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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
X OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
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 REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-1741211
(STATE OR OTHER JURISDICTION OF
(I.R.S. 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par
value $.01 per share
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 ____
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12-2). Yes No X
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing sales price of such
shares on the Over The Counter Bulletin Board as of the last business day of the
registrant's most recently completed second fiscal quarter was approximately
$1,495,000.
The number of shares of Common Stock of the registrant outstanding as
of March 24, 2004 was 2,994,905.
DOCUMENTS INCORPORATED BY REFERENCE
None.
INDEX
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees
PART IV
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
PART I
ITEM 1. BUSINESS
GENERAL
N-Viro International Corporation (the "Company" or "N-Viro"), incorporated
in Delaware in April, 1993, owns and licenses the N-Viro Process, a patented
technology to treat and recycle wastewater sludges and other bio-organic wastes,
utilizing certain alkaline and mineral by-products produced by the cement, lime,
electric utilities and other industries. See "The N-Viro Process."
In 1979, Mr. J. Patrick Nicholson and several investors formed N-Viro
Energy Systems, Limited. N-Viro Energy Systems' initial strategy was to license
the N-Viro Process to third parties through independent agents. Each
independent agent acted in its respective territory as a marketing and
distribution agent of N-Viro Energy Systems, and retained the marketing and
distribution rights to certain other territories. In early 1993, as a result of
the then pending implementation of the 40 CFR part 503 Sludge Regulations (as
defined below) and the market environment, N-Viro Energy Systems concluded that
a strategy that also included the development and operation, on a contract
management basis, of N-Viro facilities for third parties, and of Company-owned
and/or co-owned N-Viro facilities, would potentially expand the opportunities to
capitalize on the N-Viro Process.
In order to implement this strategy, N-Viro Energy Systems agreed to
combine with American N-Viro Resources, Inc., National N-Viro Tech, Inc., N-Viro
Midwest, Inc., N-Viro Soil South, Inc. and Tennessee-Carolina N-Viro
(collectively, the "Combined Agents") to form the Company. The Company was
incorporated in April 1993 primarily to expand the opportunities for
capitalizing on the N-Viro Process. The Company assumed N-Viro Energy Systems'
agreements with the remaining agents who were continuing to market the N-Viro
Process in their respective territories.
The Company became a public company on October 12, 1993 with an initial
public offering (the "IPO") of 2,000,000 shares of Common Stock at $9.50 per
share. On October 19, 1993, N-Viro Energy Systems contributed to the Company
all of its assets (except certain marketable securities and accounts receivable
from certain related parties), subject to all liabilities (except certain
retained liabilities), and the stockholders of the Combined Agents contributed
to the Company all of the outstanding capital stock of such entities in exchange
for a total of 6,000,000 shares of Common Stock of the Company and organization
notes totaling $5,221,709 (including notes of $276,909 which resulted from a
partial exercise of an over-allotment option). The organization notes were
repaid out of the proceeds from the IPO. On November 10, 1993, an additional
112,000 shares were sold pursuant to the exercise by the Underwriters of their
over-allotment option.
On October 30, 1995, at a Special Meeting of the Shareholders, the
shareholders approved a one for four reverse stock split which reduced the
number of issued and outstanding shares of the Common Stock. This reverse split
did not affect the Company's retained deficit and the stockholders' equity
remained substantially unchanged. This action was deemed necessary by
management of the Company to remain in compliance with the minimum bid price
requirement of the National Association of Securities Dealers Automatic
Quotation System ("Nasdaq") or the alternative net tangible assets requirement
and for continued listing of the Common Stock on Nasdaq. The reverse split
reduced the number of issued and outstanding shares of the Common Stock to
approximately 2,037,000 (net of 57,250 treasury shares).
In late 1995, the Company's business strategy changed from being a low cost
provider of a process to marketing the N-Viro Process, which produces an
"exceptional quality" sludge product, as defined in the 40 CFR part 503 Sludge
Regulations under the Clean Water Act of 1987 (the "part 503 Regs"), with
multiple commercial uses. In this strategy, the primary focus is to identify
allies, public and private, who will build and operate the N-Viro facility. To
date, the Company's revenues primarily have been derived from the licensing of
the N-Viro Process to treat and recycle wastewater sludges generated by
municipal wastewater treatment plants and from the sale to licensees of the
alkaline admixture used in the N-Viro Process. The Company has also operated
N-Viro facilities for third parties on a start-up basis and currently operates
one N-Viro facility on a contract management basis. There are currently over 40
wastewater treatment facilities throughout the world treating sludge using the
N-Viro Process. The Company estimates that these facilities are treating and
recycling sludge at an annualized rate of over 140,000 dry tons per year.
There are several licensees not currently operating, including both
international and domestic contractors or public generators, who are developing
or designing site-specific N-Viro facilities.
Since 1995, the Company has marketed licenses for the use of the N-Viro
Process through its own sales and marketing force in the United States in all 50
states and the District of Columbia and internationally throughout the world.
In certain other parts of the world, the Company licenses the N-Viro Process
through agents (the "Agents"). Typically, the agreements with the Agents
provide for the Company to receive a portion of the up-front license fees and
ongoing royalty fees paid by the licensees and a portion of the proceeds from
the distribution and resale of alkaline admixture and the sale of N-Viro SoilTM.
Agents have total responsibility and control over the marketing and contracts
for N-Viro technology subject only to license models or minimum agreements with
the Company. The sales representative network is the key component of the
Company's domestic sales strategy. The manufacturer's representative network
was started by the Company after acquiring eight of eleven domestic agents.
These representatives receive a commission on certain revenue.
The Toledo, Ohio facility is managed by the Company through a Contract
Management Agreement with the City of Toledo. Revenue generated from and
related to the Toledo operation accounts for about 36% of the Company's total
revenue. The Company processes a portion of Toledo's wastewater sludge and
sells the N-Viro Soil product. This contract with the City of Toledo was
renewed in October 1999, to extend through the year 2004. In 2001, the City
exercised its option to renew the contract for an additional five years through
2009. Currently, the contract is in its sixteenth year of operation. The
relationship between the City of Toledo and the Company has been satisfactory.
In early 1994 the Company purchased a site in Fort Meade, Florida to
develop a Company-owned N-Viro processing facility. Construction was started at
the site in late 1994 and the facility became operational in early 1995. In
December 1995, the Company entered into a Memorandum of Understanding with VFL
Technologies, Inc. ("VFL") to jointly own, through a limited partnership named
Florida N-Viro, L.P. ("Florida N-Viro"), the Fort Meade, Florida facility,
beginning January 1, 1996. On December 31, 1997, the members of Florida N-Viro
Management, LLC, the management company of the Florida entity, approved a
Settlement Agreement that amended certain provisions and increased the Company's
ownership percentage in Florida N-Viro to 50%.
In August 2000, a Memorandum of Understanding was entered into between the
Company and VFL, clarifying decisions, information and additional operating
requirements of Florida N-Viro. Later that month, the Company loaned Florida
N-Viro $120,000 cash to help meet operating expenses, and was issued a
promissory note. An additional $50,000 cash was loaned in November 2000 under
similar circumstances, and a second promissory note was issued to the Company.
Both promissory notes are unsecured and are payable on demand, and both bear
interest at 9.75%.
In January 2001, a Special Meeting of the Board of Directors of
Florida N-Viro Management LLC was held. Among the decisions made were
amendments to both the Partnership Agreement and the Memorandum of Understanding
entered into in August 2000. The aggregate ownership percentages in the
investment of the Company and VFL in Florida N-Viro were amended to 47.5% and
52.5%, respectively, effective January 1, 2001. Also, a decision was made to
relieve the requirement of the Company from funding any additional losses of
Florida N-Viro, provided the Company loan an additional total of $180,000
between January and February, 2001, to be evidenced by a third promissory note.
The third note is unsecured, due on demand and bears interest at prime (tied to
a local Bank) plus %, or the applicable federal rate, whichever is higher. All
loans made by the Company to Florida N-Viro in 2000 and 2001, were made to
equalize each partner's advances to the partnership at the time, and were
required after additional monies were advanced by VFL during 2000. VFL has
subsequently loaned additional monies to Florida N-Viro to fund operations,
totaling approximately $535,000 through December 31, 2003. The Company has made
no additional loans since January 2001, and is actively pursuing sale of its
investment in Florida N-Viro. Because Florida N-Viro had not remitted any
interest to the Company through March, 2003, the Company set up a reserve at
December 31, 2002 of approximately $63,000 for the full amount of the accrued
interest on all notes. In 2003, the Company continued to reserve all accrued
interest due on the notes, but received approximately $23,000 in cash for
accrued interest.
In 2003, Florida N-Viro recorded a net loss of approximately $1,144,000,
including a major asset impairment writedown of $1,062,000. Cash flow from
operations was positive, and the Company believes the remaining
revenue-generating assets of Florida N-Viro will continue to provide adequate
cash flow to fund operations for 2004.
In February 2004, VFL announced the sale of its company to an outside,
independent third party. As of the date of this filing, the sale has not been
finalized. The effect on the Company and its investment in Florida N-Viro is
uncertain.
THE N-VIRO PROCESS
The N-Viro Process is a patented process for the treatment and recycling of
bio-organic wastes, utilizing certain alkaline by-products produced by the
cement, lime, electric utilities and other industries. To date, the N-Viro
Process has been commercially utilized for the recycling of wastewater sludges
from municipal wastewater treatment facilities. N-Viro Soil produced according
to N-Viro Process specifications is an "exceptional quality" sludge product
under the part 503 Regs.
The N-Viro Process involves mixing the wastewater sludge with an alkaline
admixture and then subjecting the mixture to a controlled period of storage,
mechanical turning and accelerated drying in which a blending of the sludge and
the alkaline admixture occurs. The N-Viro Process stabilizes and pasteurizes
the wastewater sludge, reduces odors to acceptable levels, neutralizes or
immobilizes various toxic components and generates N-Viro SoilTM, a product
which has a granular appearance similar to soil and has multiple commercial
uses. These uses include agricultural lime, soil enrichment, top soil blend,
landfill cover and filter, and land reclamation.
The alkaline admixture used in the N-Viro Process consists of by-product
dusts from cement or lime kilns, certain fly ashes and other products of coal,
coke or petroleum combustion and by-product dusts from sulfuric acid "scrubbers"
used in acid rain remediation systems and from fluidized bed coal-fired systems
used in electric power generation. The particular admixture that is used
usually depends upon cost and availability in local markets. In certain cases,
commercial lime may also be added to the admixture.
The Company is a distributor of alkaline admixture and is responsible for
quality control of the admixture. The Company also works with established
by-product marketers. The Company generally charges a mark-up over its cost for
alkaline admixture sold directly by the Company.
N-Viro Soil is sold for agricultural use as a bio-organic and mineral
fertilizer with agricultural liming and nutrient values, as landfill cover
material, as a topsoil blending ingredient and for land reclamation projects.
The Company estimates that approximately five percent of the N-Viro Soil
produced is sold to landfills for cover material, small amounts are sold for
land reclamation and similar projects, and a substantial portion of the
remainder is sold for agricultural use or as a topsoil blend. Although the use
of N-Viro Soil is not subject to any federal regulations or restrictions, each
N-Viro facility is typically required to obtain a state and/or local permit for
the sale of N-Viro Soil. In addition, many states and/or local governments
require site-specific permits for the use of sludge products in bulk amounts.
RESEARCH AND DEVELOPMENT
In 2003 the Company expended approximately $59,000 on research and patent
development. Research and development on N-Viro Soil has been, to date,
performed primarily by BioCheck Laboratories and Dr. Terry J. Logan. Through
June 30, 1999, Dr. Logan acted as an independent consultant to the Company on a
part-time basis and was, and continues to be, a director of the Company. From
July 1, 1999 through May 9, 2002, Dr. Logan was employed with the Company as
President and Chief Operating Officer, and after that time to the present has
been employed as President and Chief Executive Officer. BioCheck Laboratories
was once a wholly-owned operating subsidiary of the Company, whose assets were
sold in 1997 to its former employees.
All participants on the Company's technology council, including Dr. Logan
and the officers of BioCheck, have contracts with the Company, protecting the
Company's rights.
In addition, in 2003 alone, grants totaling $90,000 were secured for
process and product research. A field-scale test of the Company's animal manure
treatment technology was tested at a large poultry operation in the State of
Delaware in 2001 in collaboration with Environmental Technologies of Delaware
LLC ("ETD"). ETD holds an exclusive license for the Company's animal manure
treatment technology ("Nuresoil") for the States of Delaware, Maryland and
Virginia. The State of Maryland funded a study, conducted with the University
of Maryland, to utilize bio-mineral treated poultry manure to reclaim acidic
landfill cover. In 1999, two patents were submitted to the U.S. Patent and
Trademark Office ("USPTO") and to the European Patent Office for disinfection
and for phosphorus and trace metal immobilization in animal manure. In late
2000, the USPTO declared the manure disinfection technology to be patentable and
this patent was issued in 2001. The second manure patent, for phosphorus and
trace metal immobilization, was declared by the USPTO to be patentable in 2001
and that patent was awarded in 2002. International patents have also been
applied for. The Company continues to investigate methods to shorten drying
time, substitute various other materials for use as alkaline admixture and
improve the quality and attractiveness of N-Viro Soil to a variety of end-users.
Several developments are the subject of issued patents, including the use of
carbon dioxide in the N-Viro Process as a means to (i) reduce by-product carbon
dioxide emissions from industrial processes by immobilizing carbon dioxide in
N-Viro Soil and (ii) improve the quality and value of N-Viro Soil. In addition,
the Company has developed a dryer system which reduces processing time while
continuing to permit the survival of beneficial microflora. Licensees of the
Company began operating dryer facilities in Phillipsburg, New Jersey and
Leamington, Ontario Canada in 1995. A facility in Sarnia, Ontario, Canada came
on line in March, 2001. The Company's "BioBlend", which uses N-Viro Soil as a
reagent to accelerate and deodorize yard waste composting, is being utilized to
produce topsoil at the Englewood, Ohio N-Viro facility and at several other
licensed facilities.
In 2000, the Department of Agri-Food Canada, filed Canadian and U.S.
patents on the use of N-Viro Soil to suppress soybean cyst nematode (SCN), a
soil pathogen which can severely reduce soybean yields and for which there is no
effective control. Those patents were awarded in 2002. SCN damage is a
widespread problem throughout soybean growing areas. Research in Canada, and
confirmed in Ohio, show that there is potential for N-Viro Soil to increase
soybean yields in areas with heavy infestations of SCN. N-Viro is the exclusive
licensee for the use patent in the U.S. and internationally. In Canada, the
license is held by N-Viro Systems Canada, Inc. The USDA funded research in
2001-2003 on the effects of N-Viro Soil and Nuresoil on the control of certain
soil nematodes in soybeans and other crops.
In 2001, the Company filed two patents with the USPTO that deal with
controlled heating, drying and combustion of organic wastes, including sewage
sludges, animal manures, and pulp and paper wastes. One of the patents teaches
the ability of mineral by-products, such as coal combustion by-products, to
control the burning of organic wastes in a coal-fired power plant as a coal
substitute. The patent also teaches the generation of ammonia from the organic
waste for NOx control at the power plant, and the utilization of waste heat from
the power plant to dry the organic wastes. The original submission was declared
to be patentable by the USPTO in late 2001 and the patent was issued in 2002.
International patents have also been applied for. The Company is currently in
discussions with several fuel users and marketers to develop this technology.
The Company also filed an application with the USPTO to control the ignitability
of volatile organics in dryers by the addition of mineral by-products. This
application was approved and the patent issued in 2003. Two further patents
were applied for, for the use of mineral by-products to enhance heating, drying
and disinfection of organic wastes under non-alkaline conditions. These
applications were approved in early 2004 and are expected to be issued in 2004.
Because of the joint development of early N-Viro patents with the Medical
College of Ohio ("MCO"), in 1995, the Company and MCO agreed that the rights of
MCO to any intellectual property of value to the Company in development,
patentable or patented would generate royalties to MCO. The Company and MCO
have also agreed that future claims to the N-Viro Soil process is % of
technical revenues. MCO rights to BioBlend and other N-Viro technologies range
from 2% to 4% of technical revenues derived from these newer technologies.
Cumulative royalties expensed to MCO through December 31, 2003 are approximately
$58,000.
ORGANIZATION
Day-to-day operations, including management of the Toledo, Ohio processing
facility, and support functions, is directed by the Company's President and
Chief Executive Officer. Support functions include alkaline admixture
procurement and sales, product market development and sales, regulatory affairs,
and licensee support. Domestic sales and marketing and project development is
directed by the Company's Chief Operating Officer and Executive Vice-President,
who coordinates internal staff, a network of manufacturers representatives, and
consultants. International sales and marketing, legal affairs and stockholder
relations are directed by the Company's Chief Executive Officer. The company's
Chief Financial Officer has responsibility for all finance and accounting
functions and reporting, filings with the Securities and Exchange Commission,
and serves as Corporate Treasurer and Secretary. In 2003, the Company's Board
of Directors appointed two members to oversee Company management, assisting in
planning and executive oversight.
The following table sets forth the Agents of the Company and the
territorial rights of each Agent:
The Agents
Agent Territory
Bio-Recycle Pty. Ltd. Australia, New Zealand and Singapore
CRM Technologies Eastern Europe
EIEC Spain
Esson Technology, Inc. China
Itico Egypt, North Africa, The Middle East
Nesher Israel Cement, Ltd Israel
N-Viro Filipino Philippines
N-Viro Systems Canada, Inc Canada
South Africa N-Viro All Africa except North Africa
In their respective territories, the Agents market licenses for the N-Viro
Process, serve as distributors of alkaline admixture, oversee quality control of
the N-Viro Process and N-Viro Soil, enforce the terms of the license agreements
with licensees and market N-Viro Soil (or assist licensees in marketing N-Viro
Soil). In general, the Agents have paid one-time, up-front fees to the Company
for the rights to market or use the N-Viro Process in their respective
territories. Typically, the agreements with the Agents provide for the Company
to receive a portion of the up-front license fees and ongoing royalty fees paid
by the licensees and a portion of the proceeds from the distribution and resale
of alkaline admixture and the sale of N-Viro Soil.
INDUSTRY OVERVIEW
Sludge Management Practices and the 40 CFR part 503 Sludge Regulations.
Historically, sludge management has involved either disposal, principally by
landfilling, incineration, ocean dumping and surface disposal, or land
application for beneficial use. On February 19, 1993, the EPA published the 40
CFR part 503 Sludge Regulations ("part 503 Regs") under the Clean Water Act of
1987 implementing the EPA's "exceptional quality" sludge program. The part 503
Regs establish sludge use and disposal standards applicable to approximately
35,000 publicly and privately-owned wastewater treatment plants in the United
States, including primary publicly-owned treatment works ("POTWs"), secondary
and advanced treatment POTWs, privately-owned treatment works, federally-owned
treatment works and domestic septage haulers. The EPA currently estimates that
the 13,000 to 15,000 POTWs generate 110 to 150 million wet metric tons of sewage
sludge per year. Under the part 503 Regs, sludge may be disposed of in
municipal solid waste landfills approved under Subtitle D of the Resource
Conservation and Recovery Act ("RCRA"), or may be surface disposed, incinerated
or land applied for beneficial use in accordance with the requirements
established by the part 503 Regs.
Disposal. Landfilling, incineration and ocean dumping have traditionally
provided inexpensive, reliable methods of sludge disposal. Ocean dumping was
banned in the United States in December 1992. Under the part 503 Regs,
landfilling and incineration remain permissible sludge management alternatives
but have become subject to more stringent regulatory standards. The vast
majority of states have some site restrictions or other management practices
governing the disposal of sludge in landfills. Amendments to the Clean Air Act
governing incineration and disposal of residual ash also impose stricter air
emission standards for incineration in general, and the part 503 Regs impose
additional specific pollutant limits for sludges to be incinerated and for the
resulting air emissions.
Surface disposal of sludge involves the placement of sludge on the land at
a dedicated site for disposal purposes. The part 503 Regs subject surface
disposal to increased regulation by requiring, among other things, run-off and
leachate collection systems, methane monitoring systems and monitoring of, and
limits on, pollutant levels. In addition, sludge placed in a surface disposal
site is required to meet certain standards with respect to pathogen levels
relating to coliform or salmonella bacteria counts ("Class B" pathogen levels),
levels of various pollutants, including metals, and elimination of
attractiveness to pests, such as insects and rodents.
