowledge and experience in finance, Mr. Scheib has been determined to be an audit committee financial expert by the board.
Key Relationships
None
CORPORATE GOVERNANCE AND BOARD MATTERS
Our Board of Directors
Our business, property and affairs are managed under the direction of our Board. We have determined that the Company’s interests are best served by having a Chairman of the Board who is independent of the management of the Company because it is our view this inherently strengthens board independence in dealing with issues that closely involve management. Our Chief Executive Officer has responsibility for setting our strategic direction and the day-to-day leadership and performance, while the Chairman of the Board has a greater focus on long-range Company goals and plans and governance of our Board of Directors. This balance between the two positions enables Mr. Kasmoch to focus on the operational and strategic challenges we presently face, with Mr. Hartung providing board leadership on matters of governance and management oversight.
Our Board, as a whole, has the responsibility for risk oversight of management. The role of our Board of Directors is to oversee the President and Chief Executive Officer, the Executive Vice President and the Chief Financial Officer in the operation of the Company, including management's establishment and implementation of appropriate practices and policies with respect to areas of potentially significant risk to us. Our Board considers risks to the Company as part of the strategic planning process and thorough review of compliance issues in committees of our Board, as appropriate. While the Board has the ultimate oversight responsibility for such risk management process, various committees of the Board are structured to oversee specific risks in the areas covered by their respective assignments such as audits or compensation. In addition, our Board may retain, on such terms as determined by the Board and in its sole discretion, independent legal, financial and other consultants and advisors to advise and assist the Board in fulfilling its oversight responsibilities. Currently, there are no such consultants in any category assisting or advising the Company.
Management is responsible for N-Viro’s day-to-day risk management, and the entire Board’s role is to engage in informed oversight. Our Chief Executive Officer is a member of the Board of Directors, and our Chief Financial Officer and Executive Vice President/General Counsel regularly attend Board meetings, which helps facilitate discussions regarding risk between the Board and our senior management, as well as the exchange of risk-related information or concerns between the Board and the senior management. The Board believes Mr. Kasmoch’s service as Chief Executive Officer and on the Board is appropriate because it bridges a critical gap between our management and the Board, enabling the Board to benefit from management’s perspective on our business while the Board performs its oversight function.
The Company’s philosophy about diversity among its Board members is discussed below under “Nominating Committee.”
Meetings of the Board of Directors
Our Board held six meetings during 2011, consisting of two regular meeting and four special meetings. Each director attended 100% of the aggregate number of meetings held by the Board of Directors and the Committees of the Board of Directors on which he served. It is the policy of the Company that the members of the Board attend our annual stockholder meeting. Failure to attend annual meetings without good reason is a factor the Nominating Committee and Board will consider in determining whether or not to renominate a current Board member. All members of the Board serving at the time attended the 2011 Annual Meeting, except Mr. Scheib and Ms. Wills.
Shareholder Communications with the Board
We encourage stockholder communications with directors. Stockholders may communicate with a particular director, all directors or the Chairman of the Board by mail or courier addressed to him or the entire Board in care of James K. McHugh, Corporate Secretary, N-Viro International Corporation, 2254 Centennial Road, Toledo, OH 43617. All correspondence should be in a sealed envelope marked “Confidential” and will be forwarded unopened to the director as appropriate.
Board Independence
Although we are not subject to the listing requirements of any stock exchange, we are committed to a board in which a majority of our members consist of independent directors, as defined under the NASDAQ rules. The Board has reviewed the independence of its members, applying the NASDAQ standards and considering other commercial, legal, accounting and familial relationships between the directors and us. The Board has determined that all of the directors and director nominees are independent other than Mr. Kasmoch, who is not an independent director by virtue of his current position as our Chief Executive Officer.
Code of Ethics
We have adopted a Code of Ethics which covers the Chief Executive Officer and Chief Financial Officer, which is administered and monitored by the Audit Committee of the Board. A copy of the Code of Ethics is attached as Exhibit 14.1 to this Annual Report on Form 10-K for the year ended December 31, 2011, and is posted on our web site at www.nviro.com.
