UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-21802
N-VIRO INTERNATIONAL CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-1741211
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3450 W. CENTRAL AVENUE, SUITE 328
TOLEDO, OHIO 43606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (419) 535-6374
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No.
---
As of August 8, 2005, 3,518,559 shares of N-Viro International
Corporation $ .01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
---
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
------------------------ ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,018,040 $1,589,539 $2,154,486 $3,047,908
Cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . 782,500 1,118,024 1,571,796 2,158,237
----------- ----------- ----------- -----------
Gross Profit. . . . . . . . . . . . . . . . . . . . . . . . . . 235,540 471,515 582,690 889,671
Operating expenses:
Selling, general and administrative . . . . . . . . . . . . . . 367,918 497,113 717,080 1,006,564
----------- ----------- ----------- -----------
Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . (132,378) (25,598) (134,390) (116,893)
Nonoperating income (expense):
Interest and dividend income. . . . . . . . . . . . . . . . . . 1,030 10,807 2,148 15,558
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . (8,667) (23,273) (15,852) (49,420)
Gain on legal debt forgiven . . . . . . . . . . . . . . . . . . - 157,174 - 157,174
Loss from equity investment in joint venture. . . . . . . . . . (67,823) (61,161) (123,526) (104,984)
----------- ----------- ----------- -----------
(75,460) 83,547 (137,230) 18,328
----------- ----------- ----------- -----------
Income (loss) before income taxes . . . . . . . . . . . . . . . (207,838) 57,949 (271,620) (98,565)
Federal and state income taxes. . . . . . . . . . . . . . . . . - - - -
----------- ----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ (207,838) $ 57,949 $ (271,620) $ (98,565)
=========== =========== =========== ===========
Basic and diluted income (loss) per share . . . . . . . . . . . $ (0.06) $ 0.02 $ (0.08) $ (0.03)
=========== =========== =========== ===========
Weighted average common shares outstanding - basic and diluted. 3,499,328 3,040,006 3,473,709 2,918,085
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 2005 (Unaudited) December 31, 2004
-------------------------- -------------------
ASSETS
- -----------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents:
Unrestricted. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 299,656 $ 147,549
Restricted. . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,914 75,600
Receivables:
Trade, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 710,860 578,070
Stock subscription. . . . . . . . . . . . . . . . . . . . . . . . - 42,500
Notes receivable - current. . . . . . . . . . . . . . . . . . . . 68,131 112,802
Prepaid expenses and other assets . . . . . . . . . . . . . . . . 110,041 108,732
-------------------------- -------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 1,314,602 1,065,253
Property and Equipment, Net . . . . . . . . . . . . . . . . . . . 320,550 360,952
Investment in and Advances to Florida N-Viro, L.P.. . . . . . . . 62,949 186,475
Notes Receivable, net of current portion. . . . . . . . . . . . . - 338
Intangible and Other Assets, Net. . . . . . . . . . . . . . . . . 1,004,467 1,078,771
-------------------------- -------------------
$ 2,702,568 $ 2,691,789
========================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt. . . . . . . . . . . . . . . $ 98,307 $ 91,072
Line-of-credit. . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 200,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . 1,223,280 864,580
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 307,458 293,201
-------------------------- -------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 1,679,045 1,448,853
Long-term debt, less current maturities . . . . . . . . . . . . . 62,172 114,263
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 7,000,000 shares; issued
3,642,059 in 2005 and 3,569,693 in 2004 . . . . . . . . . . . . . 36,421 35,697
Preferred stock, $.01 par value; authorized 2,000,000 shares;
issued -0- shares in 2005 and 1 share in 2004 . . . . . . . . . . - -
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . 14,894,920 14,791,346
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (13,285,100) (13,013,480)
-------------------------- -------------------
1,646,241 1,813,563
Less treasury stock, at cost, 123,500 shares. . . . . . . . . . . 684,890 684,890
-------------------------- -------------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 961,351 1,128,673
-------------------------- -------------------
$ 2,702,568 $ 2,691,789
========================== ===================
See Notes to Consolidated Financial Statements
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
2005 2004
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . $ 228,274 $(164,835)
CASH FLOWS FROM INVESTING ACTIVITIES
Collections on notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,768 14,000
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . - (2,004)
Sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 750
Expenditures for intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,830) (26,257)
Reductions to restricted cash and cash equivalents. . . . . . . . . . . . . . . . . . . . (50,314) (75,112)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (8,376) (88,623)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of stock - options, warrants and private placement . . . . . . . . . . . . . . . 130,000 543,180
Borrowings under long-term obligations. . . . . . . . . . . . . . . . . . . . . . . . . . - 74,386
Private placement expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,935) (10,751)
Principal payments on long-term obligations . . . . . . . . . . . . . . . . . . . . . . . (44,856) (107,735)
Net payments on line-of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,000) (298,223)
---------- ----------
Net cash provided (used) by financing activities. . . . . . . . . . . . . . . . . . . . . (67,791) 200,857
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . 152,107 (52,601)
CASH AND CASH EQUIVALENTS - BEGINNING . . . . . . . . . . . . . . . . . . . . . . . . . . 147,549 123,547
---------- ----------
CASH AND CASH EQUIVALENTS - ENDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 299,656 $ 70,946
========== ==========
Supplemental disclosure of cash flows information:
Cash paid during the six months ended for interest. . . . . . . . . . . . . . . . . . . . $ 26,293 $ 28,085
========== ==========
During the six months ended June 30, 2005, the Company issued unregistered common
stock with a fair market value of $4,864 to current directors for past services rendered.
See Notes to Consolidated Financial Statements
N-VIRO INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements of N-Viro International
Corporation (the "Company") are unaudited but, in management's opinion, reflect
all adjustments (including normal recurring accruals) necessary to present
fairly such information for the period and at the dates indicated. The results
of operations for the six months ended June 30, 2005 may not be indicative of
the results of operations for the year ending December 31, 2005. Since the
accompanying consolidated financial statements have been prepared in accordance
with Item 310 of Regulation S-B, they do not contain all information and
footnotes normally contained in annual consolidated financial statements;
accordingly, they should be read in conjunction with the consolidated financial
statements and notes thereto appearing in the Company's Form 10-KSB for the
period ending December 31, 2004.
