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 SEPTEMBER 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 November 7, 2005, 3,690,559 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 Sept. 30 Nine Months Ended Sept. 30
2005 2004 2005 2004
----------- ----------- ----------- -----------
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 947,963 $1,253,551 $3,102,449 $4,301,459
Cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . 688,751 946,805 2,260,547 3,105,042
----------- ----------- ----------- -----------
Gross Profit. . . . . . . . . . . . . . . . . . . . . . . . . . 259,212 306,746 841,902 1,196,417
Operating expenses:
Selling, general and administrative . . . . . . . . . . . . . 287,851 352,957 1,004,931 1,359,521
----------- ----------- ----------- -----------
Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . (28,639) (46,211) (163,029) (163,104)
Nonoperating income (expense):
Interest and dividend income. . . . . . . . . . . . . . . . . 2,272 5,947 4,420 21,505
Interest expense. . . . . . . . . . . . . . . . . . . . . . . (5,560) 66,291 (21,412) 16,871
Gain on legal debt forgiven . . . . . . . . . . . . . . . . . - - - 157,174
Loss from equity investment in joint venture. . . . . . . . . (32,058) (13,486) (155,584) (118,470)
----------- ----------- ----------- -----------
(35,346) 58,752 (172,576) 77,080
----------- ----------- ----------- -----------
Income (loss) before income taxes . . . . . . . . . . . . . . . (63,985) 12,541 (335,605) (86,024)
Federal and state income taxes. . . . . . . . . . . . . . . . . - - - -
----------- ----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ (63,985) $ 12,541 $ (335,605) $ (86,024)
=========== =========== =========== ===========
Basic and diluted income (loss) per share . . . . . . . . . . . $ (0.02) $ 0.00 $ (0.10) $ (0.03)
=========== =========== =========== ===========
Weighted average common shares outstanding - basic and diluted. 3,528,146 3,210,423 3,492,054 3,016,243
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
Sept. 30, 2005 (Unaudited) December 31, 2004
--------------------------- -------------------
ASSETS
- -----------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents:
Unrestricted. . . . . . . . . . . . . . . . . . . . . . . . . . $ 164,927 $ 147,549
Restricted. . . . . . . . . . . . . . . . . . . . . . . . . . . 127,444 75,600
Receivables:
Trade, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 958,415 578,070
Stock subscription. . . . . . . . . . . . . . . . . . . . . . . - 42,500
Notes receivable - current. . . . . . . . . . . . . . . . . . . . 68,593 112,802
Prepaid expenses and other assets . . . . . . . . . . . . . . . . 202,670 108,732
--------------------------- -------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 1,522,049 1,065,253
Property and Equipment, Net . . . . . . . . . . . . . . . . . . . 303,574 360,952
Investment in and Advances to Florida N-Viro, L.P.. . . . . . . . 30,891 186,475
Notes Receivable, net of current portion. . . . . . . . . . . . . - 338
Intangible and Other Assets, Net. . . . . . . . . . . . . . . . . 1,119,987 1,078,771
--------------------------- -------------------
$ 2,976,501 $ 2,691,789
=========================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt. . . . . . . . . . . . . . . $ 79,327 $ 91,072
Line-of-credit. . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 200,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . 1,188,682 864,580
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 326,799 293,201
--------------------------- -------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 1,644,808 1,448,853
Long-term debt, less current maturities . . . . . . . . . . . . . 42,002 114,263
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 7,000,000 shares; issued
3,814,159 in 2005 and 3,569,693 in 2004 . . . . . . . . . . . . 38,141 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. . . . . . . . . . . . . . . . . . . . 15,285,525 14,791,346
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (13,349,085) (13,013,480)
--------------------------- -------------------
1,974,581 1,813,563
Less treasury stock, at cost, 123,500 shares. . . . . . . . . . . 684,890 684,890
--------------------------- -------------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 1,289,691 1,128,673
--------------------------- -------------------
$ 2,976,501 $ 2,691,789
=========================== ===================
See Notes to Consolidated Financial Statements
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Sept. 30
2005 2004
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . $ 135,739 $(114,881)
CASH FLOWS FROM INVESTING ACTIVITIES
Collections on notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,768 24,000
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,270) (3,395)
Sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,409
Expenditures for intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,830) (26,257)