Committees of the Board of Directors
The Board has the following standing committees: the Audit Committee, the Compensation Committee, the Finance Committee, the Nominating Committee and the Technology Committee. The composition and function of each Committee is set forth below:
Director
|
Audit
|
Compensation
|
Nominating
|
Finance
|
Technology
|
Mark D. Hagans
|
X
|
|
|
X*
|
X
|
James H. Hartung
|
|
X
|
X
|
|
|
Timothy R. Kasmoch
|
|
|
|
X
|
X*
|
Thomas L. Kovacik
|
|
X*
|
|
|
X
|
Carl Richard
|
|
|
X
|
|
|
Joseph H. Scheib
|
X*
|
|
X*
|
X
|
|
Joan B. Wills**
|
|
X
|
|
|
|
* Committee Chair
** Until Ms. Wills’ retirement from the Board in December 2011.
Audit Committee
Our Audit Committee consisted of Messrs. Scheib and Hagans. In accordance with our Audit Committee Charter, each of the Audit Committee members must be “independent” as determined under the NASDAQ rules. The Audit Committee currently is not subject to, and does not follow, the independence criteria set forth in Section 10A of the Securities Exchange Act 1934, as amended. The Board has determined that each of the directors who serve on the Audit Committee are “independent” under the NASDAQ rules, meaning that none of them has a relationship with us that may interfere with their independence from us and our management. Further, the Board has determined that Mr. Scheib qualifies as a “financial expert” as defined by the Securities and Exchange Commission (the "SEC").
The Audit Committee recommends the appointment of the outside auditor, oversees our accounting and internal audit functions and reviews and approves the terms of transactions between us and related party entities. During 2011, the Audit Committee met two times. The Audit Committee has retained UHY LLP to conduct the audit for the year ended December 31, 2012. The Audit committee is governed by a written charter, a copy of which was attached to the Proxy Statement for our annual meeting held on June 8, 2007.
Compensation Committee
The Compensation Committee determines officers’ salaries and bonuses and administers the grant of stock options pursuant to our stock option plans. The Compensation Committee does not have a written charter. The Compensation Committee consisted of Messrs. Kovacik and Hartung and Ms. Wills until her retirement from the Board in December 2011. The Compensation Committee met three times during 2011.
The Board has determined that all of the members of the committee are “independent” as determined under the NASDAQ standards.
Finance Committee
The Finance Committee, consisting of Messrs. Hagans, Kasmoch and Scheib, assists in monitoring our cash flow requirements and approves any internal or external financing or leasing arrangements. The Finance Committee does not have a written charter. The Finance Committee met one time during 2011.
Nominating Committee
The Nominating Committee, consisting of Messrs. Scheib, Richard and Hartung, considers and recommends to the Board qualified candidates for election as Board members, and establishes and periodically reviews criteria for selection of directors. The Nominating Committee does not have a written charter. The Nominating Committee met one time during 2011.
The Board has determined that all of the members of the committee are “independent” as determined under the NASDAQ standards.
The Nominating Committee will consider candidates recommended by stockholders, directors, officers, third-party search firms and other sources for nomination as a director. The Committee considers the needs of the Board and evaluates each director candidate in light of, among other things, the candidate’s qualifications. Recommended candidates must be of the highest character and integrity, free of any conflicts of interest and possess the ability to work collaboratively with others, and have the time to devote to Board activities. All candidates will be reviewed in the same manner, regardless of the source of the recommendation. Presently, the Nominating Committee does not consider diversity as a characteristic in its selection of candidates except to the extent that the Nominating Committee seeks to expand the range of categories of experience and relationships in different aspects of the waste management process the Company requires for the different foci of its business and potential contacts with sources of business opportunity for the Company.
The Nominating Committee will consider all stockholder recommendations of proposed director nominees, if such recommendations are timely received under applicable SEC regulations and include all of the information required to be included as set forth in the By-Laws. To be considered “timely received,” recommendations must be received in writing at our principal executive offices, at N-Viro International Corporation, 2254 Centennial Road, Toledo, OH 43617, Attention: Chairman, Nominating Committee, c/o James K. McHugh, Corporate Secretary, no later than March 1, 2013
All candidates recommended by stockholders should be independent and possess substantial and significant experience which would be of value to us in the performance of the duties of a director. In addition, any stockholder director nominee recommendation must include, at a minimum, the following information: the stockholder’s name; address; the number and class of shares owned; the candidate’s biographical information, including name, residential and business address, telephone number, age, education, accomplishments, employment history (including positions held and current position), and current and former directorships; and the stockholder’s opinion as to whether the stockholder recommended candidate meets the definitions of “independent” under the NASDAQ standards. In addition, the recommendation letter must provide the information that would be required to be disclosed in the solicitation of proxies for election of directors under federal securities laws. The stockholder must include the candidate’s statement that he/she meets these requirements; is willing to promptly complete the Questionnaire required of all officers, directors and candidates for nomination to the Board; will provide such other information as the Committee may reasonably request; consents to serve on the Board if elected; and a statement whether such candidate, if elected, intends to tender, promptly following such person’s election or re-election, an irrevocable resignation effective upon such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election.