The financial statements are consolidated as of June 30, 2005 and December
31, 2004 for the Company. There were no intercompany transactions.
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following are certain significant estimates and assumptions made in preparation
of the financial statements:
Non-domestic license and territory fees - The Company does not recognize
revenue on any non-domestic (excluding Canada) license or territory fee
contracts until the cash is received, assuming all other tests of revenue
recognition are met.
Allowance for Doubtful Accounts - The Company estimates losses for
uncollectible accounts based on the aging of the accounts receivable and the
evaluation of the likelihood of success in collecting the receivable.
Property and Equipment/Long-Lived Assets - Property and equipment is
reviewed for impairment pursuant to the provisions of Statement of Financial
Accounting Standards (or SFAS) No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The carrying amount of an asset (group) is
considered impaired if it exceeds the sum of the Company's estimate of the
undiscounted future cash flows expected to result from the use and eventual
disposition of the asset (group), excluding interest charges. Property,
machinery and equipment are stated at cost less accumulated depreciation.
Management believes the carrying amount is not impaired based upon estimated
future cash flows.
Equity Method Investment - The Company accounts for its investments in
joint ventures under the equity method. The Company periodically evaluates the
recoverability of its equity investments in accordance with Accounting
Principals Board Opinion (or APB) No. 18, "The Equity Method of Accounting for
Investments in Common Stock." If circumstances were to arise where a loss would
be considered other than temporary, the Company would record a write-down of
excess investment cost. Management has determined that no write-down was
required at June 30, 2005.
Intangible Assets - Intangible assets deemed to have indefinite lives are
tested for impairment by comparing the fair value with its carrying value.
Significant estimates used in the determination of fair value include estimates
of future cash flows. As required under current accounting standards, the
Company tests for impairment when events and circumstances indicate that the
assets might be impaired and the carrying value of those assets may not be
recoverable. The Company is also amortizing the capitalized cost of obtaining
its credit facility, for the additional collateral required and evidenced by a
warrant to purchase 50,000 shares of the Company's common stock. The Company
estimated this cost at February 26, 2003 to be $30,000, and is amortizing this
over 4 years by the straight-line method.
Fair Value of Financial Instruments - The fair values of cash, accounts
receivable, accounts payable and other short-term obligations approximate their
carrying values because of the short maturity of these financial instruments.
The carrying values of the Company's long-term obligations approximate their
fair value. In accordance with SFAS No. 107, "Disclosure About Fair Value of
Financial Instruments," rates available at balance sheet dates to the Company
are used to estimate the fair value of existing debt.
Income Taxes - The Company assumes the deductibility of certain costs in
income tax filings and estimates the recovery of deferred income tax assets.
Preferred Stock - The Company has authorized two million (2,000,000) shares
of preferred stock, of which one share of Series A Redeemable Preferred Stock
(the "Preferred Stock") was issued as of the beginning of the quarter ended June
30, 2005 but redeemed in May, 2005. The Preferred Stock was non-transferable,
had a term of ten years from August 27, 2003 and was subject to redemption by
the Company for a nominal sum. The Preferred Stock had no voting rights, but had
the special right, voting separately as a single class, to nominate and elect
one member of the Board of Directors of the Corporation at the annual meeting of
the stockholders of the Corporation at which such member is to be elected. The
Preferred Stock was not convertible or exchangeable for any other securities or
property of the Company and had no liquidation preference. The Preferred Stock
was redeemable upon the occurrence of certain events, including the reduction in
the initial holder's holdings of the Company's common stock to less than 17.5%
of the outstanding shares of common stock as reflected on reports filed with the
Securities and Exchange Commission under Section 16 of the Securities and
Exchange Act of 1934, as amended, through transfers or sales of the Company's
common stock by the initial holder, his family members or entities controlled by
him. In May 2005, the Company redeemed the Preferred Stock.
Stock Options - The Company accounts for stock-based compensation issued to
its employees and directors in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, no compensation cost has been
recognized for the stock option plans, as all options granted under the plans
have an exercise price equal to the market value of the underlying common stock
on the date of the grant, except for the options granted in May, 2004 to Michael
Nicholson, which is explained further in Note 4, "Contingencies". The fair
value of options granted was determined using the Black-Scholes option pricing
model. SFAS No. 123R, "Accounting for Stock-Based Compensation", was revised in
December 2004, which revision changes the accounting for transactions in which
an entity obtains employee services in a share-based payment transaction. For
Small Business issuers, the Statement is effective as of the beginning of the
first interim period or annual reporting period that begins after December 15,
2005. The adoption of this standard had no effect on our financial condition or
results of operations for the six months ended June 30, 2005, but is expected to
affect our financial condition and results of operations starting with the first
quarter of 2006.
The following table illustrates the effect on net income (loss) and net
income (loss) per share if the Company had applied the fair value recognition
provisions of Financial Accounting Standards Board (or FASB) Statement No. 123,
"Accounting for Stock-based Compensation" to stock-based employee compensation:
Three Months Ended June 30, Six Months Ended June 30,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net income (loss), as reported . . . . . . $(207,838) $ 57,949 $(271,620) $ (98,565)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects. . . . . . . (54,724) (235,621) (81,498) (254,242)
---------- ---------- ---------- ----------
Pro forma net loss . . . . . . . . . . . . $(262,562) $(177,672) $(353,118) $(352,807)
========== ========== ========== ==========
Income (loss) per share:
Basic and diluted - as reported. . . . . . $ (0.06) $ 0.02 $ (0.08) $ (0.03)
========== ========== ========== ==========
Basic and diluted - pro-forma. . . . . . . $ (0.08) $ (0.06) $ (0.10) $ (0.12)
========== ========== ========== ==========
NOTE 2. RELATED PARTY TRANSACTIONS
On September 27, 2004, the Company executed both a memorandum of employment
and storage site agreement with a member of the Board of Directors, Daniel J.