Reductions to restricted cash and cash equivalents. . . . . . . . . . . . . . . . . . . . (51,844) (75,112)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (11,176) (79,355)
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,180) (11,696)
Principal payments on long-term obligations . . . . . . . . . . . . . . . . . . . . . . . (84,005) (222,992)
Net payments on line-of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,000) (238,111)
---------- ----------
Net cash provided (used) by financing activities. . . . . . . . . . . . . . . . . . . . . (107,185) 144,767
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . 17,378 (49,469)
CASH AND CASH EQUIVALENTS - BEGINNING . . . . . . . . . . . . . . . . . . . . . . . . . . 147,549 123,547
---------- ----------
CASH AND CASH EQUIVALENTS - ENDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 164,927 $ 74,078
========== ==========
Supplemental disclosure of cash flows information:
Cash paid during the nine months ended for interest . . . . . . . . . . . . . . . . . . $ 32,459 $ 37,767
========== ==========
During the nine months ended September 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 nine months ended September 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 September 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, Opinion 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 September 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.
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 nine months ended September 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 Nine Months Ended
Sept. 30, Sept. 30,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net income (loss), as reported . . . . . . $ (63,985) $ 12,541 $(335,605) $ (86,024)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects. . . . . . . (48,624) (182,546) (130,121) (436,788)
---------- ---------- ---------- ----------
Pro forma net loss . . . . . . . . . . . . $(112,609) $(170,005) $(465,726) $(522,812)
========== ========== ========== ==========
Income (loss) per share:
Basic and diluted - as reported. . . . . $ (0.02) $ 0.00 $ (0.10) $ (0.03)
========== ========== ========== ==========
Basic and diluted - pro-forma. . . . . . $ (0.03) $ (0.05) $ (0.13) $ (0.17)
========== ========== ========== ==========
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 (6.75% at September 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 2006, 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 September
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 nine months ended September 30, 2005 and 2004
is approximately $28,200 and $37,100, 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 current 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. Mr. Nicholson was 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 of Directors of the Company. The employment agreement will
expire in June 2007, and future compensation amounts are to be determined
annually by the Board of Directors. The agreement was disclosed in a filing on
June 10, 2003 on Form 8-K. In the third quarter of 2004, the Company and Mr.
Nicholson renegotiated primarily the stock option portion of the Agreement, and
amended the Agreement. Because these options were priced lower than the fair
market value as of that date, the Company is required to take a charge to
earnings totaling approximately $68,400 ratably through June, 2007, the ending
date of his employment agreement
The Company operates in an environment with many financial risks,
including, but not limited to, major customer concentrations, customer contract
termination provisions, competing technologies, infringement and/or
misappropriation of intellectual property rights, the highly competitive and, at
times, seasonal nature of the industry and worldwide economic conditions.
Various federal, state and governmental agencies are considering, and some have
adopted, laws and regulations regarding environmental protection which could
adversely affect the business activities of the Company. The Company cannot
predict what effect, if any, current and future regulations may have on the
operations of the Company.
NOTE 5. NEW ACCOUNTING STANDARDS
None.
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 third quarter of 2005, approximately 42% of the Company's revenue
is from management operations, 56% 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 conducts business in a highly competitive market
and has fewer resources than most of its competitors. Businesses in this market
compete within and outside the United States principally on the basis of price,
product quality, custom design, technical support, reputation, equipment
financing assistance and reliability. Competitive pressures and other factors
could cause the Company to lose market share or could result in decreases in
prices, either of which could have a material adverse effect on its financial
position and results of operations.