Compensation of Directors
Our Board of Directors has approved the payment of cash compensation to non-employee directors in exchange for their service on the Board. The amount of cash compensation to be received by each non-employee director is $1,000 per regular meeting attended during each calendar year, and $500 per special meeting attended. Our Board of Directors generally has four meetings per calendar year. The Directors are reimbursed for out-of-pocket expenses incurred in attending meetings of the Board of Directors or any committees thereof. During 2011, the Board voluntarily waived the cash compensation for the special meetings.
Under our current stock option plan, the N-Viro International Corporation 2010 Stock Option Plan (“2010 Plan”), each non-employee Director automatically receives a grant of options to purchase 5,000 shares of Common Stock for each regular meeting attended, and an option to purchase 2,500 shares of Common Stock for each special meeting attended, subject to a maximum of 30,000 options in any calendar year.
Directors who are our employees do not receive any additional compensation for serving as Directors. Directors who are our consultants do not receive any additional cash compensation for serving as Directors, but do receive stock options per the provisions of the 2010 Plan.
See “Certain Relationships and Related Transactions” for additional compensation to directors.
DIRECTOR COMPENSATION
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
Non-Equity
|
Non-Qualified
|
Non-Qualified
|
|
|
|
Earned or
|
|
|
Incentive
|
Incentive
|
Deferred
|
All
|
|
|
Paid in
|
Stock
|
Option
|
Plan
|
Plan
|
Compensation
|
Other
|
|
Name
|
Cash
|
Awards (1)
|
Awards
|
Compensation
|
Compensation
|
Earnings
|
Compensation
|
Total
|
Joseph Scheib
|
$2,000
|
$27,250
|
$53,570
|
-
|
-
|
-
|
-
|
$82,820
|
Carl Richard
|
$2,000
|
$27,250
|
$53,570
|
-
|
-
|
-
|
-
|
$82,820
|
James Hartung
|
$2,000
|
$27,250
|
$53,570
|
-
|
-
|
-
|
-
|
$82,820
|
Mark Hagans
|
$2,000
|
$27,250
|
$53,570
|
-
|
-
|
-
|
-
|
$82,820
|
Thomas Kovacik
|
$2,000
|
$27,250
|
$53,570
|
-
|
-
|
-
|
-
|
$82,820
|
Joan Wills *
|
$1,000
|
$27,250
|
$53,570
|
-
|
-
|
-
|
-
|
$81,820
|
Timothy Kasmoch
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
$0
|
|
$11,000
|
$163,500
|
$321,420
|
$0
|
$0
|
$0
|
$0
|
$495,920
|
|
|
|
|
|
|
|
|
|
*
|
No longer a director effective December 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents 20,000 stock warrants issued to each board member in August 2011
|
|
|
EXECUTIVE OFFICERS OF THE COMPANY
Executive officers of the Company are appointed by the Board of Directors and hold office at the pleasure of the Board. Set forth below is biographical and other information on the current executive officers of the Company. Mr. Kasmoch also serves as a member of the Board and his biographical information is set forth above under the caption “Directors of the Company.”
Name
|
Age
|
Position
|
Timothy R. Kasmoch
|
50
|
President and Chief Executive Officer
|
Robert W. Bohmer
|
42
|
Executive Vice-President and General Counsel
|
James K. McHugh
|
53
|
Chief Financial Officer, Secretary and Treasurer
|
Robert W. Bohmer has been our Executive Vice-President and General Counsel since July 2007. From 1996 until joining the Company, Mr. Bohmer had been a partner with the law firm of Watkins, Bates and Carey, LLP, Toledo, Ohio. From 2005 through June 2007, Mr. Bohmer had served as general outside counsel to the Company.
James K. McHugh has served as our Chief Financial Officer, Secretary and Treasurer since January 1997. Prior to that date, Mr. McHugh served the Company in various financial positions since April 1992, and was a key member of the team that took the Company public in 1993.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own beneficially more than ten percent (10%) of the shares of our Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission, or SEC. Copies of all filed reports are required to be furnished to us pursuant to Section 16(a). Based solely on the reports received by us and on written representations from reporting persons, we believe that the current directors and executive officers complied with all applicable filing requirements during the fiscal year ended December 31, 2011.