Haslinger, effective August 16, 2004. Mr. Haslinger was subsequently appointed
Chief Executive Officer effective January 1, 2005. Under these agreements, Mr.
Haslinger is paid $1,500 per month as an employee, and, a company co-owned by
him is paid $5,000 per month for the rental of land owned by him. Both of these
agreements are terminable "at-will".
NOTE 3. LONG-TERM DEBT
In February 2003 the Company closed on an $845,000 credit facility with
Monroe Bank + Trust, or the Bank. This senior debt credit facility was
comprised of a $295,000 four year term note at 7.5% and a line of credit up to
$550,000 at Prime (5.25% at June 30, 2005) plus 1.5% and secured by a first lien
on all assets of the Company. The Company used the funds to refinance prior
debt and to provide working capital. In January 2004, the Company purchased a
certificate of deposit in the amount of $75,000 from the Bank, and transferred
custodianship of all treasury stock of the Company to the Bank. At the first
anniversary of the initial credit facility, the Bank decreased the maximum
amount available to borrow on the line to $400,000, but also reduced the
financial covenants to make it easier for the Company to maintain the facility.
The Company has currently renewed the line of credit through October 2005, and
is not in violation of any financial covenants. In February 2005, the Bank
amended the facility and released certain additional collateral but required the
Company to provide an additional $50,000 certificate of deposit. At June 30,
2005, the Company had $350,000 of borrowing capacity under the credit facility.
NOTE 4. CONTINGENCIES
The Company leases its executive and administrative office in Toledo, Ohio,
under a lease that was renewed in January 2003 and amended in November 2004.
The Company believes its relationship with its lessor is satisfactory. The
total minimum rental commitment for the years ending December 31, 2005 and 2006
is approximately $37,200 each year. The total rental expense included in the
statements of operations for the six months ended June 30, 2005 and 2004 is
approximately $19,200 and $28,000, respectively. The Company also leases
various equipment on a month-to-month basis.
On July 1, 2004, the Company completed negotiations and engaged its former
Chief Executive Officer and a member of the Board of Directors, Terry J. Logan,
as an outside consultant. The consulting agreement extends through June 2006
and requires Dr. Logan to provide a minimum of 104 business days annually, to be
paid at a rate of $700 per day and 1,000 stock options per month. In July 2005,
Dr. Logan rescinded the stock options portion of his consulting agreement,
effective with services rendered after June 2005.
In August 2003, the Company entered into a Settlement Agreement with Mr. J.
Patrick Nicholson and negotiated a new consulting agreement (the "Agreement").
The Agreement was scheduled to expire in August 2008, and Mr. Nicholson was
required to provide future services to be eligible for compensation. Mr.
Nicholson was also entitled to payments of $48,000 per year for non-competition
and $6,000 per year for office space reimbursement, in addition to life and
health insurance coverage similar to the provision contained in his 1999
employment and consulting agreements. In June 2005, Mr. Nicholson filed a
Demand for Arbitration, claiming a breach of contract and damages of $50,000.
No date for the arbitration hearing has been set, and no discovery has been
taken at this time. On July 13, 2005, the Board of Directors of the Company
voted to terminate the Agreement for cause, based on numerous specific instances
of violations of the terms of the Agreement. The Agreement was for a period
ending no earlier than five years from the date of the contract. Mr. Nicholson
was currently being paid an aggregate of over $92,000 per year under the
Consulting Agreement, exclusive of any other payouts earnable.
In June 2003, the Company entered into an Employment Agreement (the
"Agreement") with Michael G. Nicholson, the Chief Development Officer and a
member of the Board. The employment agreement will expire in June 2007, and
future compensation amounts are to be determined annually by the Board. The
agreement was disclosed in a filing on June 10, 2003 on Form 8-K. In the third
quarter of 2004, the Company and Mr. Nicholson renegotiated primarily the stock
option portion of the Agreement, and amended the Agreement. Because these
options were priced lower than the fair market value as of that date, the
Company is required to take a charge to earnings totaling approximately $68,400
ratably through June, 2007, the ending date of his employment agreement
The Company operates in an environment with many financial risks,
including, but not limited to, major customer concentrations, customer contract
termination provisions, competing technologies, infringement and/or
misappropriation of intellectual property rights, the highly competitive and, at
times, seasonal nature of the industry and worldwide economic conditions.
Various federal, state and governmental agencies are considering, and some have
adopted, laws and regulations regarding environmental protection which could
adversely affect the business activities of the Company. The Company cannot
predict what effect, if any, current and future regulations may have on the
operations of the Company.
NOTE 5. NEW ACCOUNTING STANDARDS
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3", which
amends the guidance in APB No. 20, "Accounting Changes," and FASB Statement No.
3, "Reporting Accounting Changes In Interim Financial Statements", and changes
the requirements for the accounting for and reporting of a change in accounting
principle. The Statement is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The Company does
not expect the application of the provisions of SFAS No. 154 to have a material
impact on its financial position, results of operations or cash flows.
NOTE 6. SEGMENT INFORMATION
EARNINGS VARIATION DUE TO BUSINESS CYCLES AND SEASONAL FACTORS. The
Company's operating results can experience quarterly or annual variations due to
business cycles, seasonality and other factors. The market price for its common
stock may decrease if its operating results do not meet the expectations of the
market.
For the second quarter of 2005, approximately 33% of the Company's revenue
is from management operations, 65% from other domestic operations and 2% from
research and development grants. Sales of the N-Viro technology are affected by
general fluctuations in the business cycles in the United States and worldwide,
instability of economic conditions (such as the current conditions in the Asia
Pacific region and Latin America) and interest rates, as well as other factors.
In addition, operating results of some of the Company's business segments are
influenced by particular business cycles and seasonality, as well as other
factors such as interest rates.
COMPETITION. The Company does business in a highly competitive market and
has fewer resources than most of its competitors. Businesses in this market
compete within and outside the United States principally on the basis of price,
product quality, custom design, technical support, reputation, equipment
financing assistance and reliability. Competitive pressures and other factors
could cause the Company to lose market share or could result in decreases in
prices, either of which could have a material adverse effect on its financial
position and results of operations.