Land Application for Beneficial Use. Land application for beneficial use
involves the application of sludge or sludge-based products, for non-disposal
purposes, including agricultural, silvicultural and horticultural uses and for
land reclamation. Under the part 503 Regs, sludge products that meet certain
stringent standards with respect to pathogen levels relating to coliform,
salmonella, enteric viruses and viable helminth ova counts ("Class A" pathogen
levels), levels of various pollutants, including metals, and elimination of
attractiveness to pests, such as insects and rodents, are considered by the EPA
to be "exceptional quality" sludge products. The Class A pathogen levels are
significantly more stringent than the Class B pathogen levels; for example,
permitted Class B fecal coliform levels are 2,000 times higher than their Class
A counterparts.
"Exceptional quality" sludge products are treated by the EPA as fertilizer
material, thereby exempting these products from federal restrictions on their
agricultural use or land application. N-Viro Soil that is produced according to
N-Viro Process specifications meets the pollutant concentration limits and other
standards set forth in the part 503 Regs and, therefore, is an "exceptional
quality" sludge product that exceeds the EPA's standards for unrestricted
agricultural use and land application. Lower quality sludges, including
sludge-based products that meet Class B pathogen levels and certain pollutant
control and pest attraction requirements, may also be applied to the land for
beneficial use but are subject to greater record keeping and reporting
requirements and restrictions governing, among other items, the type and
location of application, the volume of application and limits on cumulative
levels of metals. Sludges applied to the land for agricultural use must meet
Class B pathogen levels and, if applied in bulk, require an EPA permit.
COMPETITION
The Company is in direct and indirect competition with other businesses,
including disposal and other wastewater sludge treatment businesses, some of
which are larger and more firmly established and may have greater marketing and
development budgets and capital resources than the Company. There can be no
assurance that the Company will be able to maintain a competitive position in
the sludge treatment industry.
A 1988 EPA survey estimated that sludge generators in the United States
utilized landfilling, incineration, surface disposal and ocean dumping as sludge
management alternatives for approximately two-thirds of wastewater sludges
generated. Although ocean dumping was banned in December 1992, other methods of
sludge disposal remain permissible sludge management alternatives under the part
503 Regs, and in many instances will be less expensive than treatment methods,
including the N-Viro Process.
Sludge treatment alternatives other than disposal include processes, such
as aerobic and anaerobic digestion and lime stabilization, that typically
produce lower quality sludge products, and other processes, such as
pelletization, composting, high heat lime sterilization and high heat en-vessel
lime pasteurization, that produce "exceptional quality" sludge products. Some
of these processes have established a significant market presence, and the
Company cannot predict whether any of such competing treatment processes will be
more or less successful than the N-Viro Process. In 2000 the primary
competition to N-Viro technology was the dumping of raw sewage sludge in
landfills. While such practices are prohibited in some states (e.g., North
Carolina and New Jersey), the practice is accepted by the USEPA.
ENVIRONMENTAL REGULATION
Various environmental protection laws have been enacted and amended during
recent decades in response to public concern over the environment. The
Company's operations and those of its licensees are subject to these evolving
laws and the implementing regulations. The United States environmental laws
which the Company believes are, or may be, applicable to the N-Viro Process and
the land application of N-Viro Soil include Resource Conservation and Recovery
Act ("RCRA"), as amended by the Hazardous and Solid Waste Amendments of 1984
("HSWA"), the Federal Water Pollution Control Act of 1972 (the "Clean Water
Act"), the Clean Air Act of 1970, as amended (the "Clean Air Act"), the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), the Pollution Prevention Act of 1990 and the Federal Insecticide,
Fungicide and Rodenticide Act ("FIFRA"). These laws regulate the management and
disposal of wastes, control the discharge of pollutants into the air and water,
provide for the investigation and remediation of contaminated land and
groundwater resources and establish a pollution prevention program. Many of
these laws have international counterparts, particularly in Europe and elsewhere
in North America. In addition, various states have implemented environmental
protection laws that are similar to the applicable federal laws and, in
addition, states may require, among other things, permits to construct N-Viro
facilities and to sell and/or use N-Viro Soil. There can be no assurance that
any such permits will be issued.
The part 503 Regulations. Sewage sludge and the use and disposal thereof
is regulated under the Clean Water Act. On February 19, 1993, the EPA published
the part 503 Regs under the Clean Water Act implementing the EPA's "exceptional
quality" sludge program. These regulations establish sludge use and disposal
standards applicable to approximately 35,000 wastewater treatment plants in the
United States, including approximately 13,000 to 15,000 publicly owned treatment
works ("POTWs"). Under the part 503 Regs, sludge products that meet certain
stringent standards are considered to be "exceptional quality" sludge products
and are not subject to any federal restrictions on agricultural use or land
application. N-Viro Soil produced according to N-Viro Process specifications is
an "exceptional quality" sludge product. Lower quality sludges and sludge
products are subject to federal restrictions governing, among other items, the
type and location of application, the volume of application and the cumulative
application levels for certain pollutants. Agricultural application of these
lower quality sludges in bulk amounts also requires an EPA permit. Agricultural
and land applications of all sludges and sludge products, including N-Viro Soil
and other "exceptional quality" sludge products, are typically subject to state
and local regulation and, in most cases, require a permit.
In order to ensure compliance with the part 503 Regs, the Company reviews
the results of regular testing of sludges required by the EPA to be conducted by
wastewater treatment plants, and itself tests N-Viro Soil produced at N-Viro
facilities on a regular basis. In general, the Company does not license or
permit the ongoing use of the N-Viro Process to treat any sludge that may not be
processed into an "exceptional quality" sludge product. In five N-Viro
facilities, however, the Company has permitted the use of the N-Viro Process to
produce a product that is not an "exceptional quality" sludge product due to the
high pollutant levels of the resulting product. This product is not considered
to be N-Viro Soil and is used solely for landfill cover at an adjacent landfill.
In addition, the Company has previously licensed for use at five treatment
facilities an earlier sludge treatment process that is designed to produce a
sludge product that meets only Class B pathogen levels, and therefore does not
produce an "exceptional quality" sludge product.
Although N-Viro Soil exceeds the current federal standards imposed by the
EPA for unrestricted agricultural use and land application, state and local
authorities are authorized under the Clean Water Act to impose more stringent
requirements than those promulgated by the EPA. Most states require permits for
land application of sludge and sludge based products and several states, such as
Rhode Island, Massachusetts and New Jersey, currently have regulations that
impose more stringent numerical concentration limits for certain pollutants than
the federal rules.
The Resource Conservation and Recovery Act. RCRA regulates all phases of
hazardous waste generation, management and disposal. Waste is subject to
regulation as a hazardous waste under RCRA if it is a solid waste specifically
listed as a hazardous waste by the EPA or exhibits a defined hazardous
characteristic. Although domestic sewage and mixtures of domestic sewage and
other wastes that pass through a sewer system to a POTW are specifically
exempted from the definition of solid waste, once treated by the POTW, the
sewage sludge is considered a solid waste. However, such sewage sludge is not
considered a hazardous waste unless it exhibits a hazardous characteristic.
While it is possible that sewage sludge could exhibit the toxicity
characteristic, the Company believes that regular tests for hazardous
constituent levels provide assurance that the sewage sludge used in the N-Viro
Process does not exhibit the toxicity characteristic. The alkaline admixtures
used in the N-Viro Process are specifically exempted from RCRA regulation by the
so-called Bevill Amendments to RCRA. Although the benefit of the exemption
provided by the "Bevill Amendments" can be lost if the alkaline admixture is
derived from or mixed with a hazardous waste, the Company has adopted and
implemented policies and operational controls, including review of operating
permits held by alkaline admixture suppliers and periodic testing of such
admixtures, to ensure that the alkaline admixtures used in the N-Viro Process by
itself and its licensees are not derived from or mixed with hazardous wastes.
Although neither the alkaline admixture nor wastewater sludges used in the
N-Viro Process are regulated as hazardous waste under RCRA, states may impose
restrictions that are more stringent than federal regulations. Accordingly, the
raw materials used in the N-Viro Process may be regulated under some state
hazardous waste laws as "special wastes," in which case specific storage and
record keeping requirements may apply.
The Clean Air Act. The Clean Air Act empowers the EPA to establish and
enforce ambient air quality standards and limits of emissions of pollutants from
specific facilities. The Clean Air Act Amendments of 1990 (the "Clean Air Act
Amendments") impose stringent requirements upon owners and operators of
facilities that discharge emissions into the air.
Existing N-Viro facilities generally have installed "baghouse" technology
for alkaline admixture storage and handling operations in order to collect
airborne dust. At present, the Company does not believe that any N-Viro
facilities will be required to undertake any further measures in order to comply
with the Clean Air Act or the existing Clean Air Act Amendments. Ammonia odors
of varying strength typically result from sludge treatment processes, including
the N-Viro Process. A number of N-Viro facilities have installed ammonia
"scrubbers" to reduce ammonia odors produced to varying degrees by the N-Viro
Process. The installation of ammonia "scrubbers" is not required by the Clean
Air Act or the existing Clean Air Amendments. However, the Company or its
licensees may be required under the Occupational Safety and Health Act and state
laws regulating nuisances, odors and air toxic emissions to install odor control
technology to limit ammonia emissions and odors produced during the N-Viro
Process, particularly at N-Viro facilities located near populated residential
areas. The amount of ammonia gas produced is dependent upon the type of sludge
being treated and the amount and type of alkaline admixture being used.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980. CERCLA imposes strict, joint and several liability upon owners and
operators of facilities where a release of hazardous substances has occurred,
upon parties who generated hazardous substances into the environment that were
released at such facilities and upon parties who arranged for the transportation
of hazardous substances to such facilities.
The Company believes that the N-Viro Process poses little risk of releasing
hazardous substances into the environment that presently could result in
liability under CERCLA. Although the sewage sludge and alkaline waste products
could contain hazardous substances (as defined under CERCLA), the Company has
developed plans to manage the risk of CERCLA liability, including training of
operators, regular testing of the sludge and the alkaline admixture to be used
in the N-Viro Process and reviewing incineration and other permits held by the
entities from whom alkaline admixtures are obtained.
Other Environmental Laws. The Pollution Prevention Act of 1990 establishes
pollution prevention as a national objective, naming it a primary goal wherever
feasible. The act states that where pollution cannot be prevented, materials
should be recycled in an environmentally safe manner. The Company believes that
the N-Viro Process contributes to pollution prevention by providing an
alternative to disposal.
The alkaline admixtures used in the N-Viro Process may be required to be
registered as pesticides under FIFRA because of their effect on pathogens in
sludge. The EPA does not currently regulate commercial lime or any alkaline
by-products under FIFRA and has not attempted to assert such jurisdiction to
date. In the event the alkaline by-products are required to be registered under
FIFRA, the Company would likely be required to submit certain data as part of
the registration process and might be subject to further federal regulation.
State Regulations. State regulations typically require an N-Viro facility
to obtain a permit for the sale of N-Viro Soil for agricultural use, and may
require a site-specific permit by the user of N-Viro Soil. In addition, in some
jurisdictions, state and/or local authorities have imposed permit requirements
for, or have prohibited, the land application or agricultural use of sludge
products, including "exceptional quality" sludge products. There can be no
assurance that any such permits will be issued or that any further attempts to
require permits for, or to prohibit, the land application or agricultural use of
sludge products will not be successful.
In addition, many states enforce landfilling restrictions for non-hazardous
sludge. These regulations typically require a permit to sell or use sludge
products as landfill cover material. There can be no assurance that N-Viro
facilities or landfill operators will be able to obtain required permits.
Environmental impact studies may be required in connection with the
development of future N-Viro facilities. Such studies are generally time
consuming and may create delays in the construction process. In addition,
unfavorable conclusions reached in connection with such a study could result in
termination of, or expensive alterations to, the N-Viro facility being
developed.
EMPLOYEES
As of December 31, 2003, the Company had 16 employees in the following
capacities: 7 engaged in sales and marketing; 3 in finance and administration;
and 6 in operations. The Company considers its relationships with its employees
to be satisfactory.
The Company is a party to a collective bargaining agreement (the "Labor
Agreement") covering certain employees of National N-Viro Tech, Inc., a
wholly-owned subsidiary of the Company. The employees that are covered by the
Labor Agreement work at the Toledo, Ohio N-Viro facility which is operated by
the Company on a contract management basis for the City of Toledo. These
employees are members of the International Brotherhood of Teamsters, Chauffeurs,
Warehouseman and Helpers Local Union No. 20, and the Company considers its
relationships with the organization to be satisfactory. At present, the Labor
Agreement expires October 31, 2004.
N-VIRO FACILITIES
To date, the Company principally has licensed the N-Viro Process to
municipalities for use in municipally-owned wastewater treatment plants. The
Company has also operated, generally on a start-up basis, N-Viro facilities for
municipalities and currently operates one municipally-owned N-Viro facility on a
contract management basis. In most cases, however, municipal licensees have
elected to design, construct and operate N-Viro facilities independently.
As of December 31, 2003, there were more than 40 N-Viro facilities
operating throughout the world. The sludge processing capacity of these
facilities ranges from one to 200 dry tons per day. Based upon reports received
from N-Viro facilities, the Company estimates they are processing wastewater
sludge at an annualized rate of over 167,000 dry tons per year. The chart below
summarizes the current annualized sludge processing volume for each of the five
largest N-Viro facilities through December 31, 2003.
Facility Location Approximate Sludge Processing Volume (dry tons/year)
Middlesex County, New Jersey 55,000
Plattsburgh, New York. . . . 49,500
Wilmington, Delaware . . . . 11,000
Syracuse, New York . . . . . 9,900
Toledo, Ohio . . . . . . . . 7,200
Volusia County, Florida. . . 6,900
All of the existing N-Viro facilities are owned and operated by third
parties, with the exception of the Toledo, Ohio facility which has been operated
by the Company on a contract management basis since January 1990.
Design and construction of a facility using the N-Viro Process is typically
undertaken by local independent engineering and construction firms. Such a
facility can be completed in approximately six months, but could take
substantially longer, depending on the size and complexity of the facility. The
N-Viro Process produces ammonia in various concentrations, depending on the
characteristics of the sludge. A number of N-Viro facilities, typically those
located near residential areas, have installed odor control systems in order to
minimize the release of ammonia odors resulting from the N-Viro Process. An
odor control system can significantly increase construction time and cost.
Construction of N-Viro facilities generally requires state and local permits and
approvals and, in certain instances, may require an environmental impact study.
The Company had previously licensed for use at five treatment facilities an
earlier sludge treatment process that is designed to produce a sludge product
that meets only Class B pathogen levels, and therefore does not produce an
"exceptional quality" sludge product under the part 503 Regs. Royalty payments
from sludge processed at the five facilities using such earlier technology
currently account for less than two percent of total royalty payments to the
Company and the Company does not actively market the use of this process.
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.
Currently, approximately 35% of the Company's revenue is from management
operations, 62% from other domestic operations, 2% from research and development
grants and the remaining 1% from foreign operations. 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, along with other factors such as
interest rates, by particular business cycles and seasonality. See Notes to the
Financial Statements contained in Item 8 hereof.
COMPETITION. The Company competes against companies in a highly
competitive market and has fewer resources than most of those companies. Its
business competes within and outside the United States principally on the basis
of the following factors:
SEGMENT
Management Other Domestic Research &
Operations Operations Foreign Operations Development
COMPETITIVE FACTORS
Innovative
Price Price Price Technologies
Product quality and
Reliability Reputation specifications Technical support
Product quality and Product quality
Specifications and specifications Custom design Reputation
Responsiveness to Equipment financing Product quality
Customer Technical support assistance and specifications
Technical support Custom design Technical support Custom design
Equipment financing Equipment financing
Reputation assistance Reputation assistance
Competitive pressures, including those described above, 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.
ITEM 2. PROPERTIES
The Company's executive and administrative offices are located in Toledo,
Ohio, under a lease that was renewed in January 2003. The Company believes its
relationship with its lessor is satisfactory. The total minimum rental
commitment for the years ending December 31, 2004 through 2006 is approximately
$56,000 each year. The total rental expense included in the statements of
operations for the years ended December 31, 2003, 2002 and 2001 is approximately
$57,100, $64,600 and $65,100, respectively. The Company also leases various
equipment on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS.
On June 11, 2003, Strategic Asset Management, Inc. ("SAMI"), the beneficial
owner of 101,115 shares of the voting, common stock of the Company or
approximately 3.38% of the total number of issued and outstanding shares of
voting, common stock, filed a stockholder's derivative action in Delaware
Chancery Court ("the Court") against the Company and its Board of Directors,
seeking, among other things, to enjoin the Company from modifying the terms and
conditions contained in a consulting agreement dated December 2, 1999, effective
as of July 20, 2002 (the "Consulting Agreement") by and between the Company and
J. Patrick Nicholson, the former Chairman of the Board and currently a
consultant to the Company. R. Francis DiPrete, formerly the president and member
of the board of directors of SAMI, is a member of the Board of Directors of the
Company.
The Board began considering the modification of Mr. Nicholson's
relationship with the Company in January, 2003, after SAMI began to inquire
about the Company's financial statements, the Company's financial performance
and the reasonableness of compensation paid to Mr. Nicholson. As a result of
SAMI's inquiry, the Board formed a Special Committee comprised of independent
directors and chaired by Director Phillip Levin.
The Special Committee retained independent legal counsel, who, in turn,
retained an independent certified public accounting firm to review financial
dealings, including expense reimbursements, between the Company and Mr.
Nicholson. On May 14, 2003, the independent counsel delivered a report to the
Special Committee indicating that while there had been certain lapses in the
Company's expense reimbursement policies and procedures as well as some failures
to follow appropriate accounting conventions as they pertained to Mr. Nicholson,
there was no wrongdoing on Mr. Nicholson's part.
After reviewing the Special Committee's report, the Board determined it was
appropriate to modify the terms of the Consulting Agreement to reduce the level
of compensation as well as to improve financial accountability with respect to
the reimbursement of expenses.
On June 11, 2003, concerned that the Board ultimately would accept
unreasonable modifications to the Consulting Agreement, SAMI filed in the
Delaware Chancery Court a stockholders' derivative action against the Company
and the Board (other than Mr. DiPrete, who is an officer and a member of the
Board of Directors of SAMI), seeking, among other things, to enjoin the Company
from modifying the terms of the Consulting Agreement and further seeking Mr.
Nicholson's termination. So as to provide time to resolve the matter
voluntarily without incurring litigation costs, the parties consented to the
entry of a preliminary injunction that provided that N-Viro would not enter into
any new agreement with Mr. Nicholson without SAMI's consent.
At a Special Meeting on July 28, 2003, the Board approved entering into a
settlement agreement (the "Settlement Agreement") with SAMI, which N-Viro
entered into as of August 1, 2003. The Settlement Agreement provided that, by a
set date, either Mr. Nicholson, N-Viro and SAMI participate in a
specially-tailored arbitration proceeding to set the terms of Mr. Nicholson's
compensation as a consultant to N-Viro or, if Mr. Nicholson would not agree to
do so, that N-Viro would terminate the Consulting Agreement for cause.
The Settlement Agreement also required the Company to reimburse SAMI for up
to $100,000 in legal, accounting and consulting fees incurred by SAMI in
connection with the lawsuit. The settlement further obligated the Company to
issue SAMI a warrant to acquire up to 75,000 shares of the Company's voting,
common stock at a purchase price per share of $0.72. This price was determined
based upon the closing trading price for the Company's voting, common stock on
the date that the parties reached oral agreement on the settlement terms. The
Settlement Agreement terms are subject to the Chancery Court's approval.
Following the execution of the Settlement Agreement but prior to the
initiation of the arbitration proceeding contemplated therein, N-Viro, SAMI and
Mr. Nicholson agreed to determine the new terms of Mr. Nicholson's consultancy
by agreement rather than arbitration (the "New Agreement").
Under the terms of the New Agreement, Mr. Nicholson provides consulting
services to the Company for a period of five (5) years, subject to renewal, at
the Company's discretion, for up to three additional one-year terms. In
exchange for such consulting services, Mr. Nicholson is paid at a rate of One
Hundred Twenty-five and 00/100 Dollars ($125) per hour, with a minimum
commitment on the part of the Company to use at least sixteen (16) hours per
month of consulting services. Mr. Nicholson is also eligible to receive a bonus
during each year of the term of his consultancy in an amount equal to five
percent (5%) of the net income of the Company, subject to a maximum payment
during each year of Thirty Thousand and 00/100 Dollars ($30,000). Additionally,
Mr. Nicholson is entitled to receive commissions in exchange for obtaining
government research grants, license fees and other income opportunities. Such
commissions are described in detail in Section 4 of the New Agreement and are
based either on the Company's gross or net income from the opportunities created
by Mr. Nicholson.
Also under the terms of the New Agreement, the Company is required to
provide Mr. Nicholson with Five Hundred and 00/100 Dollars ($500) per month for
office expenses, plus secretarial support from the Company's existing
secretarial resources, and no corporate vehicle. For a period of ten years, the
Company will provide Mr. Nicholson and his spouse with medical insurance to
supplement their coverage under the federal government's Medicare program, with
coverage for Mr. Nicholson's spouse to begin on her sixty-fifth (65th) birthday.