Item 11. Executive Compensation
Compensation of Executive Officers
The following table presents the total compensation paid to our Chief Executive Officer, Executive Vice President and Chief Financial Officer during 2011 and 2010. There were no other executive officers who were serving at the end of 2011 or 2010 and whose total compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
Non-Equity
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
Incentive
|
Deferred
|
All
|
|
|
Name and Principal
|
|
|
|
Stock
|
Option
|
Plan
|
Compensation
|
Other
|
|
|
Position
|
Year
|
Salary
|
Bonus
|
Awards (4)
|
Awards (5)
|
Compensation
|
Earnings
|
Compensation
|
Total
|
|
Timothy R. Kasmoch
|
2011
|
$150,000
|
-
|
$27,233
|
$969,115
|
-
|
-
|
$52,000
|
$1,198,348
|
|
President and Chief
|
2010
|
$150,000
|
-
|
-
|
$446,152
|
-
|
-
|
$21,518
|
$617,670
|
|
Executive Officer (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Bohmer
|
2011
|
$150,000
|
-
|
$27,233
|
$169,542
|
-
|
-
|
-
|
$346,775
|
|
Executive Vice-President +
|
2010
|
$150,000
|
-
|
-
|
$373,763
|
-
|
-
|
-
|
$523,763
|
|
General Counsel (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James K. McHugh
|
2011
|
$125,000
|
-
|
$27,233
|
$52,982
|
-
|
-
|
$399
|
$205,614
|
|
Chief Financial Officer,
|
2010
|
$125,000
|
$7,810
|
-
|
$94,926
|
-
|
-
|
$399
|
$228,135
|
|
Secretary + Treasurer (3)
|
|
|
|
|
|
|
|
|
|
(1)
|
For the “All Other Compensation” column, Mr. Kasmoch’s spouse was compensated for outside consulting services rendered to the Company during 2010, in addition to employee wages paid starting the fourth quarter of 2010 into 2011. All compensation was in cash.
|
|
(2)
|
For Mr. Bohmer, the value of the Option Award includes the 2007 Option Award recorded as an expense in 2010 in the amount of $70,000.
|
|
(3)
|
For the “All Other Compensation” column, Mr. McHugh is taxed on the imputed benefit of a life insurance policy that benefits his personal beneficiary for one-half the face value of the policy and N-Viro International Corporation for the other one-half.
|
|
(4)
|
The amounts included in the Stock Awards column include the aggregate fair value of stock warrants granted in the fiscal year computed in accordance with FASB ASC Topic 718. We use the Black-Scholes model to measure the grant date fair value of stock warrants.
|
|
(5)
|
The amounts included in the Option Awards column include the aggregate fair value of options granted and/or expensed in the fiscal year computed in accordance with FASB ASC Topic 718. We continue to use the Black-Scholes model to measure the grant date fair value of stock options. For a discussion of the valuation assumptions used to value the options, see Note 5 to our Consolidated Financial Statements included in this annual report on Form 10-K for the fiscal year ended December 31, 2011.
|
2011 GRANTS OF PLAN BASED AWARDS
|
|
|
Estimated Future Payouts Under
|
Estimated Future Payouts Under
|
Full Grant
|
Base Price
|
|
Grant
|
Approval
|
Non-Equity Incentive Plan Awards
|
|
Equity Incentive Plan Awards
|
Date Fair
|
of Option
|
Name
|
Date
|
Date
|
Threshold ($)
|
Target ($)
|
Maximum ($)
|
|
Threshold (#)
|
Target (#)
|
Maximum (#)
|
Value ($)
|
Awards ($/shr.)