RISKS OF DOING BUSINESS IN OTHER COUNTRIES. The Company conducts business
in markets outside the United States, and expects to continue to do so. In
addition to the risk of currency fluctuations, the risks associated with
conducting business outside the United States include: social, political and
economic instability; slower payment of invoices; underdeveloped infrastructure;
underdeveloped legal systems; and nationalization. The Company has not entered
into any currency swap agreements which may reduce these risks. The Company may
enter into such agreements in the future if it is deemed necessary to do so.
Current economic and political conditions in the Asia Pacific and Middle East
regions have affected the Company outlook for potential revenue there. The
Company cannot predict the full impact of this economic instability, but it
could have a material adverse effect on revenues and profits.
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which segregates its
business by product category and service lines. The Company's reportable
segments are as follows:
Management Operations - The Company provides employee and management
services to operate the Toledo Wastewater Treatment Facility.
Other Domestic Operations - Sales of territory or site licenses and
royalty fees to use N-Viro technology in the United States.
Foreign Operations - Sale of territory or site licenses and royalty
fees to use N-Viro technology in foreign operations.
Research and Development - The Company contracts with Federal and
State agencies to perform or assist in research and development on the Company's
technology.
The accounting policies of the segments are the same as the Company's
significant accounting policies. Fixed assets generating specific revenue are
identified with their respective segments and are accounted for as such in the
internal accounting records. All other assets, including cash and other current
assets and all long-term assets, other than fixed assets, are not identified
with any segments, but rather the Company's administrative functions. All of
the net nonoperating income (expense) are non-apportionable and not allocated to
a specific segment. The Company accounts for and analyzes the operating data
for its segments generally by geographic location, with the exception of the
Management Operations and Research and Development segments. The Management
Operations segment represents both a significant amount of business generated as
well as a specific location and unique type of revenue.
The domestic and foreign operations segments differ in terms of
environmental and municipal legal issues, nature of the waste disposal
infrastructure, political climate and availability of funds for investing in the
Company's technology. These factors have not changed significantly over the
past several years and are not expected to change in the near term.
The Research and Development segment accounts for approximately 2% of the
total year-to-date revenue of the Company, and is unlike any other revenue in
that it is generated as a result of a specific project to conduct initial or
additional ongoing research into the Company's emerging technologies.
The table below presents information about the segment profits and segment
identifiable assets used by the chief operating decision makers of the Company
for the periods ended June 30, 2005 and 2004 (dollars in thousands):
Management Domestic Foreign Research &
Operations Operations Operations Development Total
----------- ----------- ------------ ------------ ------
Quarter Ended June 30, 2005
- ------------------------------
Revenues . . . . . . . . . . . $ 338 $ 657 $ - $ 23 $1,018
Cost of revenues . . . . . . . 265 491 7 19 782
Segment profits. . . . . . . . 73 166 (7) 4 236
Identifiable assets. . . . . . 257 56 - - 313
Depreciation . . . . . . . . . 15 4 - - 19
Quarter Ended June 30, 2004
- ------------------------------
Revenues . . . . . . . . . . . $ 494 $ 1,060 $ 13 $ 23 $1,590
Cost of revenues . . . . . . . 307 811 - - 1,118
Segment profits. . . . . . . . 187 249 13 23 472
Identifiable assets. . . . . . 322 76 - - 398
Depreciation . . . . . . . . . 16 5 - - 21
Six Months Ended June 30, 2005
- ------------------------------
Revenues . . . . . . . . . . . $ 680 $ 1,417 $ 13 $ 45 $2,155
Cost of revenues . . . . . . . 486 1,041 7 38 1,572
Segment profits. . . . . . . . 194 376 6 7 583
Identifiable assets. . . . . . 257 56 - - 313
Depreciation . . . . . . . . . 31 6 - - 37
Six Months Ended June 30, 2004
- ------------------------------
Revenues . . . . . . . . . . . $ 994 $ 1,982 $ 26 $ 46 $3,048
Cost of revenues . . . . . . . 663 1,476 - 19 2,158
Segment profits. . . . . . . . 331 506 26 27 890
Identifiable assets. . . . . . 322 76 - - 398
Depreciation . . . . . . . . . 32 10 - - 42
A reconciliation of total segment revenues, cost of revenues, and segment
profits to consolidated revenues, cost of revenues, and segment information to
the consolidated financial statements for the periods ended June 30, 2005 and
2004 is as follows (dollars in thousands):
Qtr. Ended June 30 Six Months Ended June 30
------------------------ -----------------------------
2005 2004 2005 2004
------------ ------------ -------------- -------------
Segment profits:
Segment profits for reportable segments. . . . $ 236 $ 472 $ 583 $ 890
Corporate selling, general and administrative
expenses and research + development costs. . . (368) (497) (717) (1,007)
Other income (expense) . . . . . . . . . . . . (76) 83 (138) 18
------------ ------------ -------------- -------------
Consolidated income (loss) before taxes. . . . $ (208) $ 58 $ (272) $ (99)
============ ============ ============== =============
Identifiable assets:
Identifiable assets for reportable segments. . $ 313 $ 398 $ 313 $ 398
Corporate property and equipment . . . . . . . 8 24 8 24
Current assets not allocated to segments . . . 1,315 1,428 1,315 1,428
Intangible and other assets not allocated to
segments . . . . . . . . . . . . . . . . . . . 1,067 1,385 1,067 1,385
Consolidated assets. . . . . . . . . . . . . . $ 2,703 $3,235 $ 2,703 $ 3,235
============ ============ ============== =============
Depreciation and amortization:
Depreciation for reportable segments . . . . . $ 19 $ 21 $ 37 $ 42
Corporate depreciation and amortization. . . . 37 39 75 78
------------ ------------ -------------- -------------
Consolidated depreciation and amortization . . $ 56 $ 60 $ 112 $ 120
============ ============ ============== =============
NOTE 7. INVESTMENT IN FLORIDA N-VIRO, L. P.