RISKS OF DOING BUSINESS IN OTHER COUNTRIES. The Company conducts business
in markets outside the United States, and expects to continue to do so. In
addition to the risk of currency fluctuations, the risks associated with
conducting business outside the United States include: social, political and
economic instability; slower payment of invoices; underdeveloped infrastructure;
underdeveloped legal systems; and nationalization. The Company has not entered
into any currency swap agreements which may reduce these risks. The Company may
enter into such agreements in the future if it is deemed necessary to do so.
Current economic and political conditions in the Asia Pacific and Middle East
regions have affected the Company outlook for potential revenue there. The
Company cannot predict the full impact of this economic instability, but it
could have a material adverse effect on revenues and profits.
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which segregates its
business by product category and service lines. The Company's reportable
segments are as follows:
Management Operations - The Company provides employee and management
services to operate the Toledo Wastewater Treatment Facility.
Other Domestic Operations - Sales of territory or site licenses and
royalty fees to use N-Viro technology in the United States.
Foreign Operations - Sale of territory or site licenses and royalty
fees to use N-Viro technology in foreign operations.
Research and Development - The Company contracts with Federal and
State agencies to perform or assist in research and development on the Company's
technology.
The accounting policies of the segments are the same as the Company's
significant accounting policies. Fixed assets generating specific revenue are
identified with their respective segments and are accounted for as such in the
internal accounting records. All other assets, including cash and other current
assets and all long-term assets, other than fixed assets, are not identified
with any segments, but rather the Company's administrative functions. All of
the net nonoperating income (expense) are non-apportionable and not allocated to
a specific segment. The Company accounts for and analyzes the operating data
for its segments generally by geographic location, with the exception of the
Management Operations and Research and Development segments. The Management
Operations segment represents both a significant amount of business generated as
well as a specific location and unique type of revenue.
The domestic and foreign operations segments differ in terms of
environmental and municipal legal issues, nature of the waste disposal
infrastructure, political climate and availability of funds for investing in the
Company's technology. These factors have not changed significantly over the
past several years and are not expected to change in the near term.
The Research and Development segment accounts for approximately 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 September 30, 2005 and 2004 (dollars in thousands):
Management Domestic Foreign Research &
Operations Operations Operations Development Total
----------- ----------- ------------ ------------ ------
Quarter Ended September 30, 2005
- --------------------------------
Revenues . . . . . . . . . . . . . .$ 397 $ 528 $ - $ 23 $ 948
Cost of revenues . . . . . . . . . 277 390 3 19 689
Segment profits. . . . . . . . . . 120 138 (3) 4 259
Identifiable assets. . . . . . . . 244 52 - - 296
Depreciation . . . . . . . . . . . 14 3 - - 17
Quarter Ended September 30, 2004
- --------------------------------
Revenues . . . . . . . . . . . . . .$ 464 $ 754 $ 13 $ 23 $1,254
Cost of revenues . . . . . . . . . 323 605 - 19 947
Segment profits. . . . . . . . . . 141 149 13 4 307
Identifiable assets. . . . . . . . 307 67 - - 374
Depreciation . . . . . . . . . . . 16 5 - - 21
Nine Months Ended September 30, 2005
- --------------------------------
Revenues . . . . . . . . . . . . . .$ 1,077 $ 1,945 $ 13 $ 68 $3,103
Cost of revenues . . . . . . . . . 763 1,431 10 57 2,261
Segment profits. . . . . . . . . . 314 514 3 11 842
Identifiable assets. . . . . . . . 244 52 - - 296
Depreciation . . . . . . . . . . . 44 11 - - 55
Nine Months Ended September 30, 2004
- --------------------------------
Revenues . . . . . . . . . . . . . .$ 1,458 $ 2,735 $ 39 $ 69 $4,301
Cost of revenues . . . . . . . . . 986 2,081 - 38 3,105
Segment profits. . . . . . . . . . 472 654 39 31 1,196
Identifiable assets. . . . . . . . 307 67 - - 374