|
Timothy R. Kasmoch
|
8/10/2011
|
8/10/2011
|
-
|
-
|
-
|
|
-
|
-
|
500,000
|
1.50
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Bohmer
|
none
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
James K. McHugh
|
none
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
-
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
OPTION AWARDS
|
STOCK AWARDS
|
|
|
|
|
|
|
|
|
Equity
|
Equity
|
|
|
|
Equity
|
|
|
|
|
Incentive
|
Incentive
|
|
|
|
Incentive
|
|
|
|
|
Plan Awards:
|
Plan Awards:
|
|
|
|
Plan
|
|
|
|
Market
|
# Unearned
|
Market or
|
|
# of
|
# of
|
Awards:
|
|
|
# of
|
Value of
|
Shares,
|
Payout Value
|
|
Securities
|
Securities
|
# Securities
|
|
|
Shares or
|
Shares or
|
Units or
|
of Unearned
|
|
Underlying
|
Underlying
|
Underlying
|
|
|
Units of
|
Units of
|
Other Rights
|
Shares, Units
|
|
Unexercised
|
Unexercised
|
Unexercised
|
Option
|
Option
|
Stock That
|
Stock That
|
That Have
|
or Other Rights
|
|
Options (#)
|
Options (#)
|
Unearned
|
Exercise
|
Expiration
|
Have Not
|
Have Not
|
Not
|
That Have
|
Name
|
Exercisable
|
Unexercisable
|
Options (#)
|
Price (#)
|
Date
|
Vested (#)
|
Vested ($)
|
Vested (#)
|
Not Vested (#)
|
Timothy R. Kasmoch
|
250,000
|
-
|
-
|
$2.00
|
12/30/16
|
-
|
-
|
-
|
-
|
Timothy R. Kasmoch
|
2,500
|
-
|
-
|
$1.70
|
2/15/16
|
-
|
-
|
-
|
-
|
Timothy R. Kasmoch
|
25,000
|
-
|
-
|
$1.94
|
7/11/19
|
-
|
-
|
-
|
-
|
Timothy R. Kasmoch
|
243,000
|
-
|
-
|
$2.23
|
7/22/19
|
-
|
-
|
-
|
-
|
Timothy R. Kasmoch
|
282,000
|
188,000
|
-
|
$3.27
|
3/18/20
|
-
|
-
|
-
|
-
|
Timothy R. Kasmoch
|
500,000
|
-
|
-
|
$1.63
|
8/10/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Bohmer
|
100,000
|
-
|
-
|
$2.80
|
6/13/17
|
-
|
-
|
-
|
-
|
Robert W. Bohmer
|
25,000
|
-
|
-
|
$1.94
|
7/11/19
|
-
|
-
|
-
|
-
|
Robert W. Bohmer
|
168,000
|
-
|
-
|
$2.23
|
7/22/19
|
-
|
-
|
-
|
-
|
Robert W. Bohmer
|
192,000
|
128,000
|
-
|
$3.27
|
3/18/20
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
James K. McHugh
|
12,000
|
-
|
-
|
$2.10
|
11/11/14
|
-
|
-
|
-
|
-
|
James K. McHugh
|
50,000
|
-
|
-
|
$2.00
|
12/31/16
|
-
|
-
|
-
|
-
|
James K. McHugh
|
25,000
|
-
|
-
|
$1.94
|
7/11/19
|
-
|
-
|
-
|
-
|
James K. McHugh
|
68,000
|
-
|
-
|
$2.23
|
7/22/19
|
-
|
-
|
-
|
-
|
James K. McHugh
|
60,000
|
40,000
|
-
|
$3.27
|
3/18/20
|
-
|
-
|
-
|
-
|
All options awards were made granted under the Company's current stock option plan described under the caption "Equity Compensation Plan Information."
Employment Agreements
Effective March 17, 2010, we entered into an Employment Agreement (the “Agreement”) with Mr. Timothy R. Kasmoch as our President and Chief Executive Officer, commencing February 26, 2010. The Agreement is for a five-year term commencing on February 26, 2010 and provides for automatic renewal of successive one-year terms unless notice is provided ninety (90) days prior to the expiration of the then current term. The agreement provides that Mr. Kasmoch is to receive an annual base salary of $150,000, subject to annual increase at the discretion of our Board of Directors. In addition, Mr. Kasmoch is eligible for an annual cash bonus in an amount to be determined, and otherwise subject to the discretion of the Board of Directors. Under the agreement, this determination is to be based upon the Board of Directors review of Mr. Kasmoch's performance. The Agreement also provides for a stock option grant of 470,000 options that vest over a five year period, pursuant to the Second Amended and Restated 2004 Stock Option Plan. While employed with the Company, the Agreement allows Mr. Kasmoch to engage in other limited business activities that are not competitive with and do not involve the Company, subject to the prior disclosure to the Company’s Audit Committee. The Employment Agreement permits Mr. Kasmoch to terminate his employment in the event of a change of control or certain enumerated material breaches thereof by the Company. A copy of this employment agreement was attached to a Form 8-K as Exhibit 10.1, filed by us on March 19, 2010.
Effective March 17, 2010, we entered into an Employment Agreement (the “Agreement”) with Mr. Robert W. Bohmer as our Executive Vice President and General Counsel, commencing February 26, 2010. The Agreement is for a five-year term commencing on February 26, 2010 and provides for automatic renewal of successive one-year terms unless notice is provided ninety (90) days prior to the expiration of the then current term. The Agreement provides that Mr. Bohmer is to receive an annual base salary of $150,000, subject to an annual increase at the discretion of our Board of Directors. In addition, Mr. Bohmer is eligible for an annual cash bonus in an amount to be determined, and otherwise subject to the discretion of the Board of Directors. Under the agreement, this determination is to be based upon the President/Chief Executive Officer’s and Board of Directors review of Mr. Bohmer's performance. The Agreement also provides for a stock option grant of 320,000 options that vest over a five year period, pursuant to the Second Amended and Restated 2004 Stock Option Plan. While employed with the Company, the Agreement allows Mr. Bohmer to engage in other limited business activities that are not competitive with and do not involve the Company, subject to the prior disclosure to the Company’s Audit Committee. The Employment Agreement permits Mr. Bohmer to terminate his employment in the event of a change of control or certain enumerated material breaches thereof by the Company. A copy of this employment agreement was attached to a Form 8-K as Exhibit 10.1, filed by us on March 19, 2010.