Florida N-Viro, L.P. was formed in January 1996 pursuant to a joint venture
agreement between the Company and VFL Technology Corporation (VFL). The Company
owns a 47.5% interest in the joint venture and accounts for its investment under
the equity method. The Company has recognized its share of the joint venture's
losses to the extent of its investment. Any additional losses passed through
from the joint venture are recorded as an increase to the allowance against the
Note Receivable from Florida N-Viro.
Condensed financial information of the partnership for the quarters ended
June 30, 2005 and 2004 is as follows:
For the Quarter Ended June 30
-----------------------------
2005 2004
---------- -----------
Net sales. . . . . . . . . . . . $ 292,875 $ 478,237
Gross profit (loss). . . . . . . (79,253) (33,864)
Loss from continuing operations. (142,781) (128,760)
Net loss . . . . . . . . . . . . (142,781) (128,760)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This 10-QSB contains statements that are forward-looking. We caution that
words used in this document such as "expects," "anticipates," "believes," "may,"
and "optimistic," as well as similar words and expressions used herein, identify
and refer to statements describing events that may or may not occur in the
future. These forward-looking statements and the matters to which they refer
are subject to considerable uncertainty that may cause actual results to be
materially different from those described herein. There are numerous factors
that could cause actual results to be different than those anticipated or
predicted by us, including: (i) a deterioration in economic conditions in
general; (ii) a decrease in demand for our products or services in particular;
(iii) our loss of a key employee or employees; (iv) regulatory changes,
including changes in environmental regulations, that may have an adverse affect
on the demand for our products or services; (v) increases in our operating
expenses resulting from increased costs of labor and/or consulting services; and
(vi) a failure to collect upon or otherwise secure the benefits of existing
contractual commitments with third parties, including our customers. This list
provides examples of factors that could affect the results described by
forward-looking statements contained in this Form 10-QSB; however, this list is
not exhaustive and many other factors could impact the Company's business and it
is impossible to predict with any accuracy which factors could result in
negative impacts. Although we believe that the forward-looking statements
contained in this Form 10-QSB are reasonable, we cannot provide you with any
guarantee that the anticipated results will not be adverse and that the
anticipated results will be achieved. All forward-looking statements in this
Form 10-QSB are expressly qualified in their entirety by the cautionary
statements contained in this section and you are cautioned not to place undue
reliance on the forward-looking statements contained in this Form 10-QSB. In
addition to the risks listed above, other risks may arise in the future, and we
disclaim any obligation to update information contained in any forward-looking
statement.
OVERVIEW
We incorporated in April, 1993, and became a public company on October 12,
1993. Our business strategy is to market the N-Viro Process, which produces a
sludge product with multiple commercial uses having an "exceptional quality" as
defined in the Section 503 Sludge Regulations under the Clean Water Act of 1987.
To date, our revenues have been derived primarily from the licensing of the
N-Viro Process to treat and recycle wastewater sludge generated by municipal
wastewater treatment plants and from the sale to licensees of the alkaline
admixture used in the N-Viro Process. We also operate N-Viro facilities for
third parties on a start-up basis and currently operate one N-Viro facility on a
contract management basis.
RESULTS OF OPERATIONS
Total revenues were $1,018,000 for the quarter ended June 30, 2005 compared
to $1,590,000 for the same period of 2004. The net decrease in revenue is due
primarily to a decrease in alkaline admixture sales and service fees, and a
decrease in facility management fees. Our cost of revenues decreased to
$783,000 in 2005 from $1,118,000 for the same period in 2004, and the gross
profit percentage decreased to 23% from 30% for the quarters ended June 30, 2005
and 2004, respectively. This decrease in gross profit percentage is primarily
due to the reduction in the supply of alkaline admixture that is our lower-cost
source and, a decrease in facility management fee operations without a
corresponding reduction in related costs. Operating expenses decreased for the
comparative period, while our share of the loss of a joint venture, our interest
in Florida N-Viro, L.P., increased for the same period of 2005. We also
recognized a one-time gain of $157,000 on the forgiveness of debt in the second
quarter of 2004, whereas in 2005 this event does not reoccur. These changes
collectively resulted in a net loss of approximately $208,000 for the quarter
ended June 30, 2005 compared to net income of $58,000 for the same period in
2004.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2005 WITH THREE MONTHS ENDED JUNE 30,
2004
Our overall revenue decreased $572,000, or 36%, to $1,018,000 for the
quarter ended June 30, 2005 from $1,590,000 for the quarter ended June 30, 2004.
The net decrease in revenue was due primarily to the following:
a) Sales of alkaline admixture decreased $240,000 from the same period
ended in 2004;
b) Revenue from the service fees for the management of alkaline admixture
decreased $102,000 from the same period ended in 2004;
c) Our processing revenue, including facility management revenue, showed a
net decrease of $192,000 over the same period ended in 2004;
d) Miscellaneous revenues decreased $38,000 from the same period ended in
2004; and
e) Research and development revenue did not change from the same period
ended in 2004.
Our gross profit decreased $236,000, or 50%, to $236,000 for the three
months ended June 30, 2005 from $472,000 for the three months ended June 30,
2004, and the gross profit margin decreased to 23% from 30% for the same
periods. The decrease in gross profit margin is primarily due to the reduction
in the supply of alkaline admixture that is our lower-cost source and, a
decrease in facility management fee operations without a corresponding reduction
in related costs.
Our operating expenses decreased $130,000, or 26%, to $368,000 for the
three months ended June 30, 2005 from $498,000 for the three months ended June
30, 2004. The decrease was primarily due to a decrease of approximately $62,000
in employee payroll and related expenses, $51,000 in litigation settlement
charges and $28,000 in insurance and office/administrative costs, partially
offset by an increase of approximately $12,000 in consulting fees and expenses
and $9,000 in legal fees.
As a result of the foregoing factors, we recorded an operating loss of
$132,000 for the three months ended June 30, 2005 compared to an operating loss
of $26,000 for the three months ended June 30, 2004, an increase in the loss of
approximately $106,000.