With respect to life insurance, for a period of ten years the Company shall
contribute up to $10,000 per annum toward the cost of a life insurance policy
owned and maintained by Mr. Nicholson. Finally, Mr. Nicholson cannot compete
with the Company for a period of ten (10) years. In exchange for this
commitment, the Company will pay Mr. Nicholson Forty-eight Thousand and 00/100
Dollars ($48,000) per year until the earlier of ten (10) years or the date of
Mr. Nicholson's death.
In actions related to the modification of the Consulting Agreement, the
Company also demanded the re-payment of approximately $24,000 owed to the
Company by N-Viro Energy Systems, Inc. ("Systems"), an entity controlled by Mr.
Nicholson. The Board authorized Systems to re-pay the loan, at its option, by
surrendering to the Company shares of the Company's voting, common stock owned
by Systems having a value equal to the amount of the debt. The Company's loan
to Systems pre-dates the implementation of the prohibition on loans to corporate
officers and directors included in the Sarbanes-Oxley Act and its rules and
regulations.
In light of Mr. Nicholson's diminished duties on behalf of the Company and
as part of the terms of the Settlement Agreement, the Board also called upon Mr.
Nicholson voluntarily to resign his seat on the Board. As an inducement to Mr.
Nicholson to resign from the Board, as well as in recognition of Mr. Nicholson's
significant interest in having input on the Board with respect to the management
and control of the Company (which interest stems from his current control of
529,589 shares of the voting, common stock of the Company or approximately
17.33% of the total number of issued and outstanding shares of the Company's
voting, common stock), the Board authorized the creation of a class of Series A
Preferred Stock of the Company (the "Preferred Stock"), one share of which was
issued to Mr. Nicholson following his resignation from the Board. The holder of
the Preferred Stock has the right to elect one member to the Board. The holder
always shall be Mr. Nicholson as the Series A Preferred Stock is
non-transferable. Furthermore, the Series A Preferred Stock has a term equal to
ten years, and the right to appoint a Director is subject to cancellation if Mr.
Nicholson ceases to control at least 17.5% of the aggregate number of shares of
the Company's voting, common stock issued and outstanding as a result of his
actions. The Series A Preferred Stock does not have a liquidation preference.
On August 28, 2003, Mr. Nicholson resigned from the Board of Directors.
Accordingly, the Company filed the Certificate of Designation, Rights and
Preferences with the Secretary of State of the State of Delaware and issued to
Mr. Nicholson the Series A Preferred Stock. Mr. Nicholson subsequently
appointed Mr. Brian Burns to the Board.
The execution of the New Agreement, coupled with the other actions
described above, satisfy the conditions for submitting the Settlement Agreement
to the Chancery Court for approval. On December 15, 2003, the Company appeared
before the Delaware Chancery Court but the final ruling has yet to be issued as
of the date of this Form 10-K filing.
In addition to the foregoing, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Annual Stockholders Meeting was held on November 13, 2003.
b. The following members of the Board of Directors were re-elected to
fill vacancies in Class I and to serve until the 2006 Annual Meeting and until
their successors are elected and qualified.
For Against Withheld
--------- ------- --------
Bobby B. Carroll . . 1,690,666 526,955 0
B. K Wesley Copeland 1,690,716 526,905 0
The following members of the Board of Directors whose term of office
as a director continued after the meeting are:
Terry Logan, Chief Executive Officer and President of the
Company, Michael Nicholson, Chief Operating Officer of the Company, Phillip
Levin, Chairman of the Board of the Company, Brian Burns, Christopher Anderson,
Daniel Haslinger and R. Francis DiPrete. At the meeting, as summarized below,
the number of classes of directors was reduced from three to two and the
directors were re-designated to serve in those two classes. In addition,
immediately after the meeting, effective November 13, 2003, Bobby B. Carroll and
B.K. Wesley Copeland resigned as directors. Accordingly, the directors were
re-designated so that Messrs. Logan, Nicholson, Levin and Burns have terms
expiring in 2004 while Messrs. DiPrete, Haslinger and Anderson have terms
expiring in 2005.
c. The following matters were voted upon at the Annual
Stockholders Meeting:
The proposal of an amendment to the Company's Amended and Restated
Certificate of Incorporation and the By-laws, to reduce the number of classes of
directors from three to two and to designate the directors to serve in those
classes was approved as follows:
For Against Abstain
1,311,641 900,855 5,125
The proposal of an amendment to the Amended and Restated Certificate
of Incorporation of the Company to decrease the number of directors of the
Company to between seven and nine was approved as follows:
For Against Abstain
2,117,884 94,787 4,950
The proposal to approve the Company's 2003 Stock Option Plan was not
approved as follows:
For Against Abstain Broker Non-Votes
296,529 1,302,743 250 618,099
The proposal of a compensation arrangement for non-employee directors
of the Company was approved as follows:
For Against Abstain Broker Non-Votes
1,408,561 185,309 5,652 618,099
The proposal to ratify Hausser + Taylor, LLC as the independent
auditors for the year 2003 was approved as follows:
For Against Abstain
2,125,386 84,435 7,800
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's shares of Common Stock are traded on the Over The Counter
Bulletin Board under the symbol "NVIC.OB". The price range per share of the
Common Stock since January 1, 2002, was as follows:
Quarter High Low
- ------------ ------ -----
First 2002. $1.25 $0.75
Second 2002 $1.14 $0.64
Third 2002. $0.88 $0.40
Fourth 2002 $1.85 $0.30
First 2003. $1.70 $0.80
Second 2003 $1.01 $0.72
Third 2003. $2.79 $0.70
Fourth 2003 $3.70 $2.40
The Company's stock price closed at $2.60 per share on March 24, 2004.
HOLDERS
As of March 24, 2004, the number of holders of record of the Company's
Common Stock was approximately 200.
DIVIDENDS
The Company has never paid dividends with respect to its Common Stock.
UNREGISTERED SALES OF SECURITIES
In February 2003, the Company closed on an $845,000 credit facility with a
local bank. To secure the credit facility, the Company was required to obtain
additional collateral of $100,000 (the "Additional Collateral") from a real
estate mortgage from a third party. Messrs. J. Patrick Nicholson, the former
Chairman of the Board and Consultant to the Company; Michael G. Nicholson, the
Company's Chief Operating Officer and a Director; Robert F. Nicholson, a Company
employee, and Timothy J. Nicholson, a Company employee, ("the Nicholsons")
collectively provided the $100,000 Additional Collateral. In exchange for their
commitment, the Company agreed to provide, among other things, a warrant to
acquire in the aggregate, 50,000 shares of the Company's voting common stock at
a purchase price of $0.90 per share. The warrant was exercisable, in whole or
in part, at any time and from time to time until February, 2006. The issuance
of the warrant by the Company was exempt from registration pursuant to Section
4(2) of the Securities and Exchange Act of 1933. In February, 2004, the
Nicholsons exercised the warrant and acquired 50,000 of the Company's common
stock at a purchase price of $0.90 per share.
At a Special Meeting on July 28, 2003, the Board of Directors approved
entering into a settlement agreement with Strategic Asset Management, Inc.
("SAMI"), which the Company entered into as of August 1, 2003 (the "Settlement
Agreement"). The Settlement Agreement obligated the Company to, among other
things, issue SAMI a warrant to acquire up to 75,000 shares of the Company's
voting, common stock at a purchase price per share of $.72. This price was
determined based upon the closing trading price for the Company's voting, common
stock on the date that the parties reached oral agreement on the settlement
terms. The Settlement Agreement terms are subject to the Chancery Court's
approval. The issuance of the warrant by the Company will be exempt from
registration pursuant to Section 4(2) of the Securities and Exchange Act of
1933.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1999, 2000, 2001, 2002 and 2003; and the consolidated
balance sheet data set forth below as of December 31, 1999, 2000, 2001, 2002 and
2003 respectively, have been derived from the financial statements of the
Company which have been audited by Hausser + Taylor, LLC, independent auditors
for the years ended December 31, 1999, 2000, 2001 and 2002, and Follmer
Rudzewicz PLC, independent auditors for the year ended December 31, 2003. In
the opinion of management, the financial data presented below reflect all
adjustments (which are of a normal recurring nature) necessary to present fairly
the Company's financial position and results of operations. The data presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements
and Supplementary Data appearing elsewhere in this Form 10-K.
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
as restated
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
------------ --------- --------- --------- ----------
Revenues . . . . . . . . . . . . . $ 5,401 $ 5,319 $ 4,459 $ 4,223 $ 4,749
Net income (loss) from operations. (822) 61 (1,053) (643) 528
Net income (loss). . . . . . . . . (1,522) (14) (1,191) (809) 471
Net income (loss) per share. . . . $ (0.59) $ (0.01) $ (0.45) $ (0.31) $ 0.18
BALANCE SHEET DATA (IN THOUSANDS):
as restated
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
--------- --------- --------- --------- ---------
Total assets $ 3,232 $ 4,242 $ 4,266 $ 4,809 $ 4,772
Notes and line of credit payable $ 1,053 $ 1,475 $ 1,402 $ 649 $ 352
Shareholder Advance $ 17 $ 24 $ 24 $ 22 $ 49
PRIOR PERIOD ADJUSTMENT
During the third quarter of 2003, the Company determined it had underbilled
a customer for certain services which resulted in an understatement of revenue
totaling approximately $214,000 and gross profit of approximately $194,000 over
a two and one-half year period beginning in the third quarter of 2000 and ending
in the fourth quarter of 2002. As a result, the Company has restated its
previously issued financial statements included herein and has recorded a prior
period adjustment to reduce, by $36,000, its accumulated deficit as of January
1, 2001. The Company previously reported net losses of $96,000, or $0.04 per
share, and $1,267,000, or $0.48 per share, for the years ended December 31, 2002
and 2001, respectively. The restatements resulted in the Company reporting a
net loss of $14,000, or $0.01 per share, and $1,191,000, or $0.45 per share, for
the years ended December 31, 2002 and 2001, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of our results of operations and financial
position for the periods described below, and should be read in conjunction with
"Selected Financial Data" and the Financial Statements and Supplementary Data
appearing elsewhere in this Form 10-K. The discussion includes various
forward-looking statements about our markets, products, services and our
results. These statements are based on certain assumptions that we consider
reasonable. Our actual results may differ materially from these indicated
forward-looking statements.
The following table sets forth, as a percentage of total revenues for the
periods presented, revenues related to each of (i) technology fees, (ii)
facility management, (iii) products and services:
FOR THE YEAR ENDED DECEMBER 31,
2003 2002 (AS RESTATED) 2001 (AS RESTATED)
-------- ----------------- -----------------
Technology fees . . . 12.6% 14.4% 20.8%
Facility management . 25.7% 35.2% 36.7%
Products and services 61.7% 50.4% 42.5%
Totals. . . . . . . . 100.0% 100.0% 100.0%
Technology fee revenues consist of: royalty revenue, which represent
ongoing amounts received from licensees for continued use of the N-Viro Process
and are typically based on volumes of sludge processed; license and territory
fees, which represent non-recurring payments for the right to use the N-Viro
Process in a specified geographic area or at a particular N-Viro facility;
research & development revenue, which represent payments from federal and state
agencies awarded to the Company to fund ongoing site-specific research utilizing
the N-Viro technology.
Facility management revenues are recognized under contracts where the
Company itself manages the N-Viro Process to treat sludge, pursuant to a fixed
price contract.
Product and service revenues consist of: alkaline admixture revenue, which
represent ongoing payments from licensees arising from the sale and distribution
of alkaline admixture by the Company and the Agents to N-Viro facilities;
service fee revenue for the management of alkaline admixture, which represent
fees charged by the Company to manage and sell the alkaline admixture on behalf
of a third party customer; N-Viro Soil sales, which represent either revenue
received from sales of N-Viro Soil sold by N-Viro facilities, or through sales
of N-Viro Soil sold directly by the Company; commissions earned on sales of
equipment to an N-Viro facility; rental of equipment to a licensee or agent;
testing income, which represent fees charged for the periodic quality control of
the N-Viro Soil produced; equipment sales, which represent the price charged
for equipment held for subsequent sale.
The Company's policy is to record fully revenues payable pursuant to agency
and license agreements when the Company has fulfilled its obligations under the
relevant contract, except when the license agreement pertains to a foreign
contract. In this case, revenue is recorded when cash is received and when the
Company has fulfilled its obligations under the relevant foreign contract.
RESULTS OF OPERATIONS
The following tables set forth, for the periods presented, (i) certain
items in the Combined Statement of Operations, (ii) the percentage change of
each such item from period to period and (iii) each such item as a percentage of
total revenues in each period presented.
Year Ended Year Ended Year Ended
Period to Period December 31, Period to Period December 31,
December 31, 2003 Percentage Change 2002 (as restated) Percentage Change 2001 (as restated)
------------------ ------------------ ------------------ ----------------- ------------------
(Dollars in thousands)
COMBINED STATEMENT OF
OPERATIONS DATA:
Revenues. . . . . . . . . . . . . . . $ 5,401 1.5% $5,319 19.3% $ 4,459
Cost of revenues. . . . . . . . . . . 3,970 17.4% 3,381 21.0% 2,795
Gross profit. . . . . . . . . . . . . 1,431 (26.2%) 1,938 16.5% 1,664
Operating expenses. . . . . . . . . . 2,253 20.0% 1,877 (30.9%) 2,717
Operating income (loss) . . . . . . . (822) * 61 * (1,053)
Non-operating income (expense). . . . (700) * (75) * (138)
Loss before income tax expense. . . . (1,522) * (14) * (1,191)
Federal and state income tax expense. 0 * 0 * 0
Net loss. . . . . . . . . . . . . . . $(1,522) * $ (14) * $(1,191)
PERCENTAGE OF REVENUES:
Revenues. . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of revenues. . . . . . . . . . . 73.5 63.6 62.7
Gross profit. . . . . . . . . . . . . 26.5 36.4 37.3
Operating expenses. . . . . . . . . . 41.7 35.3 60.9
Operating income (loss) . . . . . . . (15.2) 1.1 (23.6)
Non-operating income (expense). . . . (13.0) (1.4) (3.1)
Loss before income tax expense. . . . (28.2) (0.3) (26.7)
Federal and state income tax expense. 0.0 0.0 0.0
Net loss. . . . . . . . . . . . . . . (28.2%) (0.3%) (26.7%)
* Period to period percentage change comparisons have only been calculated
for positive numbers.
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 WITH YEAR ENDED DECEMBER 31, 2002 (AS
RESTATED)
Revenues increased $82,000, or approximately 1.5%, to $5,401,000 for the
year ended December 31, 2003 from $5,319,000 for the year ended December 31,
2002. The increase in revenue was due to the following: revenues from one-time
domestic license or international territory fees increased $14,000, to $106,000
in 2003 from $92,000 in 2002; and revenues from existing on-line facilities
increased $68,000 to $5,295,000 from $5,227,000 in 2002. This increase in
revenue from existing on-line facilities was primarily from: fees derived from
the management of alkaline admixture of $545,000, an increase in royalties of
$72,000, an increase in leased equipment revenue of $94,000, an increase in
commission, product and consulting revenue totaling $32,000, offset by decreases
in facility management fee operations of $486,000, alkaline admixture revenue of
$18,000 and research and development project revenue of $171,000. The decrease
in facility management revenue was primarily the direct result of increased
competition from local alternative processing companies. The Company expects no
further decrease from 2003 to 2004, as the provisions of the operating contract
require a minimum processing volume to be serviced by the Company.
Gross Profit decreased $507,000, or approximately 26%, to $1,431,000 for
the year ended December 31, 2003 from $1,938,000 for the year ended December 31,
2002. The decrease in gross profit was primarily due to the increased costs of
procuring materials and transportation for the management and purchase of
alkaline admixture, and an increase in the cost of goods sold recognized for the
topsoil blend product shipped in 2003. The Company's largest increase in
revenue in 2003 continued to be from the fees received on the management of
alkaline admixture, which was a new source of revenue for 2002. The Company is
paid a fee by certain customers to manage the mineral by-product used in the
N-Viro process. The overall gross profit margin decreased to approximately 26%
in 2003 from approximately 36% for 2002.
Operating expenses increased $376,000, or approximately 20% to $2,253,000
for the year ended December 31, 2003 from $1,877,000 for the year ended December
31, 2002. The primary reason for the increase in operating expenses was an
increase of $474,000 in outside professional fees and settlement costs.
Included in the increase of $474,000 for outside professional fees and
settlement costs was $388,000 for expenses directly related to a derivative
action filed by a stockholder.
Nonoperating expense increased by $640,000 to expense of $700,000 for the
year ended December 31, 2003 from expense of $59,000 for the year ended December
31, 2002. The increase was primarily due to an increase in the loss of $504,000
in the equity of a joint venture, to a loss of $539,000 in 2003 from a loss of
$35,000 in 2002. Also, the Company recorded an increase in interest expense of
$109,000, and a decrease in interest and dividend income of $18,000 from 2002,
to $25,000.
The Company recorded a net loss of $1,522,000 for the year ended December
31, 2003 compared to a net loss of $14,000 for the year ended December 31, 2002.
The Company incurred a loss of approximately $539,000 on its share of
Florida N-Viro, L.P. in 2003, an increase in loss of $504,000 from 2002.
Included in this increase in loss from the joint venture was approximately
$500,000 for an impairment write-down of a group of assets at one of Florida
N-Viro's operating sites. The Company's investment in the joint venture now
reflects zero value on its balance sheet, and an additional loss has been added
to the allowance to reserve the Note Receivable due from Florida N-Viro. Even
though the investment is now reflected at zero value, the Company believes the
remaining operating assets of Florida N-Viro have value and will be marginally
profitable in 2004. See the discussion in Liquidity and Capital Resources
section later in this Item 7. The audited financial statements of Florida
N-Viro, L.P. are included in this document after the Company's financial
statements as Item 15(d), Financial Statements of Subsidiaries not Consolidated.
COMPARISON OF YEAR ENDED DECEMBER 31, 2002 WITH YEAR ENDED DECEMBER 31, 2001 (AS
RESTATED FOR BOTH YEARS)
Revenues increased $861,000, or approximately 19%, to $5,319,000 for the
year ended December 31, 2002 from $4,459,000 for the year ended December 31,
2001. The increase in revenue was due to the following: revenues from one-time
domestic license or international territory fees increased $59,000, to $92,000
for 2002 from $33,000 for 2001; revenues from existing on-line facilities
increased $947,000 to $5,227,000 from $4,280,000 for 2001. This increase in
revenue from existing on-line facilities was primarily from: the recognition of
a new source of revenue for 2002, fees derived from the management of alkaline
admixture of $520,000, an increase in facility management fee operations of
$235,000, an increase in alkaline admixture revenue of $373,000, an increase in
commission, product and consulting revenue totaling $46,000, offset by decreases
in royalties of $182,000, research and development project revenue of $37,000
and leased equipment revenue of $10,000. An additional decrease in gross
revenue was the $144,000 in equipment sales in 2001 to an existing licensee who
is not yet on-line. There were no equipment sales in 2002. The mix of revenues
for 2002 continued to change from previous years, in that the Company continues
to move towards a higher amount of revenues derived from ongoing licensees.
Gross Profit increased $274,000, or approximately 17%, to $1,938,000 for
the year ended December 31, 2002 from $1,664,000 for the year ended December 31,
2001. The increase in gross profit was primarily due to the increased revenue
derived from the management of alkaline admixture, facility management and sale
of alkaline admixture, and offset primarily by a decrease in royalty and
equipment sales revenue. The Company's largest increase in revenue in 2002 was
from the fees received on the management of alkaline admixture, which was a new
source of revenue for 2002. The Company is paid a fee by certain customers to
manage the mineral by-product used in the N-Viro process. The overall gross
profit margin decreased slightly to approximately 36% in 2002 from approximately
37% for 2001.
Operating expenses decreased $839,000, or approximately 31% to $1,878,000
for the year ended December 31, 2002 from $2,717,000 for the year ended December
31, 2001. The primary reason for the decrease in operating expenses was the
settlement in late 2001 by the Company for the defense of its patents and
licensing rights, which was approximately $549,000 less in 2002 than 2001.
Selling, general and administrative expenses also decreased by $290,000, which
was primarily due to: a decrease of $141,000 in legal fees, a decrease of
$93,000 in salaries, employee benefits and consultants and a decrease in
penalties of $68,000.
Nonoperating expense decreased by $63,000 to expense of $75,000 for the
year ended December 31, 2002 from expense of $138,000 for the year ended
December 31, 2001. The decrease was primarily due to the Company's share of
decrease in losses of Florida N-Viro, L.P. by $102,000 from 2001, partially
offset by decreases in interest income of $21,000 and the loss on the sale of
assets of $16,000.