Effective March 17, 2010, we entered into an Employment Agreement (the “Agreement”) with James K. McHugh to serve as the Company’s Chief Financial Officer commencing February 26, 2010. The Agreement is for a five-year term commencing on February 26, 2010 and provides for automatic renewal of successive one-year terms unless notice is provided ninety (90) days prior to the expiration of the then current term. The agreement provides that Mr. McHugh is to receive an annual base salary of $125,000, subject to annual increase at the discretion of the Board of Directors of the Company. In addition, Mr. McHugh is eligible for an annual cash bonus in an amount to be determined, and otherwise subject to the discretion of, the Board of Directors. Under the agreement, this determination is to be based upon the President/Chief Executive Officer’s and Board of Directors review of Mr. McHugh's performance. The Agreement also provides for a stock option grant of 100,000 shares that vest over a five year period, pursuant to the Second Amended and Restated 2004 Stock Option Plan. While employed with the Company, the Agreement allows Mr. McHugh to engage in other limited business activities that are not competitive with and do not involve the Company, subject to the prior disclosure to the Company’s Audit Committee. The Employment Agreement permits Mr. McHugh to terminate his employment in the event of a change of control or certain enumerated material breaches thereof by the Company. A copy of this employment agreement was attached to a Form 8-K as Exhibit 10.1, filed by us on March 19, 2010.
Equity Compensation Plan Information
We maintain three stock option plans (two are able to issue new grants) for directors, executive officers and key employees or outside subcontractors. The most recent plan (“2010 Plan”) was approved by the stockholders in August 2010. The 2010 Plan authorizes the Board of Directors or a committee thereof, to grant awards of incentive stock options and non-qualified stock options for up to a maximum of 5,000,000 shares of Common Stock. For all of the plans, the total number of options granted and outstanding as of March 5, 2012 was 2,924,281, and the number of options available for future issuance was 4,339,075. Currently, all of the plans are administered by the Board of Directors via a committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We had outstanding 6,083,624 shares of Common Stock, $.01 par value per share, or the Common Stock, on March 5, 2012, which constitutes the only class of our outstanding voting securities.
Five Percent Stockholders
As of March 5, 2012, the following were the only persons known to us to own beneficially more than 5% of the outstanding shares of Common Stock:
Title of Class
|
Name and Address of Beneficial Owner
|
Amount and Nature of Beneficial Ownership
|
Percentage of Outstanding Shares of Common Stock
|
Common Stock
|
Cooke Family Trust
90 Grande Brook Circle, #1526
Wakefield, Rhode Island 02879
|
627,717 (1)
|
10.3%
|
|
|
|
|
Common Stock
|
VC Energy I, LLC
3900 Paradise Road, Suite U
Las Vegas, NV 89169
|
800,000 (2)
|
12.3%
|
|
1.
|
The shares attributed to the Cooke Family Trust include 627,267 shares owned beneficially and 450 in Common Stock warrants exercisable to purchase an equal number of shares of Common Stock. This information was derived from the Schedule 13D Amendment #5 filed on May 10, 2010.
|
|
2.
|
The shares attributed to VC Energy I, LLC include 400,000 shares owned beneficially and 400,000 in Common Stock warrants exercisable to purchase an equal number of shares of Common Stock. This information was derived from the Schedule 13G filed on July 8, 2010.