Our net nonoperating income (expense) increased by $160,000 to net
nonoperating expense of $75,000 for the three months ended June 30, 2005 from
net nonoperating income of $84,000 for the three months ended June 30, 2004.
The increase in nonoperating expense was primarily due to a decrease in the gain
on the forgiveness of debt recognized in 2004, from a gain of $157,000 to $-0-
in 2005.
We recorded net loss of approximately $208,000 for the three months ended
June 30, 2005 compared to net income of $58,000 for the same period ended in
2004, a decrease of approximately $266,000.
For the three months ended June 30, 2005 and 2004, we have not fully
recognized the tax benefit of the losses incurred in prior periods.
Accordingly, our effective tax rate for each period was zero.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2005 WITH SIX MONTHS ENDED JUNE 30, 2004
Our overall revenue decreased $893,000, or 29%, to $2,154,000 for the six
months ended June 30, 2005 from $3,048,000 for the six months ended June 30,
2004. The net decrease in revenue was due primarily to the following:
a) Sales of alkaline admixture decreased $265,000 from the same period
ended in 2004;
b) Revenue from the service fees for the management of alkaline admixture
decreased $163,000 from the same period ended in 2004;
c) Our processing revenue, including facility management revenue, showed a
net decrease of $367,000 over the same period ended in 2004;
d) Licensing of the N-Viro Process, which had $-0- license sales in the
six months of 2005, showed a net decrease of $72,000 over the same period in
2004;
e) Miscellaneous revenues decreased $26,000 from the same period ended in
2004; and
f) Research and development revenue did not change from the same period
ended in 2004.
Our gross profit decreased $307,000, or 34%, to $583,000 for the six months
ended June 30, 2005 from $890,000 for the six months ended June 30, 2004, and
the gross profit margin decreased to 27% from 29% for the same periods. The
decrease in gross profit margin is primarily due to the reduction in the supply
of alkaline admixture that is our lower-cost source and, a decrease in facility
management fee operations without a corresponding reduction in related costs.
The decrease was partially offset by the decrease in the cost of transporting
our products, which was itself partially attributable to a reduction in tons of
product shipped, and reductions in our payroll and related costs.
Our operating expenses decreased $290,000, or 29%, to $717,000 for the six
months ended June 30, 2005 from $1,007,000 for the six months ended June 30,
2004. The decrease was primarily due to a decrease of approximately $112,000 in
employee payroll and related expenses, $78,000 in directors' fees paid in
unregistered stock, $59,000 in insurance and office/administrative costs,
$51,000 in litigation settlement charges, partially offset by an increase of
approximately $49,000 in consulting fees and expenses and $23,000 in legal fees.
As a result of the foregoing factors, we recorded an operating loss of
$134,000 for the six months ended June 30, 2005, compared to an operating loss
of $118,000 for the six months ended June 30, 2004, an increase in the loss of
approximately $17,000.
Our net nonoperating income (expense) decreased by $156,000 to net
nonoperating expense of $137,000 for the six months ended June 30, 2005 from net
nonoperating income of $19,000 for the six months ended June 30, 2004. The
decrease in nonoperating income (expense) was primarily due to a decrease in the
gain on the forgiveness of debt recognized in 2004, from a gain of $157,000 to
$-0- in 2005.
We recorded net loss of approximately $272,000 for the six months ended
June 30, 2005 compared to a net loss of $99,000 for the same period ended in
2004, an increase in the loss of approximately $173,000.
For the six months ended June 30, 2005 and 2004, we have not fully
recognized the tax benefit of the losses incurred in prior periods.
Accordingly, our effective tax rate for each period was zero.
LIQUIDITY AND CAPITAL RESOURCES
We had a working capital deficit of approximately $364,000 at June 30,
2005, compared to a working capital deficit of $384,000 at December 31, 2004,
resulting in an increase in working capital of $20,000. Current assets at June
30, 2005 included cash and investments of approximately $426,000 (including
restricted cash of approximately $126,000), which is an increase of $202,000
from December 31, 2004. The increase in working capital was principally due to
the private placement of unregistered common stock with three stock subscribers
totaling $87,500.
Compared to June 30, 2004, in the first six months of 2005 our cash flow
provided by operations was approximately $229,000, an increase of approximately
$393,000 from the same period in 2004. This increase was principally due to the
change in working capital of approximately $813,000, offset by a decrease in
cash received from the issuance of stock for services of approximately $247,000
and decreased by the increase in the net loss of approximately $173,000.
Our $845,000 credit facility with Monroe Bank + Trust, or the Bank is
comprised of a $295,000 four year term note at 7.5% and a line of credit up to
$550,000 at Prime plus 1.5% and secured by a first lien on all our assets . In
January 2004, we purchased a certificate of deposit in the amount of $75,000
from the Bank, and transferred custodianship of all of our treasury stock to the
Bank. In February 2004, the Bank decreased the maximum amount available to
borrow on the line to $400,000, but also reduced the financial covenants to make
it easier for us to maintain the facility. We currently have renewed the line
of credit through October 2005, and are not in violation of any financial
covenants. In February 2005, the Bank amended the facility and released certain
additional collateral but required us to provide an additional $50,000
certificate of deposit. At June 30, 2005, we had $350,000 of borrowing capacity
under the Credit Facility.
The normal collection period for accounts receivable is approximately 30-60
days for the majority of customers. This is a result of the nature of the
license contracts, type of customer and the amount of time required to obtain
the information to prepare the billing. We did not change our reserve for bad
debts during the first six months of 2005.
During the first six months of 2005, our investment in a 47.5% owned
partnership, Florida N-Viro, L.P., recorded a net loss to us of approximately
$124,000. Cash flow from operations of Florida N-Viro, L.P. was negative, but
we believe Florida N-Viro, L.P. will have sufficient cash flow to fund its
operations for the rest of 2005.
We are currently in discussions with several companies in the cement and
fuel industries for the development and commercialization of the patented N-Viro
fuel technology. There can be no assurance that these discussions will be
successful.