The Company recorded a net loss of $14,000 for the year ended December 31,
2002 compared to a net loss of $1,191,000 for the year ended December 31, 2001.
The Company incurred a loss of approximately $35,000 on its share of
Florida N-Viro, L.P. in 2002, a decreased loss of $102,000 from 2001. The
audited financial statements of Florida N-Viro, L.P. for the years ended
December 31, 2002 and 2001 are included in this document after the Company's
financial statements as Item 15(d), Financial Statements of Subsidiaries not
Consolidated.
INFLATION
The Company believes that inflation has not had a material impact to date
on the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately $1,642,000 at
December 31, 2003 compared to a deficit of $847,000 at December 31, 2002, a
decrease of approximately $795,000. Current assets at December 31, 2003
included cash of $124,000, which is a decrease of about $281,000 from December
31, 2002 (which included restricted cash of $400,000). The decrease in working
capital was principally due to the net loss for the year.
In 2003 the Company's cash flow generated from operations was approximately
$317,000, an improvement of approximately $132,000 from 2002. No unusual cash
transactions were recorded in 2003. The Company generated positive cash flow
from operations mainly by extending payment terms with creditors, primarily for
professional fees and non-revenue generating vendors.
In January, 2003, the Company had available a $750,000 line-of-credit with
its former bank which was scheduled to expire January 31, 2003. Borrowings
against the line bore interest at prime plus 1% on borrowings up to $400,000 and
prime plus 3% for borrowings above $400,000. Borrowings, which were
collateralized by all of the Company's assets including accounts receivable,
inventories, equipment, assignment of a $400,000 certificate of deposit and
assignment of certain contracts, were due on demand. In February, 2003, this
line of credit was paid off with the redemption of the certificate of deposit
and additional debt secured by another local bank, discussed in the following
section.
In February 2003 the Company closed on an $845,000 credit facility with
Monroe Bank + Trust (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 plus 1.5% and secured by a first lien on all assets of the
Company. The Company used the funds to refinance its prior debt and to provide
working capital. Previously, the Company had a $750,000 line of credit with
another financial institution, secured by a $400,000 restricted Certificate of
Deposit, required and held by this financial institution. Effectively, the
former line of credit provided only $350,000 of additional working capital. The
effective increase in the line provided the Company with additional working
capital, and the debt refinance provided lower cost and longer term debt,
improving cash flow. To secure the credit facility, the Company was required by
the Bank to obtain additional collateral of $100,000 (the "Additional
Collateral") from a real estate mortgage from a third party. Messrs. J. Patrick
Nicholson, the former Chairman of the Board and Consultant to the Company;
Michael G. Nicholson, the Company's Chief Operating Officer and a Director;
Robert F. Nicholson, a Company employee, and Timothy J. Nicholson, a Company
employee, ("the Nicholsons") collectively provided the $100,000 Additional
Collateral. In exchange for their commitment, the Company agreed to provide the
Nicholsons the following: (1) an annual fee in an amount equal to $2,000 per
annum; (2) interest at an annual rate of 5% of the $100,000 value of the
Additional Collateral beginning on the first anniversary date of the closing of
the credit facility, and (3) a warrant to acquire in the aggregate, 50,000
shares of the Company's voting common stock at a purchase price of $0.90 per
share, which was the closing market price of the Company's common stock on the
prior business day to the closing of the Credit Facility. The warrant was
exercisable, in whole or in part, at any time and from time to time until
February, 2006. In addition, the Company granted to the Nicholsons a lien upon
the Company's inventory and accounts receivable. This lien is subordinated to
both existing liens on the Company's assets and all liens granted by the Company
in favor of the financial institution providing the Credit Facility. At
December 31, 2003, the Company had borrowed $398,223 against the line. In
February, 2004, the Nicholsons exercised the warrant and acquired 50,000 of the
Company's common stock at a purchase price of $0.90 per share.
The Company was in violation of financial covenants governing the credit
facility, concerning the maintenance of both a tangible net worth amount and
positive debt service coverage ratio for the period, both of which require
positive net earnings. The Bank waived this violation in light of the Company's
net loss for the year ended December 31, 2003, but required additional
consideration in exchange for this waiver. In January 2004, the Company
obtained a certificate of deposit in the amount of $75,000 with the Bank, and
transferred custodianship of its treasury stock to the Bank. In February, 2004,
the Company renewed its line of credit with the Bank through April, 2004, and in
April 2004 it was renewed again through October, 2004. As part of this renewal,
the Bank decreased the maximum amount available to borrow on the line to
$400,000. As of the date of this filing, the Company had borrowed $200,000
against the line.
The normal collection period for accounts receivable are approximately
45-60 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. The Company increased its reserve for
bad debts during 2003 by $15,946 as a result of an increase in the amount of
outstanding trade receivables.
In 2003, the Company's investment in a 47.5% owned partnership, Florida
N-Viro, L.P., recorded a net loss of approximately $1,144,000, including an
impairment writedown of a group of assets of $1,062,000. Cash flow from
operations was positive, and the Company believes the remaining
revenue-generating assets of Florida N-Viro, L.P. will continue to provide
adequate cash flow to fund operations for 2004.
The Company is currently actively pursuing sale of its investment in
Florida N-Viro, L.P., which may provide, in management's opinion, additional
funds to finance the Company's cash requirements. Because these efforts are
still in progress, there can be no assurance the Company will successfully
complete these negotiations.
During the fourth quarter of 2003, the Company issued 12,900 shares of
common stock for stock options exercised, realizing total proceeds of $24,610 to
the Company. Of these shares, 4,900 were issued to R. Francis DiPrete, a member
of the Board of Directors. The proceeds of the exercises of the options were
used for working capital.
During the first quarter of 2004, an additional 41,500 shares of common
stock were issued to employees and former directors of the Company for stock
options exercised, realizing total proceeds to the Company of $66,117. Also
during the first quarter of 2004, 50,000 warrants were exercised jointly by J.
Patrick Nicholson and three of his sons, Michael, Robert and Timothy Nicholson,
pursuant to the terms of an Agreement signed in February, 2003 to pledge
additional collateral in securing additional financing to the Company. These
warrants were exercised at $0.90 per share, and the Company issued unregistered
common stock in exchange for the $45,000 in proceeds. The proceeds of the
exercises of both the options and warrants were used for working capital.
Also during the first quarter of 2004, the Company issued 72,237 shares of
unregistered common stock to two trade creditors, eliminating $162,533 worth of
debt owed by the Company to such creditors. In addition, 7,329 shares of
unregistered common stock were issued to Phillip Levin and Daniel Haslinger,
respectively, both members of the Board of Directors, in exchange for services
rendered to management incurred from April through December, 2003, for $9,000
each, or a total of $18,000.
The Company is currently completing a private placement of up to $750,000
in unregistered shares of its common stock. The Company hopes to sell up to
333,333 shares of common stock at a price per share of $2.25. To date, the
Company has issued 193,417 shares for total proceeds of $435,188. There can be
no assurance that the Company will be successful in finding a buyer for the
balance of the private offering. If the shares are sold, the proceeds from the
offering will be used to supplement the Company's working capital.
On March 24, 2004, the Company announced in a Form 8-K that the Board of
Directors had approved a Rights Offering for the beneficial owners of its common
stock. The Company plans to issue one right to purchase one share of common
stock, for each ten shares of stock beneficially owned. The Rights, which are
being issued without registration, will be non-transferable and exercisable only
by the beneficial owners in whose names they are issued. On April 8, 2004, the
Company announced the record date for the Rights Offering will be April 16,
2004. If the Rights are exercised, the proceeds from the offering will be used
to supplement the Company's working capital.
The Company is currently in discussions with several companies in the
cement and fuel industries for the development and commercialization of the
patented N-Viro fuel technology. Because these discussions are still in
progress, there can be no assurance they will be successful.
The Company continues to focus on the development of regional biosolids
processing facilities. Currently the Company is in negotiations with several
privatization firms to permit and develop independent, regional facilities.
The Company expects continued improvements in operating results for 2004 as
a result of a return to low administrative costs, along with realized and
expected new sources of revenue. Additionally, market developments and ongoing
discussions with companies in the cement, fuel and wastewater industries could
provide enhanced liquidity and positively impact 2004 operations.
Current market trends and Company business development provide significant
basis for the Company's optimistic outlook for 2004 and beyond. The national
public attack on Class B levels of sludge treatment is rapidly moving the market
to Class A technologies, of which the Company's patented N-Viro processes are
very cost competitive, and well established in the market place. The
development and patenting of new technologies for animal manure treatment,
bio-fuel and nematode control have the potential to expand the Company's revenue
base over the next five years and beyond.
OFF-BALANCE SHEET ARRANGEMENTS AND OTHER
At December 31, 2003, the Company 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, the Company may
make certain indemnities, commitments and guarantees under which the Company 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 the Company's negligence or willful misconduct and (ii) indemnities
involving the accuracy of representations and warranties in certain contracts.
Pursuant to Delaware law, the Company may indemnify certain officers and
directors for certain events or occurrences while the officer or director is, or
was, serving at the Company's request in such capacity. The Company also has
director and officer insurance coverage that limits its exposure and enables the
Company to recover a portion of any future amounts that it may pay for
indemnification purposes. The Company believes the applicable insurance coverage
is generally adequate to cover any estimated potential liability for which it
may provide indemnification. The majority of these indemnities, commitments and
guarantees do not provide for any limitation of the maximum potential for future
payments the Company could be obligated to make. The Company has 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 December
31, 2003, and the effect these obligations are expected to have on liquidity and
cash flow in future periods:
Payments Due By Period
key Total Less than 1 year 1 - 3 years 4 - 5 years after 5 years
-------------- ----------- -------------- ------------- ------------ --------------
Purchase obligations . . . . . . . (1) $ 3,298,000 $ 208,000 $ 1,014,000 $ 676,000 $ 1,400,000
Long-term debt obligations . . . . (2) 654,504 259,782 394,722 - -
Operating leases . . . . . . . . . (3) 199,729 61,127 136,350 2,252 -
Capital lease obligations. . . . . - - - - -
Other long-term debt obligations . - - - - -
-------------- ----------- -------------- ------------- ------------ --------------
Total contractual cash obligations $ 4,152,233 $ 528,909 $ 1,545,072 $ 678,252 $ 1,400,000
(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.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ASSUMPTIONS
In preparing financial statements in conformity with accounting principles
generally accepted in the United States, 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 the 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 license or territory fee contracts until the cash is
received, assuming all other tests of revenue recognition are met. Canada is
excluded from this definition of non-domestic.
Allowance for Doubtful Accounts - The Company estimates losses for
uncollectible accounts based on the aging of the accounts receivable and the
evaluation and 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 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 our estimate of
the undiscounted future cash flows expected to result from the use and eventual
disposition of the asset (group), excluding interest charges.
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 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 December 31, 2003 and 2002.
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. In accordance with SFAS No. 142, the Company tests for impairment
annually.
Fair Value of Financial Instruments - The carrying amounts of cash and cash
equivalents, receivables, accounts payable and accrued liabilities approximate
their fair values because of the short-term nature of these instruments.
Management believes the carrying amounts of the current and long-term debt
approximate their fair value based on interest rates for the same or similar
debt offered to the Company having the same or similar terms and maturities.
Income Taxes - The Company assumes the deductibility of certain costs in
income tax filings and estimates the recovery of deferred income tax assets.
New Accounting Standards - The Financial Accounting Standards Board
("FASB") has issued the following new accounting and interpretations, which may
be applicable in the future to the Company:
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities", amends and clarifies financial reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The Company does not expect the
application of the provisions of SFAS No. 149 to have a material impact on its
financial position, results of operations or cash flows.
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", provides standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The Statement is effective for
financial instruments entered into or modified after May 31, 2003 and for
pre-existing instruments as of the beginning of the first interim period
beginning after June 15, 2003. The adoption of this standard had no effect on
the Company's financial condition or results of operations.
FIN 46, "Consolidation of Variable Interest Entities, an interpretation of
ARB 51", was issued. The primary objectives of FIN 46 are to provide guidance
on the identification and consolidation of variable interest entities, or VIE's,
which are entities for which control is achieved through means other than
through voting rights. The Company has completed an analysis of FIN 46 and has
determined that is does not have any VIEs.
Actual results could differ materially from the estimates and assumptions
that we use in the preparation of our financial statements.
RISK FACTORS
THE COMPANY'S LICENSEES ARE SUBJECT TO EXTENSIVE AND INCREASINGLY STRICT
FEDERAL, STATE AND LOCAL ENVIRONMENTAL REGULATION AND PERMITTING.
The Company's licensees and their operations are subject to increasingly
strict environmental laws and regulations, including laws and regulations
governing the emission, discharge, disposal and transportation of certain
substances and related odor. Wastewater treatment plants and other plants at
which our biosolids products or processes may be implemented are usually
required to have permits, registrations and/or approvals from state and/or local
governments for the operation of such facilities. Some of our licensee's
facilities require air, wastewater, storm water, biosolids processing, use or
siting permits, registrations or approvals. These licensees may not be able to
maintain or renew their current permits or registrations or to obtain new
permits or registrations. The process of obtaining a required permit or
registration can be lengthy and expensive. They may not be able to meet
applicable regulatory or permit requirements, and therefore may be subject to
related legal or judicial proceedings that could have a materially adverse
effect on our income derived from these licensees.
Any of the permits, registrations or approvals noted above, or related
applications may be subject to denial, revocation or modification, or challenge
by a third party, under various circumstances. In addition, if new
environmental legislation or regulations are enacted or existing legislation or
regulations are amended or are enforced differently, these licensees may be
required to obtain additional, or modify existing, operating permits,
registrations or approvals.
Maintaining, modifying or renewing current permits or registrations or
obtaining new permits or registrations after new environmental legislation or
regulations are enacted or existing legislation or regulations are amended or
enforced differently may be subject to public opposition or challenge. Much of
this public opposition and challenge, as well as related complaints, relates to
odor issues, even when our licensees are in compliance with odor requirements
and even though the licensees have worked hard to minimize odor from their
operations. Public misperceptions about the business and any related odor could
influence the governmental process for issuing such permits or registrations or
for responding to any such public opposition or challenge. Community groups
could pressure local municipalities or state governments to implement laws and
regulations which could increase our licensees' costs of their operations that
in turn could have a material and adverse effect on the Company's business and
financial condition.
THE ABILITY TO GROW MAY BE LIMITED BY COMPETITION.
The Company provides a variety of technology and services relating to the
treatment of wastewater residuals. The Company is in direct and indirect
competition with other businesses that provide some or all of the same services
including regional residuals management companies and national and international
water and wastewater operations/privatization companies, technology suppliers,
municipal solid waste companies and farming operations. Many of these
competitors are larger and have significantly greater capital resources.
The Company derives a substantial portion of its revenue from services
provided under municipal contracts, and many of these are subject to competitive
bidding. The Company also intends to bid on additional municipal contracts,
however, and may not be the successful bidder. In addition, some of its
contracts will expire in the future and those contracts may not be renewed or
may be renewed on less attractive terms. If the Company is not able to replace
revenues from contracts lost through competitive bidding or from the
renegotiation of existing contracts with other revenues within a reasonable time
period, the lost revenue could have a material and adverse effect on its
business, financial condition and results of operation.
THE COMPANY'S CUSTOMER CONTRACTS MAY BE TERMINATED PRIOR TO THE EXPIRATION OF
THEIR TERM.
A substantial portion of the Company's revenue is derived from services
provided under contracts and agreements with existing licensees. Some of these
contracts, especially those contracts with large municipalities, provide for
termination of the contract by the customer after giving relative short notice
(in some cases as little as ten days). In addition, some of these contracts
contain liquidated damages clauses, which may or may not be enforceable in the
event of early termination of the contracts. If one or more of these contracts
are terminated prior to the expiration of its term, and we are not able to
replace revenues from the terminated contract or receive liquidated damages
pursuant to the terms of the contract, the lost revenue could have a material
and adverse effect on our business, financial condition and results of
operations.
A SIGNIFICANT AMOUNT OF THE COMPANY'S BUSINESS COMES FROM A LIMITED NUMBER OF
CUSTOMERS AND OUR REVENUE AND PROFITS COULD DECREASE SIGNIFICANTLY IF WE LOST
ONE OR MORE OF THEM AS CUSTOMERS.
The Company's business depends on provision of services to a limited number
of customers. One or more of these customers may stop contracting for services
from us or may substantially reduce the amount of services we provide them. Any
cancellation, deferral or significant reduction in the services we provide these
principal customers or a significant number of smaller customers could seriously
harm our business and financial condition. For the quarter and year ended
December 31, 2003, our single largest customer accounted for approximately 35
percent and 44 percent, respectively, of our revenues and our top three
customers accounted for approximately 69 percent and 65 percent, respectively,
of our revenues.
THE COMPANY IS AFFECTED BY UNUSUALLY ADVERSE WEATHER CONDITIONS.
The Company's business is adversely affected by unusual weather conditions
and unseasonably heavy rainfall which can temporarily reduce the availability of
land application sites in close proximity to our operations. In addition,
revenues and operational results are adversely affected during months of
inclement weather which limits the level of land application that can be
performed. Long periods of adverse weather could have a material negative
effect on the Company's business and financial condition.
FUEL COST VARIATION COULD AFFECT OPERATING RESULTS AND EXPENSES.
The price and supply of fuel is unpredictable and fluctuates based on
events outside our control, including demand for oil and gas, actions by OPEC
and other oil and gas producers, and war in oil producing countries. Because
fuel is needed for the trucks that transport the processing materials and
supplies for our customers, price escalations or reductions in the supply of
fuel could increase operating expenses and have a negative impact on the results
of operations. The Company is not always able to pass through all or part of
the increased fuel costs due to the terms of certain customers' contracts and
the inability to negotiate such pass through costs in a timely manner.
THE COMPANY IS DEPENDENT ON THE MEMBERS OF ITS MANAGEMENT TEAM.
The Company is highly dependent on the services of its management team, the
loss of any of whom may have a material adverse effect on its business and
financial condition.
The Company has entered into employment agreements with certain members of
its management team, which contain non-compete and other provisions. The laws
of each state differ concerning the enforceability of non-competition
agreements. The Company cannot predict with certainty whether or not a court
will enforce a non-compete covenant in any given situation based on the facts
and circumstances at that time. If one of its key executive officers was to
leave and the courts refused to enforce the non-compete covenant, the Company
might be subject to increased competition, which could have a material and
adverse effect on its business and financial condition.
THE COMPANY'S INTELLECTUAL PROPERTY MAY BE MISAPPROPRIATED OR SUBJECT TO CLAIMS
OF INFRINGEMENT.
The Company attempts to protect our intellectual property rights through a
combination of patent, trademark, and trade secret laws, as well as licensing
agreements. The Company's failure to obtain or maintain adequate protection of
our intellectual property rights for any reason could have a material adverse
effect on our business and financial condition.
The Company's competitors, many of whom have substantially greater
resources and have made substantial investments in competing technologies, may
have applied for or obtained, or may in the future apply for and obtain, patents
that will prevent, limit or otherwise interfere with the Company's ability to
offer services. The Company has not conducted an independent review of patents
issued to third parties.
The Company also relies on unpatented proprietary technology. It is
possible that others will independently develop the same or similar technology
or otherwise obtain access to its unpatented technology. If the Company is
unable to maintain the proprietary nature of its technologies, it could be
materially adversely affected.
The Company cautions 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.
Some, but not all, of the factors that could cause actual results to be
different than those anticipated or predicted by the Company include: (i) a
deterioration in economic conditions in general; (ii) a decrease in demand for
the Company's products or services in particular; (iii) the Company's 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 the
Company's products or services; (v) increases in the Company's 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 customers of the Company.
For example, while the Company anticipates obtaining the permits and approvals
necessary for the Bio-Fuel pilot program to commence operations within the next
twelve months, such program may not begin until after that period or ever.
Delay or cancellation with respect to this project could result from (1) a
failure to achieve acceptable air quality levels in preliminary testing, (2)
costs associated with the use of Bio-Fuel significantly exceeding current
estimates, or (3) competing technologies rendering the Bio-Fuel process less
attractive.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As of December 31, 2003, the Company held no investments subject to market
risk. In January, 2004, the Company held $75,000 in a certificate of deposit
with its bank. Market risk is considered to be low, with the potential for loss
of earnings, value or other changes in interest rates to be immaterial to the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Consolidated balance sheet
Consolidated statements of operations
Consolidated statements of stockholders' equity (deficit)
Consolidated statements of cash flows
Notes to consolidated financial statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
ACCOMPANYING INFORMATION
ACCOMPANYING INFORMATION
Schedule II - Valuation and qualifying accounts and reserves
INDEPENDENT AUDITOR'S REPORT
Board of Directors
N-Viro International Corporation
Toledo, Ohio 43606
We have audited the accompanying consolidated balance sheet of N-Viro
International Corporation (a Delaware entity), as of December 31, 2003, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
The Company has an investment in Florida N-Vivo, L.P., which is accounted for in
the accompanying financial statement using the equity method of accounting. We
did not audit the financial statements of Florida N-Viro, L.P. The financial
statements of this partnership were audited by other auditors, whose report has
been furnished to us, and in our opinion, insofar as it relates to the amounts
and information relating to this partnership, is based solely on the reports of
the other auditors.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of N-Viro International
Corporation as of December 31, 2003 and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company continues to sustain operating
losses and the Company continues to have low levels of working capital and
liquidity. These matters raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
reflect any adjustments that might be necessary should the Company be unable to
continue as a going concern.