|
Security Ownership of Management
The following table sets forth, as of March 5, 2012, unless otherwise specified, certain information with respect to the beneficial ownership of our shares of Common Stock by each person who is our director, a nominee for the Board, each of the Named Executive Officers, and by our directors and executive officers as a group. Unless otherwise noted, each person has voting and investment power, with respect to all such shares, based on 6,083,624 shares of Common Stock outstanding on the record date. Pursuant to the rules of the SEC, shares of Common Stock which a person has the right to acquire within 60 days of the date hereof pursuant to the exercise of stock warrants or stock options are deemed to be outstanding for the purpose of computing the percentage ownership of such person but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
Title of Class
|
Name of Beneficial Owner
|
Amount and Nature of Beneficial Ownership
|
1
|
Percent of Class
|
Common Stock
|
Mark D. Hagans
|
94,130
|
2
|
1.52%
|
Common Stock
|
James H. Hartung
|
112,250
|
3
|
1.81%
|
Common Stock
|
Timothy R. Kasmoch
|
1,480,500
|
4
|
19.86%
|
Common Stock
|
Thomas L. Kovacik
|
102,500
|
5
|
1.66%
|
Common Stock
|
Carl Richard
|
242,790
|
6
|
3.88%
|
Common Stock
|
Joseph H. Scheib
|
291,872
|
7
|
4.67%
|
Common Stock
|
Robert W. Bohmer
|
507,600
|
8
|
7.70%
|
Common Stock
|
James K. McHugh
|
248,920
|
9
|
3.94%
|
Common Stock
|
All directors and executive officers as a group (8 persons)
|
3,080,562
|
10
|
34.89%
|
|
1.
|
Except as otherwise indicated, all shares are directly owned with voting and investment power held by the person named.
|
|
2.
|
Represents 4,965 shares of Common Stock owned by Mr. Hagans, 69,165 shares issuable upon exercise of options which are currently exercisable at prices ranging from $1.78 to $3.90 per share and 20,000 unregistered shares issuable upon exercise of warrants which are currently exercisable at a price of $1.53 per share.
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3.
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Represents 3,314 shares of Common Stock owned by Mr. Hartung, 78,046 shares issuable upon exercise of options which are currently exercisable at prices ranging from $1.42 to $3.90 per share and 30,890 unregistered shares issuable upon exercise of warrants which are currently exercisable at prices ranging from $1.53 to $2.00 per share.
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4.
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Represents 100,000 unregistered shares and 8,000 registered shares of Common Stock owned by Mr. Kasmoch, 70,000 unregistered shares issuable upon exercise of warrants which are currently exercisable at prices ranging from $1.53 to $1.85 per share and 1,302,500 shares issuable upon exercise of options which are currently exercisable at prices ranging from $1.63 to $3.27 per share.
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5.
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Represents 1,000 shares of Common Stock owned by Mr. Kovacik, 81,500 shares issuable upon exercise of options which are currently exercisable at prices ranging from $1.78 to $3.90 per share and 20,000 unregistered shares issuable upon exercise of warrants which are currently exercisable at a price of $1.53 per share.
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6.
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Represents 75,351 shares of Common Stock owned by Mr. Richard, 90,000 shares issuable upon exercise of options which are currently exercisable at prices ranging from $0.70 to $3.90 per share and 77,439 unregistered shares issuable upon exercise of warrants which are currently exercisable at prices ranging from $1.53 to $2.00 per share.
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7.
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Represents 125,722 shares of Common Stock owned by Mr. Scheib, 91,250 shares issuable upon exercise of options which are currently exercisable at prices ranging from $0.70 to $3.90 per share, 600 shares owned by a family member over which Mr. Scheib acts as custodian and 74,300 unregistered shares issuable upon exercise of warrants which are currently exercisable at prices ranging from $1.53 to $2.52 per share.
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8.
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Represents 2,600 shares of Common Stock owned by Mr. Bohmer, 485,000 shares issuable upon exercise of options which are currently exercisable at prices ranging from $1.94 to $3.27 per share and 20,000 unregistered shares issuable upon exercise of warrants which are currently exercisable at a price of $1.53 per share.
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9.
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Represents 13,920 shares of Common Stock owned by Mr. McHugh, 215,000 shares issuable upon exercise of options which are currently exercisable at prices ranging from $1.94 to $3.27 per share and 20,000 unregistered shares issuable upon exercise of warrants which are currently exercisable at a price of $1.53 per share.
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10.
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Represents 334,872 shares of Common Stock owned by the directors and officers, 600 shares owned indirectly, 2,412,461 shares issuable upon exercise of options which are currently exercisable at prices ranging from $0.70 to $3.90 per share and a total of 332,629 unregistered shares issuable upon exercise of warrants which are currently exercisable at prices ranging from $1.53 to $2.52 per share.
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Item 13. Certain Relationships and Related Transactions and Director Independence
During 2011 and 2010, we paid Terri Kasmoch, the spouse of President and Chief Executive Officer Timothy Kasmoch, outside consulting fees for business development, web site and company media marketing and stock promotion efforts for the Company, and as an employee with the same duties starting in the fourth quarter of 2010.