We continue to focus on the development of regional biosolids processing
facilities. Currently we are in negotiations with several privatization firms
to permit and develop independent, regional facilities.
We expect improvements in operating results for 2005 partially due to
realized and expected new sources of revenue. Additionally, market developments
and ongoing discussions with companies in the fuel and wastewater industries
could provide enhanced liquidity and positively impact 2005 operations.
We believe that current market trends and increased and more focused
emphasis on our business development efforts provide a basis for an optimistic
outlook for 2005 and beyond. The national public attack on Class B levels of
sludge treatment is rapidly moving the market to Class A technologies, of which
our patented N-Viro processes are very cost competitive, and well established in
the market place. There are currently over 35 facilities worldwide using the
N-Viro Process, most of which have been using the N-Viro process for over 10
years. The development and patenting of new technologies for animal manure
treatment, bio-fuel and nematode control have the potential to expand our
revenue base over the next five years and beyond. We believe we have sufficient
liquidity to continue operations over the next twelve months.
OFF-BALANCE SHEET ARRANGEMENTS
At June 30, 2005, we did not have any material commercial commitments,
including guarantees or standby repurchase obligations, or any relationships
with unconsolidated entities or financial partnerships, including entities often
referred to as structured finance or special purpose entities or variable
interest entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.
From time to time, during the normal course of business, we may make
certain indemnities, commitments and guarantees under which we may be required
to make payments in relation to certain transactions. These include: (i)
indemnities to vendors and service providers pertaining to claims based on our
negligence or willful misconduct and (ii) indemnities involving the accuracy of
representations and warranties in certain contracts. Pursuant to Delaware law,
we may indemnify certain officers and directors for certain events or
occurrences while the officer or director is, or was, serving at our request in
such capacity. We also have director and officer insurance coverage that limits
our exposure and enables us to recover a portion of any future amounts that we
may pay for indemnification purposes. We believe the applicable insurance
coverage is generally adequate to cover any estimated potential liability for
which we may provide indemnification. The majority of these indemnities,
commitments and guarantees do not provide for any limitation of the maximum
potential for future payments we could be obligated to make. We have not
recorded any liability for these indemnities, commitments and other guarantees
in the accompanying Consolidated Balance Sheets.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual cash obligations at June 30,
2005, and the effect these obligations are expected to have on liquidity and
cash flow in future periods:
Payments Due By Period
-----------------------------------------------------------------------------
Total Less than 1 year 1 - 3 years 4 - 5 years after 5 years
---------- ----------------- ------------ ------------ --------------
Purchase obligations . . . . . . . (1) $778,452 $ 165,084 $ 276,852 $ 180,568 $ 155,948
Long-term debt obligations . . . . (2) 160,479 98,307 62,172 - -
Operating leases . . . . . . . . . (3) 86,118 47,788 38,330 - -
Capital lease obligations - - - - -
Other long-term debt obligations - - - - -
---------- ----------------- ------------ ------------ --------------
Total contractual cash obligations $1,025,049 $ 311,179 $ 377,354 $ 180,568 $ 155,948
========== ================= ============ ============ ==============
<FN>
(1) Purchase obligations include agreements to purchase services that are enforceable and legally
binding on the Company and that specify all significant terms and the approximate timing of the
transaction. Purchase obligations exclude agreements that are cancelable without penalty.
(2) Amounts represent the expected cash payments of our long-term obligations.
(3) Amounts represent the expected cash payments of our operating lease obligations.
ITEM 3. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of June 30, 2005, under the direction of our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended.
We concluded that our disclosure controls and procedures were effective as of
June 30, 2005, such that the information required to be disclosed in our SEC
reports is recorded, processed, summarized and reported within the time periods
specified by the SEC's rules and forms, and is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
INTERNAL CONTROLS
There were no changes in our internal controls over financial reporting
during the quarter ended June 30, 2005 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 2005, J. Patrick Nicholson, our former Chairman and CEO, filed a
Demand for Arbitration, seeking damages of $50,000 based on a claimed breach of
contract of a Consulting Agreement dated August 28, 2003 between us and Mr.
Nicholson. We are uncertain as to any additional obligations to Mr. Nicholson
under the Consulting Agreement or in settlement of any additional claims.
On July 13, 2005, our Board of Directors voted to terminate for cause the
Consulting Agreement, based on numerous specific instances of violations of the
terms of the Consulting Agreement. The Consulting Agreement, filed as Exhibit B
to the Form 8-K filed August 29, 2003, contained a term ending no earlier than
five years from the date of the contract. Mr. Nicholson is a reporting owner of
approximately 15% of our outstanding common stock, as of the date of our
definitive proxy statement dated May 12, 2005. Mr. Nicholson was currently
being paid an aggregate of over $92,000 per year under the Consulting Agreement,
exclusive of any other payouts earnable.
From time to time we are involved in legal actions arising in the ordinary
course of business. With respect to these matters, we believe we have adequate
legal defenses and/or provided adequate accruals for related costs such that the
ultimate outcome will not have a material adverse effect on our future financial
position or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On June 30, 2005, we held our Annual Stockholders Meeting.
(b) The directors elected at the meeting were: R. Francis DiPrete,
Daniel J. Haslinger, Joseph H. Scheib and Carl Richard. Following the meeting,
our Board of Directors currently consists of seven members, with two vacancies:
Phillip Levin, our Chairman of the Board; Daniel Haslinger, our President and
Chief Executive Officer; Michael Nicholson, our Chief Development Officer;
Terry Logan, R. Francis DiPrete, Joseph Scheib and Carl Richard.
(c) Four issues were presented for stockholder consideration at the
Annual Meeting: (1) to amend our Certificate of Incorporation to remove Article
5, (2) to amend our Certificate of Incorporation to remove Article 10, (3) the
election of four directors to our Board of Directors and (4) the ratification of
UHY LLP as our independent auditors. All four issues were approved by the
stockholders.