Depreciation . . . . . . . . . . . 46 15 - - 61
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 September 30, 2005
and 2004 is as follows (dollars in thousands):
Qtr. Ended Nine Months Ended
Sept. 30, Sept. 30,
---------------- ------------------
2005 2004 2005 2004
------- ------- -------- --------
Segment profits:
Segment profits for reportable segments. . . . $ 259 $ 307 $ 842 $ 1,196
Corporate selling, general and administrative
expenses and research + development costs. . (288) (353) (1,005) (1,359)
Other income (expense) . . . . . . . . . . . . (35) 59 (173) 77
------- ------- -------- --------
Consolidated income (loss) before taxes. . . . $ (64) $ 13 $ (336) $ (86)
======= ======= ======== ========
Identifiable assets:
Identifiable assets for reportable segments. . $ 296 $ 374 $ 296 $ 374
Corporate property and equipment . . . . . . . 8 23 8 23
Current assets not allocated to segments . . . 1,522 1,211 1,522 1,211
Intangible and other assets not allocated to
segments . . . . . . . . . . . . . . . . . . 1,151 1,322 1,151 1,322
------- ------- -------- --------
Consolidated assets. . . . . . . . . . . . . . $2,977 $2,930 $ 2,977 $ 2,930
======= ======= ======== ========
Depreciation and amortization:
Depreciation for reportable segments . . . . . $ 17 $ 21 $ 55 $ 61
Corporate depreciation and amortization. . . . 37 36 112 114
------- ------- -------- --------
Consolidated depreciation and amortization . . $ 54 $ 57 $ 167 $ 175
======= ======= ======== ========
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 Florida N-Viro, L.P. for the quarters
ended September 30, 2005 and 2004 is as follows:
For the Quarter Ended Sept. 30
------------------------------
2005 2004
--------- ---------
Net sales. . . . . . . . . . . . $293,830 $346,115
Gross profit (loss). . . . . . . (36,292) 31,363
Loss from continuing operations. (67,490) (28,390)
Net loss . . . . . . . . . . . . (67,490) (28,390)
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 $948,000 for the quarter ended September 30, 2005
compared to $1,254,000 for the same period of 2004. The net decrease in revenue
is due primarily to a decrease in alkaline admixture sales and service fees, a
decrease in royalty fees and a decrease in facility management fees. Our cost
of revenues decreased to $689,000 in 2005 from $947,000 for the same period in
2004, and the gross profit percentage increased to 27% from 24% for the quarters
ended September 30, 2005 and 2004, respectively. This increase in gross profit
percentage is primarily due to the increase in the supply of alkaline admixture
that is our lower-cost source and, a decrease in the costs of the facility
management fee operations, which in turn was partially due to the closing of an
offsite blending operation during the third quarter of 2004. 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 downward adjustment of $70,000 to an
accrual for interest expense estimated to be due on a tax liability in the third
quarter of 2004, whereas in 2005 this event does not reoccur. These changes
collectively resulted in a net loss of approximately $64,000 for the quarter
ended September 30, 2005 compared to net income of $13,000 for the same period
in 2004.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2005 WITH THREE MONTHS ENDED
SEPTEMBER 30, 2004
Our overall revenue decreased $306,000, or 24%, to $948,000 for the quarter
ended September 30, 2005 from $1,254,000 for the quarter ended September 30,
2004. The net decrease in revenue was due primarily to the following:
a) Sales of alkaline admixture decreased $69,000 from the same period
ended in 2004;
b) Revenue from the service fees for the management of alkaline admixture
decreased $29,000 from the same period ended in 2004;
c) Our processing revenue, including facility management revenue, showed a
net decrease of $143,000 over the same period ended in 2004;
d) Miscellaneous revenues decreased $65,000 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 $48,000, or 16%, to $259,000 for the three
months ended September 30, 2005 from $307,000 for the three months ended
September 30, 2004, and the gross profit margin increased to 27% from 24% for
the same periods. The increase in gross profit margin is primarily due to the
increase in the supply of alkaline admixture that is our lower-cost source and,
a decrease in the costs of the facility management fee operations, which in turn
was partially due to the closing of an offsite blending operation during the
third quarter of 2004.