/s/ FOLLMER RUDZEWICZ PLC
- ------------------------------
FOLLMER RUDZEWICZ PLC
Southfield, Michigan
April 1, 2004
Report of Independent Public Accountants
- --------------------------------------------
To the Board of Directors
N-Viro International Corporation
Toledo, Ohio
We have audited the accompanying consolidated balance sheet of N-Viro
International Corporation and subsidiaries as of December 31, 2002, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of Florida N-Viro, L.P., a
limited partnership, the investment in which is reflected in the accompanying
financial statements using the equity method of accounting. The investment in
this partnership represents 12% of total assets as of December 31, 2002. The
Company's share of the net loss of this partnership represents 36% and 11% of
the net loss of the Company for each of the two years in the period ended
December 31, 2002. The financial statements of this partnership were audited by
other auditors, whose report has been furnished to us, and our opinion, insofar
as it relates to amounts and information relating to this partnership, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of N-Viro International Corporation and
subsidiaries as of December 31, 2002, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1D to the
financial statements, the Company has in the past and continues to sustain net
and operating losses. In addition, the Company has used substantial amounts of
working capital in its operations which has reduced the Company's liquidity to a
low level. At December 31, 2002, current liabilities exceed current assets by
$1,040,210. In May 2002, the Company was removed from listing its shares on the
NASDAQ SmallCap Market, which might further limit the Company's ability to raise
equity capital. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.
/s/HAUSSER + TAYLOR LLC
--------------------------
HAUSSER + TAYLOR LLC
Cleveland, Ohio
March 19, 2003, except for
Note 11, as to which the
date is April 1, 2004
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
2003 2002 (as restated)
------------ ------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents:
Unrestricted . . . . . . . . . . . . . . $ 123,547 $ 4,935
Restricted . . . . . . . . . . . . . . . - 400,000
Receivables:
Trade, net . . . . . . . . . . . . . . . 842,583 874,421
Notes receivable - current . . . . . . . 59,017 16,358
Related parties. . . . . . . . . . . . . 17,000 -
Prepaid expenses and other assets. . . . 49,540 137,257
Inventory. . . . . . . . . . . . . . . . 80,932 117,440
------------ ------------------
Total current assets . . . . . . . . . . 1,172,619 1,550,411
PROPERTY AND EQUIPMENT, NET. . . . . . . 468,497 559,095
INVESTMENT IN FLORIDA N-VIRO, L.P. . . . - 490,583
NOTES RECEIVABLE, NET OF CURRENT PORTION 346,248 374,606
INTANGIBLE AND OTHER ASSETS, NET . . . . 1,209,825 1,267,384
------------ ------------------
$3,197,189 $ 4,242,079
The accompanying notes are an integral part of these financial statements.
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
2003 2002 (as restated)
-------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt. . . . . . . . . . . . . . $ 259,782 $ 392,078
Line-of-credit. . . . . . . . . . . . . . . . . . . . . . . . . 398,223 656,087
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . 1,737,019 978,691
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 419,377 370,251
-------------- -------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 2,814,401 2,397,107
LONG-TERM DEBT, LESS CURRENT MATURITIES . . . . . . . . . . . . 394,722 426,738
-------------- -------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 3,209,123 2,823,845
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value
Authorized - 7,000,000 shares
Issued - 2,713,833 shares in 2003 and 2,700,933 shares in 2002. 27,138 27,010
Preferred stock, $.01 par value
Authorized - 2,000,000 shares
Issued - 1 share in 2003 and -0- shares in 2002 . . . . . . . . - -
Additional paid-in capital. . . . . . . . . . . . . . . . . . . 13,587,484 13,495,602
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (12,941,666) (11,419,488)
-------------- -------------------
672,956 2,103,124
Less treasury stock, at cost, 123,500 shares. . . . . . . . . . 684,890 684,890
-------------- -------------------
Total stockholders' equity (deficit). . . . . . . . . . . . . . (11,934) 1,418,234
$ 3,197,189 $ 4,242,079
The accompanying notes are an integral part of these financial statements.
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2003, 2002 and 2001
2003 2002 (as restated) 2001 (as restated)
------------ ---------------- ----------------
REVENUES. . . . . . . . . . . . . . . . . . . $ 5,401,048 $ 5,319,477 $ 4,458,823
COST OF REVENUES. . . . . . . . . . . . . . . 3,970,380 3,381,413 2,794,950
------------ ---------------- ----------------
GROSS PROFIT. . . . . . . . . . . . . . . . . 1,430,668 1,938,064 1,663,873
OPERATING EXPENSES
Selling, general and administrative . . . . . 2,209,112 1,876,601 2,167,308
Litigation settlement expense . . . . . . . . 43,900 545 549,852
------------ ---------------- ----------------
2,253,012 1,877,146 2,717,160
------------ ---------------- ----------------
OPERATING INCOME (LOSS) . . . . . . . . . . . (822,344) 60,918 (1,053,287)
NONOPERATING INCOME (EXPENSE)
Interest and dividend income. . . . . . . . . 25,165 42,914 63,739
Interest expense. . . . . . . . . . . . . . . (170,793) (62,282) (59,626)
Loss on sale of assets. . . . . . . . . . . . (15,547) (21,426) (5,005)
Loss from equity investment in joint venture. (538,659) (34,503) (136,880)
------------ ---------------- ----------------
(699,834) (75,297) (137,772)
------------ ---------------- ----------------
LOSS BEFORE INCOME TAXES. . . . . . . . . . . (1,522,178) (14,379) (1,191,059)
Federal and state income taxes. . . . . . . . - - -
------------ ---------------- ----------------
NET LOSS. . . . . . . . . . . . . . . . . . . $(1,522,178) $ (14,379) $ (1,191,059)
Basic and diluted loss per share. . . . . . . $ (0.59) $ (0.01) $ (0.45)
Weighted average common shares
outstanding - basic and diluted. . . . . . . 2,578,871 2,577,433 2,635,334
The accompanying notes are an integral part of these financial statements.
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 2003, 2002 and 2001
Additional
Common Paid-in Accumulated Treasury
Stock Capital Deficit Stock Total
--------- ----------- ------------ ---------- ------------
BALANCE JANUARY 1, 2001 (as restated) . . $27,010 $13,498,602 $(10,214,050) $(617,977) $ 2,693,585
Net loss - as filed . . . . . . . . . . . - - (1,267,218) - (1,267,218)
Prior period adjustment . . . . . . . . . 76,159 76,159
Purchase of treasury stock. . . . . . . . - - - (66,913) (66,913)
Other . . . . . . . . . . . . . . . . . . - (3,000) - - (3,000)
--------- ----------- ------------ ---------- ------------
BALANCE DECEMBER 31, 2001 (as restated) . 27,010 13,495,602 (11,405,109) (684,890) 1,432,613
Net loss - as filed . . . . . . . . . . . - - (95,852) - (95,852)
Prior period adjustment . . . . . . . . . 81,473 81,473
--------- ----------- ------------ ---------- ------------
BALANCE DECEMBER 31, 2002 (as restated) . 27,010 13,495,602 (11,419,488) (684,890) 1,418,234
Net loss. . . . . . . . . . . . . . . . . - - (1,522,178) - (1,522,178)
Issuance of common stock - 12,900 shares. 129 24,482 - - 24,611
Other . . . . . . . . . . . . . . . . . . (1) 67,400 - - 67,399
--------- ----------- ------------ ---------- ------------
BALANCE DECEMBER 31, 2003 . . . . . . . . $27,138 $13,587,484 $(12,941,666) $(684,890) $ (11,934)
The accompanying notes are an integral part of these financial statements.
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, 2002 and 2001
2003 2002 (as restated) 2001 (as restated)
------------- ---------------- ------------------
Cash Flows From Operating Activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(1,522,178) $ (14,379) $ (1,191,059)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . 263,834 253,373 263,861
Provision (credit) for bad debts . . . . . . . . . . . . 15,946 15,731 (57,063)
Loss on the sale of fixed assets . . . . . . . . . . . . 15,547 21,426 5,005
Loss from investment in Florida N-Viro . . . . . . . . . 538,658 34,503 136,880
Decrease (increase) in trade receivables . . . . . . . . 113,339 160,107 477,994
Decrease (increase) in prepaid expenses and other assets 47,418 (86,099) 33,812
Decrease (increase) in inventory . . . . . . . . . . . . 36,508 (117,440) -
(Decrease) increase in accounts payable and accrued
liabilities. . . . . . . . . . . . . . . . . . . . . . . 808,270 (82,304) (35,274)
------------- ---------------- ------------------
Net cash provided (used in) by operating activities. . . 317,342 184,918 (365,844)
Cash Flows From Investing Activities
Reductions to restricted cash and cash equivalents . . . 400,000 - 17,666
Purchases of property and equipment. . . . . . . . . . . (21,378) (25,969) (43,681)
Proceeds from sale of property and equipment . . . . . . 8,692 - -
Collections from (advances to) related parties . . . . . - (145) (2,549)
Increase in notes receivable . . . . . . . . . . . . . . (157,636) (35,748) (212,873)
Collections on notes receivable. . . . . . . . . . . . . 35,838 22,288 20,777
Expenditures for intangible assets . . . . . . . . . . . (65,345) (79,408) (42,726)
------------- ---------------- ------------------
Net cash provided (used in) by investing activities. . . 200,171 (118,982) (263,386)
Cash Flows From Financing Activities
Net borrowings on line-of-credit . . . . . . . . . . . . (257,864) 152,474 203,613
Borrowings under long-term obligations . . . . . . . . . 369,753 261,398 523,472
Principal payments on long-term obligations. . . . . . . (528,900) (520,300) (177,913)
Issuance of common stock . . . . . . . . . . . . . . . . 24,610 - -
Expenditures for private placement of stock. . . . . . . (6,500) - -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . - - (3,000)
------------- ---------------- ------------------
Net cash (used in) provided by financing activities. . . (398,901) (106,428) 546,172
------------- ---------------- ------------------
Net Increase (Decrease) in Cash and Cash Equivalents . . 118,612 (40,492) (83,058)
Cash and Cash Equivalents - Beginning. . . . . . . . . . 4,935 45,427 128,485
------------- ---------------- ------------------
Cash and Cash Equivalents - Ending . . . . . . . . . . . $ 123,547 $ 4,935 $ 45,427
Supplemental disclosure of cash flows information:
Cash paid during the year ended for interest . . . . . . $ 100,571 $ 154,101 $ 59,345
The accompanying notes are an integral part of these financial statements.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-31
NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain accounting policies followed in the
preparation of these financial statements. The policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements:
A. Nature of Business - The Company owns and licenses the N-Viro Process, a
patented technology to treat and recycle wastewater sludges and other
bio-organic wastes, utilizing certain alkaline by-products produced by the
cement, lime, electric utilities and other industries. Revenue and the related
accounts receivable are due from companies acting as independent agents or
licensees, principally municipalities. Credit is generally granted on an
unsecured basis. Periodic credit evaluations of customers are conducted and
appropriate allowances are established.
B. Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
C. Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
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 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 December 31, 2003 and 2002.
D. Going Concern - The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has in
the past and continues to sustain net and operating losses. In addition, the
Company has used substantial amounts of working capital in its operations which
has reduced the Company's liquidity to a low level. At December 31, 2003,
current liabilities exceed current assets by $1,641,782. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or the amounts and
classification of liabilities that may result from the outcome of these
uncertainties.
E. 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 Statement of Financial Accounting Standards
("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.
F. Cash and Cash Equivalents - The Company has cash on deposit in one
financial institution which, at times, may be in excess of FDIC insurance
limits.
For purposes of the statements of cash flows, the Company considers all
certificates of deposit with initial maturities of 90 days or less to be cash
equivalents.
Restricted cash consists of a certificate of deposit which was held as
collateral against the Company's line-of-credit as of December 31, 2002. This
certificate of deposit was used to pay the Company's line of credit with its
former lending institution in February, 2003. The Company also obtained a new
certificate of deposit for $75,000 with its current lending institution in
January, 2004.
G. Accounts receivable - The Company extends unsecured credit to customers
under normal trade agreements, which require payment within 30 days. Accounts
greater than 90 days past due amounted to $124,314 and $93,064 of net
receivables for the years ended December 31, 2003 and 2002, respectively. The
Company's policy is not to accrue and record interest income on past due trade
receivables. The Company does bill the customer finance charges on past due
accounts and records the interest income when collected.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Management estimates an allowance for doubtful accounts, which was $55,946
and $40,000 as of December 31, 2003 and 2002, respectively. The estimate is
based upon management's review of delinquent accounts and an assessment of the
Company's historical evidence of collections.
H. Inventory - Inventory is recorded at lower of cost or market and consists
of N-Viro soil, manufactured by the Company, which is available for sale and
used in commercial, agricultural and horticultural applications. The
weighted-average method is used to value the inventory.
I. Property and Equipment - Property, machinery and equipment are stated at
cost less accumulated depreciation. Depreciation has been computed primarily by
the straight-line method over the estimated useful lives of the assets.
Generally, useful lives are five to fifteen years. Leasehold improvements are
capitalized and amortized over the lesser of the life of the lease or the
estimated useful life of the asset. Depreciation expense amounted to $116,572,
$119,730 and $140,331 in 2003, 2002 and 2001, respectively. Management has
reviewed property and equipment for impairment when events and circumstances
indicate that the assets might be impaired and the carrying values of those
assets may not be recoverable. Management believes the carrying amount is not
impaired based upon estimated future cash flows.
J. Intangible Assets - Patent costs and territory rights are recorded at
cost and then amortized by the straight-line method over their estimated useful
lives (periods ranging from four to seventeen years; weighted-average
amortization periods for patents/related intangibles and territory rights were
14.9 and 15.0 years, respectively, at December 31, 2003 and 2002). Amortization
expense amounted to $140,558, $133,643 and $123,530 in 2003, 2002 and 2001,
respectively; estimated amortization expense, based on intangible assets at
December 31, 2003, for each of the ensuing five years is as follows: 2004-2005
- - $143,000; 2006 - $136,000; 2007 - $121,000; 2008 - $104,000. Management has
reviewed intangible assets for impairment when events and circumstances indicate
that the assets might be impaired and the carrying values of those assets may
not be recoverable. Management believes the carrying amount is not impaired
based upon estimated future cash flows. In accordance with SFAS No. 142, the
Company tests for impairment annually.
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. Amortization expense amounted to $6,705 in
2003; estimated amortization expense for each of the next five years is as
follows: 2004-2006 - $7,500; 2007 - $795; 2008 - $-0-.
K. Revenue Recognition - Facility management revenue, sludge processing
revenue and royalty fees are recognized under contracts where the Company or
licensees utilize the N-Viro Process to treat sludge, either pursuant to a
fixed-price contract or based on volumes of sludge processed. Revenue is
recognized as services are performed.
Alkaline admixture sales, alkaline admixture management service
revenue, equipment sales and N-Viro Soil revenue are recognized upon shipment.
License and territory fees are generated by selling the right to
market or use the N-Viro Process in a specified territory. The Company's policy
is to record revenue for the license agreements when all material services
relating to the revenue have been substantially performed, conditions related to
the contract have been met and no material contingencies exist.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Research and development revenue is recognized as work is performed
and billed to the contracting entity in accordance with the contract.
Any type of revenue generated from international customers (excluding
Canada) is recognized when the cash is received.
The Company records the amount of shipping and handling costs billed
to customers as revenue. The cost incurred for shipping and handling has been
included in the cost of revenues.
L. Loss Per Common Share - Loss per common share has been computed on the
basis of the weighted-average number of common shares outstanding during each
period presented. For the years ended December 31, 2003, 2002 and 2001, the
effects of the stock options granted are excluded from the diluted per share
calculation because they would be antidilutive.
M. New Accounting Standards - In April 2003, the FASB issued SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
This statement amends and clarifies financial reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The Company does not expect the
application of the provisions of SFAS No. 149 to have a material impact on its
financial position, results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Company does not expect
the application of the provisions of SFAS No. 150 to have a material impact on
its financials position, results of operations or cash flows.
FIN 46, "Consolidation of Variable Interest Entities, an
interpretation of ARB 51", was issued. The primary objectives of FIN 46 are to
provide guidance on the identification and consolidation of variable interest
entities, or VIE's, which are entities for which control is achieved through
means other than through voting rights. The Company has completed an analysis
of FIN 46 and has determined that is does not have any VIEs.
The adoption of the new standards did not, or is not expected to,
materially affect the Company's financial position and results of operations.
N. Reclassifications - Certain amounts from the prior year financial statements
have been reclassified to conform to the current year presentation.
O. Advertising costs - Advertising costs are expensed as incurred.
NOTE 2. BALANCE SHEET DATA
NOTES AND OTHER RECEIVABLES:
At December 31, 2003, unsecured, 9.75% demand notes receivable totaling $210,674
(including accrued interest of $40,674) and unsecured, prime (stated by a local
bank) plus % demand note receivable totaling $205,947 (including accrued
interest of $25,947) are due from Florida N-Viro, the Company's joint venture
investee. The notes due from Florida N-Viro have been deemed to be noncurrent
by management in the accompanying balance sheets. The Company recorded interest
income of $22,411 in 2003, which was the amount of interest received on the
notes due from Florida N-Viro. During 2003, the Company continued to record an
allowance totaling $25,800 for the interest portion of the note receivable. In
2003, an additional $48,076 was recorded to the allowance against the Note, to
recognize the additional loss in excess of the remaining investment account that
absorbed the writedown of assets impaired of Florida N-Viro. The Company's
limited partner interest in the joint venture is now reflected at a -0- value as
of December 31, 2003. Any additional losses passed through from the partnership
will be recorded as an increase to the allowance against the Note Receivable.
See "Investment in Florida N-Viro, L.P." later in this section.
The Company has an unsecured receivable from a related party, N-Viro Energy
Systems, Inc., estimated to be $17,000 in 2003 and totaling $24,606 in 2002.
During 2003, the amount due from the related party has been deemed to be current
by management in the accompanying balance sheets, but was classified as
noncurrent at December 31, 2002. The amount due is part of a settlement with
the Company's former Chairman of the Board, which was settled in August, 2003.
At December 31, 2003, an unsecured, 6% demand note receivable dated October 1,
2003 is due from an unrelated third-party licensee, Soil Preparation Inc., for
$111,375. The Note is for 18 months, with principal scheduled to be paid
commencing July 1, 2004 and ending December 1, 2005.
At December 31, 2003, an unsecured, 6% demand note receivable dated December 15,
2003 is due from an unrelated third-party licensee, N-Viro Systems Canada, for
$23,781. The Note is for 13 months, with principal scheduled to be paid
commencing January 1, 2004 and ending January 1, 2005.
2003 2002
---------- --------
Notes receivable - Florida N-Viro, L.P., net of allowance of
114,697 in 2003 and $63,232 in 2002 . . . . . . . . . . . . . . . $301,924 $350,000
Note receivable - related party (reclassified as current in 2003). - 24,606
Notes receivable - third-party licensees . . . . . . . . . . . . . 103,341 16,358
---------- --------
405,265 390,964
Less current maturities. . . . . . . . . . . . . . . . . . . . . . 59,017 16,358
---------- --------
$346,248 $374,606
NOTE 2. BALANCE SHEET DATA (CONTINUED)
PROPERTY AND EQUIPMENT (AT COST):
2003 2002
----------- ----------
Land and leasehold improvements. . . . . . . . $ 43,903 $ 43,903
Equipment. . . . . . . . . . . . . . . . . . . 1,034,349 1,215,893
Furniture and fixtures . . . . . . . . . . . . 134,954 160,706
----------- ----------
1,213,206 1,420,502
Less accumulated depreciation and amortization 744,709 861,407
----------- ----------
$ 468,497 $ 559,095
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, as described in Note 1, accounts
for its investment under the equity method. The Company's limited partner
interest in the joint venture is now reflected at a -0- value as of December 31,
2003. Any additional losses passed through from the partnership will be
recorded as an increase to the allowance against the Note Receivable.