Director Independence
Although we are not subject to the listing requirements of any stock exchange, we are committed to a board in which a majority of our members consist of independent directors, as defined under the NASDAQ rules. The Board has reviewed the independence of its members, applying the NASDAQ standards and considering other commercial, legal, accounting and familial relationships between the Directors and us. The Board has determined that all of the Directors and director nominees are independent other than Mr. Kasmoch, who is not an independent Director by virtue of his current position as our chief executive officer.
Item 14. Principal Accountant Fees and Services
Audit Fees
Audit services of UHY LLP (“UHY”) included the audit of our annual financial statements for 2011 and 2010, and services related to quarterly filings with the SEC through the reporting period ended September 30 in each of those years. Fees for these services totaled approximately $68,500 for 2011 and $73,500 for 2010.
Audit Related Fees
There were no fees billed for the years ended December 31, 2011 and December 31, 2010 for assurance and related services by UHY that are reasonably related to the performance of the audit or review of our financial statements.
Tax Fees
There were no fees billed for the years ended December 31, 2011 and December 31, 2010 for professional services rendered by UHY for tax compliance, tax advice, and tax planning.
All Other Fees
There were no fees billed for the years ended December 31, 2011 and December 31, 2010 for assistance on accounting related matters.
Although the Audit Committee Charter does not explicitly require it, the Audit Committee approves all engagements of outside auditors before any work is begun on the engagement.
UHY LLP personnel work under the direct control of UHY LLP partners and are leased from wholly-owned subsidiaries of UHY Advisors, Inc. in an alternative practice structure.
PART IV
Item 15. Exhibits, Financial Statement Schedules
No. Description
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10.1
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Commercial Line of Credit Agreement and Note dated October 15, 2008, between N-Viro International Corporation and Monroe Bank + Trust (incorporated by reference to Exhibit 99.1 to Form 8-K filed October 27, 2008).
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10.2
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Employment Agreement, dated March 17, 2010 between Timothy R. Kasmoch and N-Viro International Corporation (incorporated by reference to Exhibit 10.1 to Form 8-K filed March 19, 2010)
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10.3
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Employment Agreement, dated March 17, 2010 between Robert W. Bohmer and N-Viro International Corporation (incorporated by reference to Exhibit 10.2 to Form 8-K filed March 19, 2010)
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10.4
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Employment Agreement, dated March 17, 2010 between James K. McHugh and N-Viro International Corporation (incorporated by reference to Exhibit 10.3 to Form 8-K filed March 19, 2010)
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10.5
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The N-Viro International Corporation 2004 Stock Option Plan (incorporated by reference to Form S-8 filed December 20, 2004).*
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10.6
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The N-Viro International Corporation Amended and Restated 2004 Stock Option Plan (incorporated by reference to the Proxy Statement on Schedule 14A filed May 14, 2008).*
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10.7
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The N-Viro International Corporation Second Amended and Restated 2004 Stock Option Plan (incorporated by reference to the Definitive Proxy Statement on Schedule 14A filed July 13, 2009).*
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10.8
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The N-Viro International Corporation 2010 Stock Option Plan (incorporated by reference to the Definitive Proxy Statement on Schedule 14A filed June 23, 2010).*
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21.1
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List of subsidiaries of the Company.#
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24.1
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Power(s) of Attorney.#
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31.1
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS XBRL Instance Document #
101.SCH XBRL Taxonomy Extension Schema #
101.CAL XBRL Taxonomy Extension Calculation Linkbase #
101.LAB XBRL Taxonomy Extension Label Linkbase #
101.PRE XBRL Taxonomy Extension Presentation Linkbase #
101.DEF XBRL Taxonomy Definition Linkbase Document #
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#
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Only included in Form 10-K filed electronically with the Securities and Exchange Commission.
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*
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Indicates a management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
N-VIRO INTERNATIONAL CORPORATION
Dated: March 30, 2012
By: /s/ Timothy R. Kasmoch
Timothy R. Kasmoch, Chief Executive Officer and President
(Principal Executive Officer)
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints James K. McHugh his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Dated: March 30, 2012
/s/ Timothy R. Kasmoch /s/ James K. McHugh
Timothy R. Kasmoch, Chief Executive Officer, James K. McHugh
President and Director Chief Financial Officer, Secretary and Treasurer
(Principal Executive Officer) (Principal Financial Officer)
/s/ James H. Hartung* /s/ Mark D. Hagans*
James H. Hartung, Director & Chairman of the Board Mark D. Hagans, Director
/s/ Joseph H. Scheib* /s/ Thomas L. Kovacik*
Joseph H. Scheib, Director Thomas L. Kovacik, Director
/s/ Carl Richard*
Carl Richard, Director
* by James K. McHugh, Attorney-In-Fact