Our operating expenses decreased $65,000, or 18%, to $288,000 for the three
months ended September 30, 2005 from $353,000 for the three months ended
September 30, 2004. The decrease was primarily due to a decrease of
approximately $72,000 in consulting fees and expenses and $51,000 in employee
payroll and related expenses, partially offset by an increase of approximately
$49,000 in legal fees and $18,000 in travel and meals expenses.
As a result of the foregoing factors, we recorded an operating loss of
$29,000 for the three months ended September 30, 2005 compared to an operating
loss of $46,000 for the three months ended September 30, 2004, a decrease in the
loss of approximately $17,000.
Our net nonoperating income (expense) increased by $94,000 to net
nonoperating expense of $35,000 for the three months ended September 30, 2005
from net nonoperating income of $59,000 for the three months ended September 30,
2004. The increase in nonoperating expense was primarily due to a decrease in
the recognition of a one-time downward adjustment of $70,000 to an accrual for
interest expense estimated to be due on a tax liability in the third quarter of
2004, whereas in 2005 this event does not reoccur.
We recorded net loss of approximately $64,000 for the three months ended
September 30, 2005 compared to net income of $13,000 for the same period ended
in 2004, a decrease of approximately $77,000.
For the three months ended September 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 NINE MONTHS ENDED SEPTEMBER 30, 2005 WITH NINE MONTHS ENDED
SEPTEMBER 30, 2004
Our overall revenue decreased $1,199,000, or 28%, to $3,102,000 for the
nine months ended September 30, 2005 from $4,301,000 for the nine months ended
September 30, 2004. The net decrease in revenue was due primarily to the
following:
a) Sales of alkaline admixture decreased $334,000 from the same period
ended in 2004;
b) Revenue from the service fees for the management of alkaline admixture
decreased $192,000 from the same period ended in 2004;
c) Our processing revenue, including facility management revenue, showed a
net decrease of $510,000 over the same period ended in 2004;
d) Licensing of the N-Viro Process, which had $-0- license sales in the
nine months of 2005, showed a net decrease of $72,000 over the same period in
2004;
e) Miscellaneous revenues, including equipment rental and sales, decreased
$91,000 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 $355,000, or 30%, to $842,000 for the nine
months ended September 30, 2005 from $1,196,000 for the nine months ended
September 30, 2004, and the gross profit margin decreased slightly to 27% from
28% 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 the cost and number of tons of product
shipped out and reductions in our payroll and related costs of our management
fee operation.
Our operating expenses decreased $355,000, or 26%, to $1,005,000 for the
nine months ended September 30, 2005 from $1,360,000 for the nine months ended
September 30, 2004. The decrease was primarily due to a decrease of
approximately $169,000 in employee payroll and related expenses, $78,000 in
directors' fees paid in unregistered stock, $58,000 in insurance and
office/administrative costs, $51,000 in litigation settlement charges and
$23,000 in consulting fees and expenses, partially offset by an increase of
approximately $72,000 in legal fees.
As a result of the foregoing factors, we recorded an operating loss of
$163,000 for both the nine months ended September 30, 2005 and in 2004.
Our net nonoperating income (expense) decreased by $250,000 to net
nonoperating expense of $173,000 for the nine months ended September 30, 2005
from net nonoperating income of $77,000 for the nine months ended September 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, and, an increase in interest expense of $38,000 and
an increase in the loss of approximately $37,000 in the equity of a joint
venture, Florida N-Viro, L.P.