The Company is currently actively pursuing sale of its investment in Florida
N-Viro, L.P., which may provide, in management's opinion, additional funds to
finance the Company's cash requirements. Because these efforts are still in
progress, there can be no assurance the Company will successfully complete these
negotiations.
Condensed financial information of the partnership as of December 31, 2003 and
2002 is as follows:
2003 2002
----------- ----------
Current assets. . . . $ 576,499 $ 624,843
Long-term assets. . . 711,278 1,928,495
----------- ----------
$1,287,777 $2,553,338
Current liabilities . $1,464,216 $1,537,744
Long-term liabilities 14,251 62,467
Partners' equity. . . (190,690) 953,127
----------- ----------
$1,287,777 $2,553,338
Year Ended December 31,
2003 2002 2001
------------ ------------ -----------
Net sales $ 2,458,270 $3,135,465 $2,930,294
Net loss. (1,143,817) (72,636) (288,168)
NOTE 2. BALANCE SHEET DATA (CONTINUED)
INVESTMENT IN FLORIDA N-VIRO, L.P. (CONTINUED):
During 2003, 2002 and 2001, the Partnership's largest customer accounted for
19%, 29% and 19%, respectively, of its revenue. Additionally, during 2003, 2002
and 2001, the Partnership's largest customers accounted for 73% (four
customers), 60% (three customers) and 59% (four customers) of total revenue,
respectively.
INTANGIBLE AND OTHER ASSETS:
2003 2002
--------------- ------------
Patents and related intangibles, less accumulated
amortization (2003 - $483,900; 2002 - $399,300). . . . . . $ 755,081 $ 774,324
Territory rights, less accumulated amortization
(2003 - $258,800; 2002 - $202,800) 427,091 483,060
Loan costs, less accumulated amortization ($6,865 in 2003
and $-0- in 2002). . . . . . . . . . . . . . . . . . . . . 23,135 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,518 10,000
--------------- ------------
$ 1,209,825 $ 1,267,384
ACCRUED LIABILITIES:
2003 2002
-------- --------
Employee benefits $147,758 $137,313
Sales tax payable 176,422 175,661
Interest payable. 83,452 12,782
Other payable . . 11,745 44,495
-------- --------
$419,377 $370,251
NOTE 3. PLEDGED ASSETS, LINE-OF-CREDIT AND LONG-TERM DEBT
In February 2003 the Company closed on an $845,000 credit facility with a local
bank (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 plus
1.5% and secured by a first lien on all assets of the Company. The Company used
the funds to refinance its prior debt and to provide working capital.
Previously, the Company had a $750,000 line of credit with another financial
institution, secured by a $400,000 restricted Certificate of Deposit, required
and held by this financial institution. Effectively, the former line of credit
provided only $350,000 of additional working capital. The effective increase in
the line provided the Company with additional working capital, and the debt
refinance provided lower cost and longer term debt, improving cash flow. To
secure the credit facility, the Company was required by the Bank to obtain
additional collateral of $100,000 (the "Additional Collateral") from a real
estate mortgage from a third party. Messrs. J. Patrick Nicholson, the former
Chairman of the Board and Consultant to the Company; Michael G. Nicholson, the
Company's Chief Operating Officer and a Director; Robert F. Nicholson, a Company
employee, and Timothy J. Nicholson, a Company employee, ("the Nicholsons")
collectively provided the $100,000 Additional Collateral. In exchange for their
commitment, the Company agreed to provide the Nicholsons the following: (1) an
annual fee in an amount equal to $2,000 per annum; (2) interest at an annual
rate of 5% of the $100,000 value of the Additional Collateral beginning on the
first anniversary date of the closing of the credit facility, and (3) a warrant
to acquire in the aggregate, 50,000 shares of the Company's voting common stock
at a purchase price of $0.90 per share, which was the closing market price of
the Company's common stock on the prior business day to the closing of the
Credit Facility. The warrant was exercisable, in whole or in part, at any time
and from time to time until February, 2006. In addition, the Company granted to
the Nicholsons a lien upon the Company's inventory and accounts receivable.
This lien is subordinated to both existing liens on the Company's assets and all
liens granted by the Company in favor of the financial institution providing the
Credit Facility. At December 31, 2003, the Company had borrowed $398,223
against the line. In February, 2004, the Nicholsons exercised the warrant and
acquired 50,000 of the Company's common stock at a purchase price of $0.90 per
share.
The Company was in violation of financial covenants governing the credit
facility, concerning the maintenance of both a tangible net worth amount and
positive debt service coverage ratio for the period, both of which require
positive earnings. The Bank waived this violation in light of the Company's net
loss for the year ended December 31, 2003, but required additional consideration
in exchange for this waiver. In January 2004, the Company obtained a
certificate of deposit in the amount of $75,000 with the Bank, and transferred
custodianship of its treasury stock to the Bank. In February, 2004, the Company
renewed its line of credit with the Bank through April, 2004, and in April 2004
it was renewed again through October, 2004. As part of this renewal, the Bank
decreased the maximum amount available to borrow on the line to $400,000.
Long-term debt at December 31, 2003 and 2002 is as follows:
2003 2002
----------- ----------
Notes payable . . . . . $654,504 $818,816
Less current maturities 259,782 392,078
---------- ----------
$394,722 $426,738
The notes payable are notes signed for amounts owed to vendors and other
parties. The notes bear interest ranging from 6% to 19.35% (with a weighted
average interest rate of 6.9% as of December 31, 2003) and are due at varying
dates through March 2007. Included in notes payable is $45,191 in installment
notes secured by equipment and $572,292 secured by the general assets of the
Company. The remainder of the notes are unsecured. Aggregate maturities of
long-term debt for the years ending December 31 are as follows: 2004 - $259,782;
2005 - $172,105; 2006 - $179,091 and 2007 - $43,526. Interest paid was
approximately $75,300, $54,000 and $55,300 for the years ended December 31,
2003, 2002 and 2001, respectively.
NOTE 4. EQUITY TRANSACTIONS
The Company has authorized 2,000,000 shares of preferred stock, par value of
$.01 per share, of which one share and -0- shares were outstanding at December
31, 2003 and 2002, respectively. In 2003, the Board authorized the creation of
a class of Series A Preferred Stock of the Company, $0.01 par value, one share
of which was issued to Mr. J. Patrick Nicholson, in connection with the
Settlement Agreement described in Note 6. The holder of the Preferred Stock has
the right to elect one member to the Board. The holder always shall be Mr.
Nicholson as the Series A Preferred Stock is non-transferable. Furthermore, the
Series A Preferred Stock has a term equal to ten years, and the right to appoint
a Director is subject to cancellation if Mr. Nicholson ceases to control at
least 17.5% of the aggregate number of shares of the Company's voting, common
stock issued and outstanding as a result of his actions. The Series A Preferred
Stock does not have a liquidation preference, and the issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act or Regulation D
promulgated thereunder, as a transaction not involving a public offering.
The Company has a stock option plan for directors and key officers under which
600,000 shares of common stock may be issued. The options are 20% vested on the
date of grant, with the balance vesting 20% per year over the next four years
except for directors whose options vest immediately, but can not be exercised
until six months from the date of grant. Options have been granted at the
approximate market value of the stock at date of grant. In the fourth quarter
of 2003, two optionees exercised a total of 12,900 options at a weighted average
option price of $1.91.
The following summarizes the number of grants and their respective exercise
prices and grant date fair values per option for the years ended December 31,
2003, 2002 and 2001 and the number outstanding and exercisable at those dates:
2003 2002 (restated) 2001
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ------- --------- --------- --------
Outstanding, beginning of year . . . . . . 578,025 $ 2.46 567,525 $ 2.49 516,325 $2.69
Granted. . . . . . . . . . . . . . . . . . - - 10,500 0.91 93,200 1.50
Expired during the year. . . . . . . . . . (65,650) 3.36 - (42,000) 2.72
Outstanding, end of year . . . . . . . . . 512,375 2.35 578,025 2.46 567,525 2.49
---------- -------- -------
Eligible for exercise at end of year . . . 466,075 499,225 403,425
Weighted average fair value per option for
options granted during the year. . . . . . $ - $ 1.07 $ 1.50
NOTE 4. EQUITY TRANSACTIONS (CONTINUED)
A further summary of stock options follows:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
2003
---------------------------------------------------------------------------
Range of exercise prices:
0.91 to $2.43 . . . . . . 448,200 5.42 $ 1.99 409,900 $ 2.03
4.00 to $5.00 . . . . . . 64,175 5.05 4.87 56,175 4.85
------------------- -----------
512,375 466,075
2002 - restated
- -------------------------------------------------------------------------------------------------------
Range of exercise prices:
0.91 to $2.43 . . . . . . 469,100 6.45 $ 1.98 412,200 $ 2.06
4.00 to $5.00 . . . . . . 108,925 3.77 4.52 87,025 4.40
------------------- -----------
578,025 499,225
2001
- -------------------------------------------------------------------------------------------------------
Range of exercise prices:
1.50 to $2.43 . . . . . . 458,600 7.37 $ 2.01 324,100 $ 2.09
4.00 to $5.00 . . . . . . 108,925 4.77 4.52 79,325 4.35
------------------- -----------
567,525 403,425
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As permitted under accounting principles generally accepted in the United States
of America, the Company's present accounting with respect to the recognition and
measurement of stock-based employee compensation costs is in accordance with APB
Opinion No. 25, which generally requires that compensation costs be recognized
for the difference, if any, between the quoted market price of the stock at
grant date and the amount an employee must pay to acquire the stock. No
compensation cost was recognized under APB No. 25 for the years ended December
31, 2003, 2002 and 2001. The Company follows the disclosure provisions of SFAS
Statements No. 123 and No. 148 which prescribe a fair-value based method of
measurement that results in the disclosure of computed compensation costs for
essentially all awards of stock-based compensation to employees.
NOTE 4. EQUITY TRANSACTIONS (CONTINUED)
2003 2002 (as restated) 2001 (as restated)
------------ ------------------- -------------------
Loss from continuing operations:
Net loss as reported. . . . . . . . . . . . $(1,522,178) $ (14,379) $ (1,191,059)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects. . . . . . . . . . . 74,484 220,656 246,222
------------ ------------------- -------------------
Pro-forma net loss. . . . . . . . . . . . . (1,596,662) (235,035) (1,437,281)
Loss from continuing operations per
share (basic and diluted):
As reported . . . . . . . . . . . . . . . . $ (0.59) $ (0.01) $ (0.45)
Pro-forma . . . . . . . . . . . . . . . . . $ (0.62) $ (0.09) $ (0.55)
In determining the pro forma amounts above, the value of each grant is estimated
at the grant date using the fair value method prescribed in Statement No. 123,
with the following weighted-average assumptions for grants in 2003, 2002 and
2001, respectively: no assumed dividend rates for all years; risk-free interest
rates of 4.5%, 4.5% and 5.0% on expected lives of 10 years for all years; and
expected price volatility of 109%, 109% and 113%, respectively.
NOTE 5. REVENUE AND MAJOR CUSTOMERS
Revenues for the years ended December 31, 2003, 2002 and 2001 consist of the
following:
2003 2002 (as restated) 2001 (as restated)
---------- ------------------- -------------------
Facility management . $1,386,720 $ 1,872,722 $ 1,637,243
Technology fees . . . 681,036 767,228 925,245
Products and services 3,333,292 2,679,527 1,896,335
---------- ------------------- -------------------
$5,401,048 $ 5,319,477 $ 4,458,823
========== =================== ===================
NOTE 5. REVENUE AND MAJOR CUSTOMERS (CONTINUED)
Cost of revenues for the years ended December 31, 2003, 2002 and 2001 consist of
the following:
2003 2002 2001
---------- ---------- ----------
Facility management . $1,385,713 $1,527,754 $1,272,566
Technology fees . . . 171,728 143,628 183,294
Products and services 2,412,939 1,710,031 1,339,090
---------- ---------- ----------
$3,970,380 $3,381,413 $2,794,950
========== ========== ==========
Revenues for the years ended December 31, 2003, 2002 and 2001 include revenues
from one major customer, the City of Toledo, Ohio (included in the facility
management and products and services classifications), which represented
approximately 35%, 44% and 38%, respectively, of total revenues. In addition,
the Company had another major customer, WeCare Environmental Services, totaling
approximately 34%, 16% and 11% of total revenues (which is included mainly in
the products and services classification) for the years ended December 31, 2003,
2002 and 2001, respectively. The accounts receivable balances due (all of which
are unsecured) from these customers at December 31, 2003 and 2002 were
approximately $402,000 and $281,000, respectively.
A substantial portion of the Company's revenue is derived from services provided
under contracts and agreements with existing licensees. Some of these
contracts, especially those contracts with large municipalities, provide for
termination of the contract by the customer after giving relatively short notice
(in some cases as little as ten days). In addition, some of these contracts
contain liquidated damages clauses, which may or may not be enforceable in the
event of early termination of the contracts. If one or more of these contracts
are terminated prior to the expiration of its term, and the Company is not able
to replace revenues from the terminated contract or receive liquidated damages
pursuant to the terms of the contract, the lost revenue could have a material
and adverse effect on its business and financial condition.
NOTE 6. COMMITMENTS AND CONTINGENCIES
During 1999, the Company entered into employment and consulting agreements with
an officer of the Company, Dr. Terry J. Logan. The employment agreement will
expire in June 2004. Future compensation amounts are to be determined annually
by the Board. The consulting agreement begins upon termination of the
employment agreement and extends through July 2014, respectively. The agreement
requires Dr. Logan to provide minimum future services to be eligible for
compensation.
In August 2003, the Company entered into a Settlement Agreement with Mr. J.
Patrick Nicholson and negotiated a new consulting agreement. The new consulting
agreement will expire in August 2008, and Mr. Nicholson will be required to
provide future services to be eligible for compensation. Mr. Nicholson is 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 previously discussed. The details of this new agreement
were disclosed in a filing on August 29, 2003 on Form 8-K.
In the third quarter of 2003, the Company entered into an employment with
another officer of the Company, Michael G. Nicholson. The employment agreement
will expire in June 2007. 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.
The Company leases its executive and administrative offices in Toledo, Ohio.
The total minimum rental commitment for the years ending December 31, 2004
through 2006 is approximately $56,000 each year. The total rental expense
included in the statements of operations for the years ended December 31, 2003,
2002 and 2001 is approximately $57,100, $64,600 and $65,100, respectively. The
Company also leases various equipment on a month-to-month basis.
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.
The Company is involved in legal proceedings and subject to claims which have
arisen in the ordinary course of business. These actions, when concluded and
determined, will not, in the opinion of management, have a material adverse
effect upon the financial position, results of operations or cash flows of the
Company.
NOTE 7. INCOME TAX MATTERS
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the current period plus or minus
the change during the period in deferred tax assets and liabilities.
The composition of the deferred tax assets and liabilities at December 31, 2003
and 2002 is as follows:
2003 2002
------------ ------------
Gross deferred tax liability, accelerated
depreciation. . . . . . . . . . . . . . . $ (38,000) $ (700)
Gross deferred tax assets:
Loss carryforwards. . . . . . . . . . . . 4,881,700 4,492,700
Patent costs. . . . . . . . . . . . . . . 207,600 284,100
Florida N-Viro asset impairment . . . . . 200,000 -
Allowance for doubtful accounts . . . . . 22,400 16,000
Allowance for notes receivable. . . . . . 45,900 25,300
Property and equipment basis difference . 4,100 7,000
Litigation settlement - cost of warrants. 17,600 -
Other . . . . . . . . . . . . . . . . . . 18,600 16,700
Less valuation allowance. . . . . . . . . (5,359,900) (4,841,100)
------------ ------------
$ - $ -
============ ============
NOTE 7. INCOME TAX MATTERS (CONTINUED)
The income tax provisions differ from the amount of income tax determined by
applying the U.S. Federal income tax rate to pre-tax income from continuing
operations for the years ended December 31, 2003, 2002 and 2001 and are as
follows:
2003 2002 2001
---------- --------- ----------
Computed "expected" tax (credits). . . . . . . $(517,500) $(32,600) $(431,000)
State taxes, net of federal tax benefit. . . . (45,500) (2,900) (38,000)
(Decrease) increase in income taxes resulting
from:
Change in valuation allowance. . . . . . . . . 518,800 (28,900) 455,000
Other. . . . . . . . . . . . . . . . . . . . . 44,200 64,400 14,000
---------- --------- ----------
$ - $ - $ -
========== ========= ==========
The net operating losses available at December 31, 2003 to offset future taxable
income total approximately $12,200,000 and expire principally in years 2009 -
2023.
NOTE 8. CASH FLOWS INFORMATION
Information relative to the statements of cash flows not disclosed elsewhere for
the years ended December 31, 2003 and 2002 follows:
2003 2002
------- --------
Stock warrants issued as part of debt refinancing . . $30,000 $ -
======= ========
Fixed asset purchases financed with notes payable . . $34,000 $178,842
======= ========
Cost of warrants issued for SAMI settlement . . . . . $43,900 $ -
======= ========
Conversion of accounts receivable to notes receivable $97,448 $ -
======= ========
Loan forgiveness on office equipment purchase . . . . $ 5,165 $ -
======= ========
NOTE 9. SEGMENT INFORMATION
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 those described in Note
1 which contains the Company's significant accounting policies. Fixed assets
generating specific revenue are identified with their respective segments as
they 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 identified with the Corporate segment. The Company does
not allocate any selling, general and administrative expenses to any specific
segments. All of the other income (expense) costs or income 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. These segments represent both a significant amount of
business generated as well as a specific location and unique type of revenue.
The next two segments are divided between domestic and foreign sources, as these
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 three years and are not expected to change in the
near term.
The last segment is the Research and Development segment. This segment is
unlike any other segment in that revenue is generated as a result of a specific
project to conduct initial or additional ongoing research into the Company's
emerging technologies.
NOTE 9. SEGMENT INFORMATION (CONTINUED)
The table below presents information about the segment profits and segment
identifiable assets used by the chief operating decision makers of the Company
as of and for the years ended December 31, 2003, 2002 and 2001 (dollars in
thousands).
Other
Management Domestic Foreign Research &
Operations Operations Operations Development Total
2003
-----------------------------------------------------------
Revenues . . . . . . $ 1,880 $ 3,378 $ 51 $ 92 $5,401
Cost of revenues . . 1,385 2,503 - 82 3,970
Segment profits. . . 495 875 51 10 1,431
Identifiable assets. 353 83 - - 436
Depreciation . . . . 64 42 - - 106
2002 (as restated)
-----------------------------------------------------------
Revenues . . . . . . $ 2,340 $ 2,669 $ 50 $ 260 $5,319
Cost of revenues . . 1,528 1,732 2 119 3,381
Segment profits. . . 812 937 48 141 1,938
Identifiable assets. 340 108 - 44 492
Depreciation . . . . 41 44 - 6 91
2001 (as restated)
-----------------------------------------------------------
Revenues . . . . . . $ 1,727 $ 2,213 $ 222 $ 297 $4,459
Cost of revenues . . 1,273 1,206 132 184 2,795
Segment profits. . . 454 1,007 90 113 1,664
Identifiable assets. 184 87 - 51 322
Depreciation . . . . 31 71 - 7 109
NOTE 9. SEGMENT INFORMATION (CONTINUED)
A reconciliation of total segment profits, identifiable assets and depreciation
and amortization to the consolidated financial statements as of and for the
years ended December 31, 2003, 2002 and 2001 follows (dollars in thousands):
2003 2002 (as restated) 2001 (as restated)
-------- ------------------- -------------------
Segment profits:
Segment profits for reportable segments. . . . $ 1,431 $ 1,938 $ 1,664
Corporate selling, general and administrative
expenses and research and development costs. . (2,253) (1,877) (2,717)
Other income (expense) . . . . . . . . . . . . (700) (75) (138)
-------- ------------------- -------------------
Consolidated earnings before taxes . . . . . . $(1,522) $ (14) $ (1,191)
======== =================== ===================
Identifiable assets:
Identifiable assets for reportable segments. . $ 436 $ 492 $ 322
Corporate property and equipment . . . . . . . 32 67 158
Current assets not allocated to segments . . . 1,173 1,550 1,529
Intangible and other assets not allocated to
segments . . . . . . . . . . . . . . . . . . . 1,591 2,367 2,491
Consolidated eliminations. . . . . . . . . . . - (234) (234)
-------- ------------------- -------------------
Consolidated assets. . . . . . . . . . . . . . $ 3,232 $ 4,242 $ 4,266
======== =================== ===================
Depreciation and amortization:
Depreciation for reportable segments . . . . . $ 106 $ 91 $ 109
Corporate depreciation and amortization. . . . 157 162 155
-------- ------------------- -------------------
Consolidated depreciation and amortization . . $ 263 $ 253 $ 264
======== =================== ===================
NOTE 10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for the years
ended December 31, 2003 and 2002:
Quarters Ended
------------------------------------------------------------
March 31 June 30 September 30 December 31
---------------- ----------- -------------- -------------
2003
------------------------------------------------------------
Revenues . . . . . . . $ 1,245,269 $1,408,122 $ 1,408,921 $ 1,338,736
Operating loss . . . . (119,384) (297,640) (229,945) (175,375)
Net loss . . . . . . . (137,513) (384,560) (288,880) (711,225)
Basic and diluted loss
per share. . . . . . . $ (0.05) $ (0.15) $ (0.11) $ (0.28)
NOTE 10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
Quarters Ended
----------------------------------------------------------------
March 31 June 30 September 30 December 31
(as restated) (as restated) (as restated) (as restated)
---------------- -------------- -------------- --------------
2002
-------------------------------------------------------------------
Revenues. . . . . . . . . $ 1,435,233 $ 1,258,770 $ 1,503,465 $ 1,122,009
Operating income (loss) . 17,072 (131,536) 151,826 23,555
Net income (loss) . . . . 41,508 (108,017) 123,975 (71,845)
Basic and diluted income
(loss) per share. . . . . $ 0.01 $ (0.04) $ 0.05 $ (0.02)
NOTE 11. PRIOR PERIOD ADJUSTMENT
During the third quarter of 2003, the Company determined it had underbilled
a customer for certain services which resulted in an understatement of revenue
totaling approximately $214,000 and gross profit of approximately $194,000 over
a two and one-half year period beginning in the third quarter of 2000 and ending
in the fourth quarter of 2002. As a result, the Company has restated its
previously issued financial statements included herein and has recorded a prior
period adjustment to reduce, by $36,000, its accumulated deficit as of January
1, 2001. The Company previously reported net losses of $96,000, or $0.04 per
share, and $1,267,000, or $0.48 per share, for the years ended December 31, 2002
and 2001, respectively. The restatements resulted in the Company reporting a
net loss of $14,000, or $0.01 per share, and $1,191,000, or $0.45 per share, for
the years ended December 31, 2002 and 2001, respectively.