The first approved amendment to the Certificate of Incorporation
eliminated Article Five, which governed the size, composition, election and
vacancies of the Board and removal of directors, all of which are covered in our
Amended and Restated By-Laws. This Amendment conforms the Certificate to our
Amended and Restated By-Laws adopted by the Board of Directors on May 13, 2005,
changing the requirement for the election of directors from a plurality to a
majority of the votes cast. In approving this amendment, the stockholders voted
as follows: 2,668,747 votes were cast for the amendment, 569,964 votes were cast
against the amendment, and 450 abstained.
The second approved amendment to the Certificate of Incorporation
eliminated Article Ten, which required a 75% supermajority vote of stockholders
for approval of certain business combinations. In approving this amendment, the
stockholders voted as follows: 2,668,485 votes were cast for the amendment,
570,226 votes were cast against the amendment, and 450 abstained.
The four candidates nominated to the Board of Directors received the
following votes from the stockholders:
R. Francis DiPrete 2,558,616 votes for 680,545 votes withheld
Daniel J. Haslinger 2,659,214 votes for 579,947 votes withheld
Joseph H. Scheib 2,562,338 votes for 676,823 votes withheld
Carl Richard 2,670,390 votes for 568,771 votes withheld
All four nominees to the Board were successfully elected to the Board of
Directors.
In ratifying UHY LLP as our independent auditors, the stockholders
voted as follows: 2,743,226 votes were cast for ratification, 494,085 votes were
against ratification, and 1,850 abstained.
(d) None
ITEM 5. OTHER INFORMATION
(a) None
(b) The changes to the procedures by which stockholders recommend nominees
to our Board of Directors is found in the second paragraph of Item 4(c) of Part
II of this report, which describes the amendment to the Certificate of
Incorporation eliminating Article Five and changing the requirement for the
election of directors from a plurality to a majority of the votes cast.
ITEM 6. EXHIBITS
(a) Exhibits:
See Exhibit Index below.
(b) Reports on Form 8-K:
We filed a report on Form 8-K on April 5, 2005, dated April 4, 2005, to
announce our fourth quarter and year end 2004 financial results.
We filed a report on Form 8-K on April 29, 2005, dated April 21, 2005, that
the Delaware Chancery Court, or the Court issued an order that our Settlement
and Release filed in June 2004 had been confirmed and approved, with one change.
We were also notified by the Court that Strategic Asset Management, or SAMI
filed a Notice of Motion of Dismissal, dismissing the derivative action by SAMI.
We filed a report on Form 8-K on May 19, 2005, dated May 13, 2005, that
Christopher Anderson resigned from the Board. We also reported that our Board
amended our By-Laws to change the requirement for the election of directors, and
we re-announced that our annual meeting had been rescheduled to June 30, 2005.
We filed a report on Form 8-K on June 1, 2005, dated May 27, 2005, that
Brian Burns ceased to be a director when we redeemed the share of Preferred
Stock held by J. Patrick Nicholson.
We filed a report on Form 8-K on July 6, 2005, dated June 30, 2005, that
our stockholders approved two proposals, each amending the Certificate of
Incorporation, governing the size, composition, election, removal and vacancies
to the Board, as well as eliminating the Article requiring a supermajority vote
of the stockholders for approval of certain business combinations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
N-VIRO INTERNATIONAL CORPORATION
Date: August 15, 2005 /s/Daniel J. Haslinger
----------------- ------------------------
Daniel J. Haslinger
Chief Executive Officer and President
(Principal Executive Officer)
Date: August 15, 2005 /s/ James K. McHugh
----------------- ----------------------
James K. McHugh
Chief Financial Officer, Secretary and Treasurer
(Principal Financial & Accounting Officer)
EXHIBIT INDEX
=============
Exhibit No. Document
----------- --------
3.1 Amended and Restated Certificate of Incorporation, dated June 17, 1998
(incorporated by reference to Exhibit 3.2 to Form 10-K filed April 14, 2004).
3.2 Amendment to the Certificate of Incorporation of the Company, dated
November 13, 2003 (incorporated by reference to Exhibit 3.4 to Form 10-K filed
April 14, 2004).
3.3 Amended and Restated By-Laws of the Company, dated May 13, 2005
(incorporated by reference to Exhibit 3.3 to Form 10-QSB filed May 16, 2005).
3.4 Amendment to the Certificate of Incorporation of the Company, dated July
6, 2005.
4.1 Certificate of Designation of Series A Redeemable Preferred Stock, dated
August 27, 2003 (incorporated by reference to Exhibit 3.3 to Form 10-K filed
April 14, 2004).
10.1 Employment Agreement, dated June 14, 1999, between N-Viro International
Corporation and Terry J. Logan (incorporated by reference to Exhibit 1 to the
Form 8-K filed June 30, 1999).*
10.2 Amended and Restated Employment Agreement, dated June 6, 2003, between
N-Viro International Corporation and Michael G. Nicholson (incorporated by
reference to Exhibit 99.1 to the Form 8-K filed June 9, 2003).*
10.3 Business Loan Agreement dated February 26, 2003, between N-Viro
International Corporation and Monroe Bank + Trust; letter of credit enhancement
dated February 25, 2003 between N-Viro International Corporation and Messrs. J.
Patrick Nicholson, Michael G. Nicholson, Robert P. Nicholson and Timothy J.
Nicholson (all incorporated by reference to Exhibits 99.1 through 99.3 to the
Form 8-K filed March 3, 2003).
10.4 Settlement Agreement and Release dated August 29, 2003 between N-Viro
International Corporation and Strategic Asset Management, Inc.; Consulting
Agreement dated August 28, 2003 between N-Viro International Corporation and J.
Patrick Nicholson (all incorporated by reference to Item 5 of the Form 8-K filed
August 29, 2003).
10.5 Memorandum of Employment Agreement and Storage Site Agreement,
respectively, both dated September 27, 2004, between N-Viro International
Corporation and, Daniel J. Haslinger and Micro Macro Integrated Technologies,
Inc., respectively (incorporated by reference to Exhibit 10.1 of Form 8-K dated
October 1, 2004).*
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes - Oxley
Act of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes - Oxley
Act of 2002.
32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
* Indicates a management contract or compensatory plan or arrangement.