We recorded net loss of approximately $336,000 for the nine months ended
September 30, 2005 compared to a net loss of $86,000 for the same period ended
in 2004, an increase in the loss of approximately $250,000.
For the nine months ended September 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 $123,000 at September 30,
2005, compared to a working capital deficit of $384,000 at December 31, 2004,
resulting in an increase in working capital of $261,000. Current assets at
September 30, 2005 included cash and investments of approximately $292,000
(including restricted cash of approximately $127,000), which is an increase of
$69,000 from December 31, 2004. The increase in working capital was principally
due to the private placement of unregistered common stock with four stock
subscribers totaling $150,000, and the recognition into current assets of
approximately $161,000 of deferred costs relating to the financial public
relations agreement signed with Strategic Asset Management in September 2005, to
be paid for in unregistered common stock.
Compared to September 30, 2004, in the first nine months of 2005 our cash
flow provided by operations was approximately $136,000, an increase of
approximately $251,000 from the same period in 2004. This increase was
principally due to the positive change in working capital of approximately
$399,000, an increase in cash received from the issuance of stock for services
of approximately $101,000 and decreased by the increase in the net loss of
approximately $250,000.
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 recently renewed the line of
credit through October 2006, 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 September 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. In response to an increase in the
amount of past due accounts, we increased the reserve for bad debts by $6,000
during the third quarter of 2005, to a reserve of $40,000.
During the first nine months of 2005, our investment in a 47.5% owned joint
venture, Florida N-Viro, L.P., recorded a net loss to us of approximately
$326,000. 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 the balance of 2005 and
into 2006 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 and 2006 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 September 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
September 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) $ 70,700 $ 70,700 $ - $ - $ -
Long-term debt obligations . . . . (2) 121,329 79,327 42,002 - -
Operating leases . . . . . . . . . (3) 74,171 47,788 26,383 - -
Capital lease obligations - - - - -
Other long-term debt obligations - - - - -
-------- ----------------- ------------ ------------ --------------
Total contractual cash obligations $266,200 $ 197,815 $ 68,385 $ - $ -
======== ================= ============ ============ ==============
<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 September 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 September 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 September 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. This proceeding was previously reported in our Form 10-QSB filed
August 15, 2005. 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
beneficial owner of approximately 13.4% of our outstanding common stock, as of
the date of his Form SC 13D/A filed October 24, 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
None
ITEM 5. OTHER INFORMATION
(a) None
ITEM 6. EXHIBITS
(a) Exhibits:
See Exhibit Index below.
(b) Reports on Form 8-K:
We filed a report on Form 8-K on July 14, 2005, dated July 13, 2005, to
announce the termination for cause of a consulting agreement dated August 28,
2003 between us and J. Patrick Nicholson.
We filed a report on Form 8-K on September 21, 2005, dated September 20,
2005, that we had formed a subsidiary, Alternative Fuel Technology, Inc.
We filed a report on Form 8-K on September 23, 2005, dated September 19,
2005, that we had appointed Howard E. Hartung as Chief Operating Officer.
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: November 14, 2005 /s/ Daniel J. Haslinger
------------------- ------------------------
Daniel J. Haslinger
Chief Executive Officer and President
(Principal Executive Officer)
Date: November 14, 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 (incorporated by reference to Exhibit 3.4 to Form 10-QSB filed August
15, 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, Exhibit A and
Exhibit B 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).*
10.6 Financial Public Relations Agreement dated September 15, 2005 between
Strategic Asset Management, Inc. and N-Viro International Corporation
(incorporated by reference to Exhibit 10.1 of Form 8-K dated October 12, 2005).
10.7 Warrant to Purchase 120,000 Shares of Common Stock dated September 15,
2005 between Strategic Asset Management, Inc. and N-Viro International
Corporation (incorporated by reference to Exhibit 10.2 of Form 8-K dated October
12, 2005).
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.