NOTE 12. 401(K) PLAN
The Company has a 401(k) plan covering substantially all employees which
provides for contributions in such amounts as the Board of Directors may
determine annually. Participating employees may also contribute a portion of
their annual compensation. There were no employer contributions for the years
ended December 31, 2003, 2002 and 2001.
NOTE 13. SUBSEQUENT EVENTS
Management of the Company expects improvements in operating results for
2004 as a result of lower administrative costs, along with realized and expected
new sources of revenue. Additionally, market developments and ongoing
discussions with companies in both the utility and wastewater industries could
provide enhanced liquidity and positively impact 2004 operations. There can be
no assurance that these developments will create sufficient funds to finance the
Company's operations.
On February 5, 2004 the Company closed on a Security Units Purchase
Agreement (the "Agreement") with Ophir Holdings, Inc ("Ophir"). This Agreement
is for the purchase of a minimum of $375,000 and a maximum of $750,000 worth of
N-Viro International Corporation common stock, at a price of $2.25 per share, or
a minimum of 166,667 or a maximum of 333,334 shares, respectively. The payments
were due on an installment basis, the first payment due within two days of the
signing of the Agreement, and ending on March 31, 2004. The stock is
non-registered, restricted shares and has been issued in reliance upon an
exemption from registration under the Securities and Exchange Act of 1933.
Certain limitations and rights have been provided for in the Agreement,
primarily regarding future private placements by the Company and registration
rights. Under this Agreement, to date the Company has received cash for the
purchase of $435,188 of common stock, or 193,417 shares.
N-VIRO INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. SUBSEQUENT EVENTS (CONTINUED)
During the first quarter of 2004, an additional 41,500 shares of common
stock were issued for stock options exercised, realizing total proceeds to the
Company of $66,117. Also during the first quarter of 2004, 50,000 warrants were
exercised jointly by J. Patrick Nicholson and three of his sons, Michael, Robert
and Timothy Nicholson, pursuant to the terms of an Agreement signed in February,
2003. These warrants were exercised at $0.90 per share, and the Company issued
unregistered common stock in exchange for the $45,000 in proceeds.
Also, during the first quarter of 2004 the Company issued 72,237 shares of
unregistered common stock to two trade creditors, eliminating $162,533 worth of
debt owed by the Company to such creditors. An additional 7,329 shares of
unregistered common stock was issued to Phillip Levin and Daniel Haslinger,
respectively, both members of the Board of Directors, in exchange for services
rendered to management incurred from April through December, 2003, for $9,000
each, or a total of $18,000.
On March 24, 2004, the Company announced in a Form 8-K that the Board of
Directors had approved a Rights Offering for the beneficial owners of its common
stock. The Company plans to issue one right to purchase one share of common
stock, for each ten shares of stock beneficially owned. The Rights, which are
being issued without registration, will be non-transferable and exercisable only
by the beneficial owners in whose names they are issued.
INDEPENDENT AUDITOR'S REPORT
Board of Directors
N-Viro International Corporation
Toledo, Ohio 43606
Our audit of the consolidated financial statements N-Viro International
Corporation and subsidiaries included Schedule II, contained herein, for the
year ended December 31, 2003. Such schedule is presented for purposes of
complying with the Securities and Exchange Commission's rule and is not a
required part of the basic consolidated financial statements. In our opinion,
this schedule presents fairly the information set forth therein, in conformity
with accounting principles generally accepted in the United States of America.
/s/ FOLLMER RUDZEWICZ PLC
FOLLMER RUDZEWICZ PLC
Southfield, Michigan
April 1, 2004
Report of Independent Public Accountants
----------------------------------------
To the Board of Directors
N-Viro International Corporation
Toledo, Ohio
Our audits of the consolidated financial statements of N-Viro International
Corporation and subsidiaries included Schedule II, contained herein, for each of
the two years in the period ended December 31, 2002. Such schedule is presented
for purposes of complying with the Securities and Exchange Commission's rule and
is not a required part of the basic consolidated financial statements. In our
opinion, such schedule presents fairly the information set forth therein, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ HAUSSER + TAYLOR LLC
HAUSSER + TAYLOR LLC
Cleveland, Ohio
March 19, 2003
N-VIRO INTERNATIONAL CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
December 31, 2003, 2002 and 2001
--------------------------------
Balance at Deductions Balance at
Beginning Charged to From Close
of Period Operations Reserves of Period
----------- ----------- ----------- -----------
Allowance for doubtful accounts - deducted
from trade receivables and notes receivable
in the balance sheets:
2003. . . . . . . . . . . . . . . . . . . . $ 103,200 $ 67,500 $ - $ 170,700 (3)
=========== =========== =========== ===========
2002. . . . . . . . . . . . . . . . . . . . $ 87,500 $ 15,700 $ - $ 103,200 (2)
=========== =========== =========== ===========
2001. . . . . . . . . . . . . . . . . . . . $ 144,564 $ - $ 57,500 (1) $87,500
=========== =========== =========== ===========
(1) The 2001 deduction from reserves was the result of the Company collecting
amounts due from certain customers that were previously reserved for.
(2) This includes $40,000 related to trade receivables and $63,200 related to
accrued interest on notes receivable.
(3) This includes $56,000 related to trade receivables and $114,700 related to
accrued interest on notes receivable.
31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of December 31, 2003, 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
December 31, 2003, 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.
There were no significant changes in our internal controls over financial
reporting during the quarter ended December 31, 2003 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
information under the heading "Election of Directors" and "Executive Officers of
the Company" in the definitive proxy statement of the Company for the 2004
Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
information under the heading "Executive Compensation" in the definitive proxy
statement of the Company for the 2004 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the
information under the heading "Security Ownership of Directors and Management"
in the definitive proxy statement of the Company for the 2004 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
information under the heading "Certain Relationship and Related Transactions" in
the definitive proxy statement of the Company for the 2004 Annual Meeting of
Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES
The information required by this Item is incorporated by reference to the
information under the heading "Independent Auditors" in the definitive proxy
statement of the Company for the 2004 Annual Meeting of Stockholders.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS ARE INCLUDED IN
PART II, ITEM 8:
Report of Independent Auditors F-3 - F-4
Consolidated balance sheets F-5 - F-6
Consolidated statements of operations F-7
Consolidated statements of stockholders' equity F-8
Consolidated statements of cash flows F-9
Notes to consolidated financial statements F-10 - F-29
(A) 2. THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN ITEM 15 (D):
Financial Statements of Subsidiaries not Consolidated.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
(A) 3. EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Registration Statement of the Registrant on Form
S-1 (Reg. No. 33-62766) (the "Registration Statement").)
3.2 Amended and Restated Certificate of Incorporation, dated June 17,
1998.#
3.3 Certificate of Designation of Series A Redeemable Preferred Stock,
dated August 27, 2003.#
3.4 Amendment to the Certificate of Incorporation of the Company, dated
November 13, 2003.#
3.5 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the Registration Statement).
3.6 Amendment to By-Laws of the Company, dated August 29, 2003.#
3.7 Amended and Restated By-Laws of the Company, dated November 13,
2003.#
10.1 The Amended and Restated N-Viro International Corporation Stock Option
Plan (incorporated by reference to Form S-8 filed May 9, 2000).*#
10.3 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 dated June 30, 1999).*#
10.4 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 dated June 6, 2003).*#
10.5 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 dated March 3, 2003).
10.6 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 dated
August 29, 2003).
10.7 Security Units Purchase Agreement dated January 30, 2004 between N-Viro
International Corporation and Ophir Holdings, Inc. (incorporated by reference to
Exhibit 99.1 to the Form 8-K dated February 5, 2004).
14.1 Code of Ethics##
21.1 List of subsidiaries of the Company.#
24.1 Powers of Attorney.#
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
#Only included in Form 10-K filed electronically with the
Securities and Exchange Commission
##To be filed as an exhibit to the definitive proxy statement of
the Company for the 2004 Annual Meeting of Stockholders.
*Indicates a management contract or compensatory plan or
arrangement.
(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K dated October 22, 2003, to
announce it had been notified by the Delaware Chancery Court that a date of
December 15, 2003 had been set to hold a hearing on the Company's proposed
settlement of a derivative action filed June 11, 2003 by Strategic Asset
Management, Inc., and to enter judgment on the settlement terms.
The Company filed a report on Form 8-K dated November 17, 2003 and
announced in a press release the results of voting and other events at the
Annual Stockholders meeting held on November 13, 2003.
(C) The exhibits listed in Item 15(a)(3) are either filed with this Form
10-K or incorporated by reference in accordance with Rule 12b-32 of the Exchange
Act.
(D) FINANCIAL STATEMENTS OF SUBSIDIARIES NOT CONSOLIDATED
FLORIDA N-VIRO, L.P.
----------------------
Table of Contents
-------------------
Page
----
Independent Auditor's Report
Balance Sheets
Statement of Income (Loss) and Partners' Capital
Statement of Cash Flows
Notes to Financial Statements
March 9, 2004
INDEPENDENT AUDITOR'S REPORT
To the Partners
Florida N-Viro, L.P.
West Chester, Pennsylvania
I have audited the accompanying balance sheets of Florida N-Viro, L.P., (a
Limited Partnership), as of December 31, 2003 and 2002, and the related
statements of income (loss) and partners' capital, and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Florida N-Viro, L.P. as of December
31, 2003 and 2002, and the results of operations and cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
JMC/rb
/s/ Joseph M. Cahill, Ltd.
FLORIDA N-VIRO, L.P.
--------------------
Balance Sheets
--------------
December 31, 2003 and 2002
--------------------------
ASSETS
------
2003 2002
---------- ----------
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 305,114 $ 149,155
Accounts Receivable (less reserve for doubtful accounts of $7,500 in 2003 and 2002) 247,127 433,744
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,258 41,944
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576,499 624,843
---------- ----------
Property and Equipment
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,163 147,163
Site improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,007 282,007
Building. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,189,682 1,189,682
Operating equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,244,595 1,244,595
Furniture and fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,565 12,565
2,876,012 2,876,012
---------- ----------
Less Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,164,734 947,517
---------- ----------
Total Property and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 711,278 1,928,495
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,287,777 $2,553,338
The accompanying notes are an integral part of these financial statements.
FLORIDA N-VIRO, L.P.
--------------------
Balance Sheets
--------------
December 31, 2003 and 2002
--------------------------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
2003 2002
----------- ----------
Current Liabilities:
Payables:
Trade . . . . . . . . . . . . . . $ 38,047 $ 93,472
Notes payable - current . . . . . . 48,216 47,731
Notes payable - related party . . . 1,234,984 1,182,539
Accrued expenses. . . . . . . . . . 142,969 214,002
----------- ----------
Total Current Liabilities . . . . . . 1,464,216 1,537,744
Long-term Liabilities:
Notes Payable . . . . . . . . . . . . 14,251 62,467
----------- ----------
Total Liabilities . . . . . . . . . . 1,478,467 1,600,211
Partners' Capital . . . . . . . . . . (190,690) 953,127
----------- ----------
Total Liabilities and Partners' Capital $1,287,777 $2,553,338
The accompanying notes are an integral part of these financial statements.
FLORIDA N-VIRO, L.P.
--------------------
Statements of Income(Loss) and Partners' Capital
------------------------------------------------
For the years ended December 31, 2003 and 2002
----------------------------------------------
2003 2002
------------ -----------
Revenues . . . . . . . . . . . . . . $ 2,458,270 $3,135,465
Cost of sales. . . . . . . . . . . . 2,238,579 2,774,725
------------ -----------
Gross profit (loss). . . . . . . . 219,691 360,740
Selling, general and administrative. 225,142 335,363
------------ -----------
Income (loss) from operations. . . . (5,451) 25,377
Other income (expense):
Interest income. . . . . . . . . . 180 122
Loss on impairment . . . . . . . . (1,062,430) -
Gain (loss) on sale of assets. . . - (8,335)
Interest expense . . . . . . . . . (76,116) (89,800)
------------ -----------
Total other income (expense) . . . . (1,138,366) (98,013)
------------ -----------
Net Income (loss). . . . . . . . . . (1,143,817) (72,636)
Beginning partners' capital. . . . . 953,127 1,025,763
------------ -----------
Ending partners' capital . . . . . . $ (190,690) $ 953,127
============ ===========
The accompanying notes are an integral part of these financial statements.
FLORIDA N-VIRO, L.P.
--------------------
Statements of Cash Flows
------------------------
For the years ended December 31, 2003 and 2002
----------------------------------------------
2003 2002
------------ ----------
Cash flows from operating activities
Net income (loss) . . . . . . . . . . . . . . . . . $(1,143,817) $ (72,636)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation. . . . . . . . . . . . . . . . . . . . 154,787 175,192
(Gain) loss on sale of assets . . . . . . . . . . . - 8,335
Loss on impairment. . . . . . . . . . . . . . . . . 1,062,430 -
(Increase) decrease in:
Accounts receivable-trade . . . . . . . . . . . . . 186,617 34,314
Prepaid expenses. . . . . . . . . . . . . . . . . . 17,686 117,961
Increase (decrease) in:
Accounts payable-trade. . . . . . . . . . . . . . . (55,425) (244,328)
Accounts payable-related party. . . . . . . . . . . - -
Accrued expenses. . . . . . . . . . . . . . . . . . (71,033) 14,584
------------ ----------
Net cash provided (used) by
operating activities. . . . . . . . . . . . . . . 151,245 33,422
Cash flows from investing activities:
Proceeds from the sale of assets. . . . . . . . . . - 9,322
Purchase of property and equipment. . . . . . . . . - (8,313)
------------ ----------
Net cash provided (used) by
investing activities. . . . . . . . . . . . . . . - 1,009
Cash flows from financing activities:
Proceeds from new borrowings. . . . . . . . . . . . 52,445 173,867
Payments on long-term debt. . . . . . . . . . . . . (47,731) (64,199)
------------ ----------
Net cash provided (used) by
financing activities. . . . . . . . . . . . . . . . 4,714 109,668
------------ ----------
Net increase (decrease) in cash and cash equivalents. 155,959 144,099
Cash and cash equivalents at beginning of year. . . . 149,155 5,056
------------ ----------
Cash and cash equivalents at end of year. . . . . . . $ 305,114 $ 149,155
============ ==========
Supplemental disclosure for cash flows
Interest Paid . . . . . . . . . . . . . . . . . . . . $ 53,690 $ 14,146
============ ==========
The accompanying notes are an integral part of these financial statements.
FLORIDA N-VIRO, L.P.
--------------------
Notes to Financial Statements
-----------------------------
December 31, 2003 and 2002
--------------------------
Note A - Background
- ----------------------
Business Activities - Florida N-Viro, L.P. was formed January 1, 1996 as a
-------------------
Delaware Limited Partnership under the Delaware Revised Limited Partnership Act.
The Partnership has entered into a patent and technology agreement with N-Viro
International Corporation for the exclusive, royalty free, use in Florida of
certain systems/processes for the treatment and remediation of wastewater
sludge. The Partnership operates from its Ft. Meade and Volusia, Florida
facilities.
The Partnership consists of one general partner, Florida N-Viro Limited
Liability Corporation, a Delaware limited liability corporation, and two limited
partners: VFL Technology Corporation and N-Viro International Corporation. The
general partner is a limited liability corporation that has limited resources
and is responsible for the liabilities of the partnership beyond the capital
contributed by the limited partners.
The Partnership agreement terminates on December 31, 2026.
Note B - Summary of Accounting Principles
- -----------------------------------------------
1. Method of Accounting and Use of Estimates - The financial statements are
------------------------------------------
prepared using the accrual basis of accounting. Generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could defer from the estimates.
2. Cash and Cash Equivalents - The Partnership considers all short-term
----------------------------
investments with an original maturity of three months or less to be cash
equivalents.
3. Property and Equipment - Property and equipment, carried at cost, are
------------------------
depreciated over the estimated useful life of the related assets. Depreciation
is computed principally by the straight-line method. The estimated useful lives
used in computing depreciation are summarized as follows:
FLORIDA N-VIRO, L.P.
--------------------
Notes to Financial Statements (continued)
-----------------------------------------
Years of Useful Life
Operating equipment. . 5-10
Furniture and fixtures 5-7
Site improvements. . . 15
Buildings. . . . . . . 39
Depreciation amounted to $150,780 and $175,192 for 2003 and 2002,
respectively.
Maintenance, repairs and expenditures for renewals and betterments not
determined to extend the useful life or to increase materially the productivity
of the properties to which they are applied are charged to income as incurred.
Other renewals and betterments are capitalized.
It is the policy of the Partnership generally to eliminate from the
accounts the cost and related allowances for depreciation applicable to assets
retired or otherwise disposed of, charging or crediting to income the
differences between depreciation cost and the proceeds of sale or salvage.
4. Income Taxes - No provision for income taxes is required since the
-------------
partners report their proportionate share of partnership taxable income or loss
on their respective income tax returns. Such income or losses are
proportionately allocated to the partners based upon their ownership interests.
5. Advertising - The Partnership follows the policy of charging the costs
-----------
of advertising to expense as incurred.
Advertising expense is $7,616 and $6,076 for 2003 and 2002, respectively.
Note C - Related Parties
- ----------------------------
The Partnership had sales to a partner of $422,130 and $483,837 in 2003 and
2002, respectively.
The Partnership has a revolving credit loan agreement with a partner and the
note balances were $534,984 and $482,539 as of December 31, 2003 and 2002. The
interest rate charged on the outstanding balance is prime plus 1/4%. The
Partnership also has on demand notes payable to partners of $240,000 at an
interest rate of 9-3/4% and $460,000 of notes payable at an interest rate of
prime plus 1/4%.
FLORIDA N-VIRO, L.P.
--------------------
Notes to Financial Statements (continued)
-----------------------------------------
The Partnership rents equipment and personnel from a partner in the normal
course of business. In 2003 and 2002, the equipment and personnel expenses were
$160,977 and $204,462.
Note D - Concentration of Credit Risk
- -------------------------------------------
In the normal course of business, the Partnership extends credit to customers
principally in the State of Florida. The Partnership has an allowance for
doubtful accounts of $7,500 for the years 2003 and 2002.
The Partnership conducts a major portion of its business with several customers.
For the year ended December 31, 2003, four customers accounted for 73% of total
revenue. For 2002, three customers accounted for 60% of revenue.
The Partnership maintains its operating checking account at a bank located
in Southeastern Pennsylvania. The balance in this account may at times exceed
the federally insured limit of $100,000.
NOTE E - LONG-TERM NOTES PAYABLE
- -------------------------------------
Long-term notes payable consist of the following:
2003 2002
------- --------
10.007% Note payable to bank, monthly
payments of $2,445, including interest, secured
by equipment, due June 2005. . . . . . . . . . . 40,710 64,661
10.257% Note payable to bank, monthly
payments of $2,279, including interest, secured
by equipment, due October 2004 . . . . . . . . . 21,757 45,537
------- --------
Total Long Term Debt . . . . . . . . . . . . . . $62,467 $110,198
Less current maturities. . . . . . . . . . . . . 48,216 47,731
------- --------
$14,251 $ 62,467
Maturities of Long Term Debt are as follows:
2004. . 48,216
2005. . 14,251
62,467
FLORIDA N-VIRO, L.P.
--------------------
Notes to Financial Statements (continued)
-----------------------------------------
Note F - Lease Commitments
- ------------------------------
The Partnership leases various equipment under operating leases that expire at
various times through the year 2006.
The following is a schedule detailing future minimum lease payments:
Year Ended December 31
-------------------------
2004 23,198
2005 19,680
2006 3,280
$ 46,158
E-13
Note G - Working Capital Deficiency
- ----------------------------------------
The Partnership's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Partnership
has incurred losses over the past years and has working capital deficiencies as
of December 31, 2003 and 2002.
Management believes that actions presently being taken to expand the customer
base and revenues and for the partners to provide additional working capital
when needed, will provide the opportunity for the Partnership to continue as a
going concern.
Note H - Impairment Loss
- ----------------------------
During 2003, operating equipment, site improvements, and a building located at
the Company's Fort Meade, Florida site were deemed to be impaired and written
down to their fair value. Fair value, which was determined by reference to the
current market prices for similar assets, exceeded their carrying value by
$1,062,430. An impairment loss of that amount, included in other expenses, has
been charged to operations in 2003.
FLORIDA N-VIRO, L.P.
----------------------
Table of Contents
-------------------
Page
Independent Auditor's Report . . . . . . . . . . E-10
Balance Sheets . . . . . . . . . . . . . . . . . E-11-12
Statement of Income (Loss) and Partners' Capital E-13
Statement of Cash Flows. . . . . . . . . . . . . E-14
Notes to Financial Statements. . . . . . . . . . E-15-18
February 18, 2003
INDEPENDENT AUDITOR'S REPORT
To the Partners
Florida N-Viro, L.P.
West Chester, Pennsylvania
I have audited the accompanying balance sheets of Florida N-Viro, L.P., (a
Limited Partnership), as of December 31, 2002 and 2001, and the related
statements of income (loss) and partners' capital, and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Florida N-Viro, L.P. as of December
31, 2002 and 2001, and the results of operations and cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
JMC/rb
/s/ Joseph M. Cahill, Ltd.
- ------
FLORIDA N-VIRO, L.P.
--------------------
Balance Sheets
--------------
December 31, 2002 and 2001
--------------------------
ASSETS
------
2002 2001
---------- ----------
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 149,155 $ 5,056
Accounts Receivable (less reserve for doubtful accounts of $7,500 in 2002) 433,744 468,058
Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,944 159,905
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 624,843 633,019
---------- ----------
Property and Equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,163 147,163
Site improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,007 312,517
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,189,682 1,183,169
Operating equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,244,595 1,242,795
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . 12,565 13,215
2,876,012 2,898,859
---------- ----------
Less Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . . . 947,517 785,827
---------- ----------
Total Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . 1,928,495 2,113,032
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,553,338 $2,746,051
The accompanying notes are an integral part of these financial statements.
FLORIDA N-VIRO, L.P.
--------------------
Balance Sheets
--------------
December 31, 2002 and 2001
--------------------------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
2002 2001
---------- ----------
Current Liabilities:
Payables:
Trade . . . . . . . . . . . . . . $ 93,472 $ 337,800
Notes payable - current . . . . . . 47,731 64,199
Notes payable - related party . . . 1,182,539 1,008,672
Accrued expenses. . . . . . . . . . 214,002 199,419
---------- ----------
Total Current Liabilities . . . . . . 1,537,744 1,610,090
Long-term Liabilities:
Notes Payable . . . . . . . . . . . . 62,467 110,198
---------- ----------
Total Liabilities . . . . . . . . . . 1,600,211 1,720,288
Partners' Capital . . . . . . . . . . 953,127 1,025,763
---------- ----------
Total Liabilities and Partners' Capital $2,553,338 $2,746,051
The accompanying notes are an integral part of these financial statements.
FLORIDA N-VIRO, L.P.
--------------------
Statements of Income(Loss) and Partners' Capital
------------------------------------------------
For the years ended December 31, 2002 and 2001
----------------------------------------------
2002 2001
----------- -----------
Revenues . . . . . . . . . . . . . . $3,135,465 $2,930,294
Cost of sales. . . . . . . . . . . . 2,774,725 2,839,116
----------- -----------
Gross profit (loss). . . . . . . . 360,740 91,178
Selling, general and administrative. 335,363 300,118
----------- -----------
Income (loss) from operations. . . . 25,377 (208,940)
Other income (expense):
Interest income. . . . . . . . . . 122 5
Gain (loss) on sale of assets. . . (8,335) (2,860)
Interest expense . . . . . . . . . (89,800) (76,343)
----------- -----------
Total other income (expense) . . . . (98,013) (79,228)
----------- -----------
Net Income (loss). . . . . . . . . . (72,636) (288,168)
----------- -----------
Beginning partners' capital. . . . . 1,025,763 1,313,931
Ending partners' capital . . . . . . $ 953,127 $1,025,763
=========== ===========
The accompanying notes are an integral part of these financial statements.
FLORIDA N-VIRO, L.P.
--------------------
Statements of Cash Flows
------------------------
For the years ended December 31, 2002 and 2001
----------------------------------------------
2002 2001
---------- ----------
Cash flows from operating activities
Net income (loss) . . . . . . . . . . . . . . . . . $ (72,636) $(288,168)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation. . . . . . . . . . . . . . . . . . . . 175,192 183,891
(Gain) loss on sale of assets . . . . . . . . . . . 8,335 2,890
(Increase) decrease in:
Accounts receivable-trade . . . . . . . . . . . . . 34,314 (112,963)
Prepaid expenses. . . . . . . . . . . . . . . . . . 117,961 (134,118)
Increase (decrease) in:
Accounts payable-trade. . . . . . . . . . . . . . . (244,328) (16,855)
Accounts payable-related party. . . . . . . . . . . - 108,599
Accrued expenses. . . . . . . . . . . . . . . . . . 14,584 35,174
---------- ----------
Net cash provided (used) by
operating activities. . . . . . . . . . . . . . . 33,422 (221,550)
Cash flows from investing activities:
Proceeds from the sale of assets. . . . . . . . . . 9,322 8,367
Purchase of property and equipment. . . . . . . . . (8,313) (37,356)
---------- ----------
Net cash provided (used) by
investing activities. . . . . . . . . . . . . . . 1,009 (28,989)
Cash flows from financing activities:
Proceeds from new borrowings. . . . . . . . . . . . 173,867 360,000
Payments on long-term debt. . . . . . . . . . . . . (64,199) (111,174)
---------- ----------
Net cash provided (used) by
financing activities. . . . . . . . . . . . . . . . 109,668 248,826
---------- ----------
Net increase (decrease) in cash and cash equivalents. 144,099 (1,713)
Cash and cash equivalents at beginning of year. . . . 5,056 6,769
---------- ----------
Cash and cash equivalents at end of year. . . . . . . $ 149,155 $ 5,056
========== ==========
Supplemental disclosure for cash flows
Interest Paid . . . . . . . . . . . . . . . . . . . . $ 14,146 $ 20,220
========== ==========
The accompanying notes are an integral part of these financial statements.
FLORIDA N-VIRO, L.P.
--------------------
Notes to Financial Statements
-----------------------------
December 31, 2002 and 2001
--------------------------
Note A - Background
- ----------------------
Business Activities - Florida N-Viro, L.P. was formed January 1, 1996 as a
-------------------
Delaware Limited Partnership under the Delaware Revised Limited Partnership Act.
The Partnership has entered into a patent and technology agreement with N-Viro
International Corporation for the exclusive, royalty free, use in Florida of
certain systems/processes for the treatment and remediation of wastewater
sludge. The Partnership operates from its Ft. Meade and Volusia, Florida
facilities.
The Partnership consists of one general partner, Florida N-Viro Limited
Liability Corporation, a Delaware limited liability corporation, and two limited
partners: VFL Technology Corporation and N-Viro International Corporation. The
general partner is a limited liability corporation that has limited resources
and is responsible for the liabilities of the partnership beyond the capital
contributed by the limited partners.
The Partnership agreement terminates on December 31, 2026.
Note B - Summary of Accounting Principles
- -----------------------------------------------
1. Method of Accounting and Use of Estimates - The financial statements are
------------------------------------------
prepared using the accrual basis of accounting. Generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could defer from the estimates.
2. Cash and Cash Equivalents - The Partnership considers all short-term
----------------------------
investments with an original maturity of three months or less to be cash
equivalents.
3. Property and Equipment - Property and equipment, carried at cost, are
------------------------
depreciated over the estimated useful life of the related assets. Depreciation
is computed principally by the straight-line method. The estimated useful lives
used in computing depreciation are summarized as follows:
FLORIDA N-VIRO, L.P.
--------------------
Notes to Financial Statements (continued)
-----------------------------------------
Years of Useful Life
Operating equipment. . 5-10
Furniture and fixtures 5-7
Site improvements. . . 15
Buildings. . . . . . . 39
Depreciation amounted to $175,192 and $183,891 for 2002 and 2001,
respectively.
Maintenance, repairs and expenditures for renewals and betterments not
determined to extend the useful life or to increase materially the productivity
of the properties to which they are applied are charged to income as incurred.
Other renewals and betterments are capitalized.
It is the policy of the Partnership generally to eliminate from the
accounts the cost and related allowances for depreciation applicable to assets
retired or otherwise disposed of, charging or crediting to income the
differences between depreciation cost and the proceeds of sale or salvage.
4. Income Taxes - No provision for income taxes is required since the
-------------
partners report their proportionate share of partnership taxable income or loss
on their respective income tax returns. Such income or losses are
proportionately allocated to the partners based upon their ownership interests.
5. Advertising - The Partnership follows the policy of charging the costs
-----------
of advertising to expense as incurred.
Advertising expense is $6,076 and $9,837 for 2002 and 2001, respectively.
Note C - Related Parties
- ----------------------------
The Partnership had sales to a partner of $483,837 and $36,879 in 2002 and
2001, respectively.
The Partnership has a revolving credit loan agreement with a partner and the
note balances were $482,539 and $308,672 as of December 31, 2002 and 2001. The
interest rate charged on the outstanding balance is prime plus 1/4%. The
Partnership also has on demand notes payable to partners of $240,000 at an
interest rate of 9-3/4% and $460,000 of notes payable at an interest rate of
prime plus 1/4%.
FLORIDA N-VIRO, L.P.
--------------------
Notes to Financial Statements (continued)
-----------------------------------------
The Partnership rents equipment and personnel from a partner in the normal
course of business. In 2002 and 2001, the equipment and personnel expenses were
$204,462 and $162,055.
Note D - Concentration of Credit Risk
- -------------------------------------------
In the normal course of business, the Partnership extends credit to customers
principally in the State of Florida. The Partnership has an allowance for
doubtful accounts of $7,500 for the year 2002.
The Partnership conducts a major portion of its business with several customers.
For the year ended December 31, 2002, three customers accounted for 60% of total
revenue. For 2001, four customers accounted for 59% of revenue.
The Partnership maintains its operating checking account at a bank located
in Southeastern Pennsylvania. The balance in this account may at times exceed
the federally insured limit of $100,000.
NOTE E - LONG-TERM NOTES PAYABLE
- -------------------------------------
Long-term notes payable consist of the following:
2002 2001
-------- --------
9.25% Note payable to bank, monthly payments
of $2,245, including interest, secured by
equipment, due August 2002 . . . . . . . . . . . - 17,355
10.007% Note payable to bank, monthly
payments of $2,445, including interest, secured
by equipment, due June 2005 . . . . . . . . . . 64,661 88,341
10.257% Note payable to bank, monthly
payments of $2,279, including interest, secured
by equipment, due October 2004. . . . . . . . . 45,537 68,701
-------- --------
Total Long Term Debt . . . . . . . . . . . . . . $110,198 $174,397
Less current maturities. . . . . . . . . . . . . 47,731 64,199
-------- --------
$ 62,467 $110,198
Maturities of Long Term Debt are as follows:
2003 . . 47,731
2004 . . 48,216
2005 . . 14,251
-------
110,198
=======
FLORIDA N-VIRO, L.P.
--------------------
Notes to Financial Statements (continued)
-----------------------------------------
Note F - Lease Commitments
- ------------------------------
The Partnership leases various equipment under operating leases that expire at
various times through the year 2006.
The following is a schedule detailing future minimum lease payments:
Year Ended December 31
-------------------------
2003. . 32,214
2004. . 23,198
2005. . 19,680
2006. . 3,280
-------
78,372
=======
E-23
Note G - Working Capital Deficiency
- ----------------------------------------
The Partnership's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Partnership
has incurred losses over the past years and has working capital deficiencies as
of December 31, 2002 and 2001.
Management believes that actions presently being taken to expand the customer
base and revenues and for the partners to provide additional working capital
when needed, will provide the opportunity for the Partnership to continue as a
going concern.
Note H - Reclassifications
- -----------------------------
Reclassifications occurred to certain prior year amounts in order to conform
with the current year classifications. The reclassifications have no effect on
reported net income.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: April 14, 2004
By: /s/ Terry J. Logan*
------------------------
Terry J. Logan, Chief Executive Officer and President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Dated: April 14, 2004
/s/ Terry J. Logan, Ph.D.* /s/ James K. McHugh
- ------------------------------ ----------------------
Terry J. Logan, Ph.D., Chief Executive Officer, James K. McHugh
President and Director Chief Financial Officer, Secretary and Treasurer
(Principal Executive Officer) (Principal Financial Officer)
/s/ Michael G. Nicholson* /s/ Phillip Levin*
- ---------------------------- --------------------
Michael G. Nicholson, Chief Operating Officer, Phillip Levin, Director
and Chairman of the Board
Senior Vice-President and Director
/s/ Daniel J. Haslinger* /s/ R. Francis DiPrete*
- --------------------------- --------------------------
Daniel J. Haslinger, Director R. Francis DiPrete, Director
/s/ Christopher Anderson* /s/ Brian Burns*
- --------------------------- ------------------
Christopher Anderson, Director Brian Burns, Director
Exhibit 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
N-VIRO INTERNATIONAL CORPORATION
We, J. Patrick Nicholson, Chairman of the Board, Chief Executive Officer
and President, and James K. McHugh, Chief Financial Officer, Secretary and
Treasurer, of N-Viro International Corporation, a Delaware corporation (the
"Corporation"), do hereby certify that, in accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), Title 8, Sections 103,
242 and 245 of the DGCL, the Corporation's Certificate of Incorporation, which
was originally filed on April 29, 1993, is hereby amended and restated in its
entirety to read as follows:
ARTICLE ONE
The name of the Corporation is N-Viro International Corporation.
ARTICLE TWO
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of
New Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware~
ARTICLE FOUR
The total number of all classes of stock which the Corporation shall have
authority to issue is nine million (9,000,000) shares, of which two million
(2,000,000) shares, designated as Preferred Stock, shall have a par value of One
Cent ($.01) per share (the "Preferred Stock"), and seven million (7,000,000)
shares, designated as Common Stock, shall have a par value of One Cent ($.01)
per share (the "Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
PREFERRED STOCK
- --------- -----
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. The designations, powers,
preferences and relative, optional, conversion and other special rights, and the
qualifications, limitations and restrictions thereof, of Preferred Stock of each
class or series shall be such as are stated and expressed herein and, to the
extent not stated and expressed herein, shall be such as may be fixed by the
Board of Directors (authority so to do being hereby expressly granted) and
stated and expressed in a resolution or resolutions adopted by the Board of
Directors providing for the issue of Preferred Stock of such class or series.
Such resolution or resolutions shall (a) specify the class or series to which
such Preferred Stock shall belong, (b) fix the dividend rate therefor, (c) fix
the amount which the holders of Preferred Stock of such class or series shall be
entitled to be paid in the event of a voluntary liquidation, dissolution or
winding up of the Corporation, (d) state whether or note Preferred Stock of such
class or series shall be redeemable and at what times and under what conditions
and the amount or amounts payable thereon in the event of redemption, (e) fix
the voting powers of the holders of Preferred Stock of such class or series,
whether full or limited, or without voting powers, but in no event shall the
holders of Preferred Stock of such class or series be entitled to more than one
vote for each share held at all meetings of the stockholders of the Corporation;
and may, in a manner not inconsistent with the provisions of this ARTICLE FOUR,
(i) limit the number of shares of such class or series which may be issued, (ii)
provide for a sinking or purchase fund for the redemption or purchase of shares
of such class or series and the terms and provisions governing the operation of
any such fund and the status as to reissuance of shares of Preferred Stock
purchased or otherwise reacquired or redeemed or retired through the operation
thereof, (iii) impose conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issue of additional Preferred Stock
or other capital stock ranking equally therewith or prior thereto as to
dividends or distribution of assets on liquidation, and (iv) grant such other
special rights to the holders of Preferred Stock of such class or series as the
Board of Directors may determine and which are not inconsistent with the
provisions of this ARTICLE FOUR. The term "fix for such class or series" and
similar terms shall mean stated and expressed in a resolution or resolutions
adopted by the Board of Directors providing for the issue of Preferred Stock of
the class or series referred to therein. No further action or vote of the
stockholders shall be required for any action taken by the Board of Directors
pursuant to this ARTICLE FOUR.
COMMON STOCK
- ------ -----
1. Dividends.
---------
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not exceeding
sixty (60) days preceding the dividend payment dates, as shall be fixed for such
purpose by the Board of Directors in advance of payment of each particular
dividend.
2. Liquidation.
-----------
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
ratably in proportion to the number of shares of Common Stock held by them
respectively.
3. Voting Rights.
------ ------
Except as otherwise required by law or as provided by the Board of
Directors with respect to any class or series of Preferred Stock, the entire
voting power and all voting rights shall be vested exclusively in the Common
Stock. Each holder of shares of Common Stock shall be entitled to one vote for
each share standing in his name on the books of the Corporation.
ARTICLE FIVE
1. Board of Directors.
--------- ---------
The number of Directors shall initially be nine (9). Without further action
or vote of the stockholders, the Directors shall have the power to increase the
number of Directors to twelve (12) by majority vote. The Directors shall be
classified with respect to the time for which they shall severally hold office
into three classes, with each class having as nearly equal number of Directors
as possible. At each annual meeting of stockholders, the successors to the Class
of Directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election and until their successors have been duly
elected and qualified. At each annual meeting of stockholders at which a quorum
is present, the persons receiving a plurality of the votes cast shall be
Directors. No Director or Class of Directors may be removed from office by a
vote of the stockholders at any time except for cause. Election of Directors
need not be by written ballot unless the By-Laws of the Corporation so provide.
2. Vacancies.
---------
Any vacancy on the Board of Directors resulting from death, retirement,
resignation, disqualification or removal from office or other cause, as well as
any vacancy resulting from an increase in the number of Directors which occurs
between annual meetings of the stockholders at which Directors are elected,
shall be filled only by a majority vote of the remaining Directors then in
office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The Directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders at which the term of the Class to which they
have been elected expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
Notwithstanding the foregoing, whenever the holders of one or more classes
or series of Preferred Stock shall have the right, voting separately, as a class
or series, to elect Directors, the election, term of office, filling of
vacancies, removal and other features of such Directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FOUR applicable thereto, and each Director so elected shall
not be subject to the provisions of this ARTICLE FIVE unless otherwise provided
therein.
3. Power to Makes Alter and Repeal By-Laws.
----- --------- ------------------ -------
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter and repeal the
By-Laws of the Corporation.
4. Amendment and Repeal of ARTICLE FIVE.
--------- --- ------ -- ------- ----
Notwithstanding any provision of this Amended and Restated Certificate of
Incorporation and of the By-Laws, and notwithstanding the fact that a lesser
percentage may be specified by Delaware law, unless such action has been
approved by a majority vote of the full Board of Directors, the affirmative vote
of sixty-six and two-thirds percent (66-2/3%) of the votes which all
stockholders of the then outstanding shares of capital stock of the Corporation
would be entitled to cast thereon, voting together as a single class, shall be
required to amend or repeal any provisions of this ARTICLE FIVE or to adopt any
provision inconsistent with this ARTICLE FIVE. In the event such action has been
previously approved by a majority vote of the full Board of Directors, the
affirmative vote of a majority of the outstanding stock entitled to vote thereon
shall be sufficient to amend or repeal any provision of this ARTICLE FIVE or.
adopt any provision inconsistent with this ARTICLE FIVE.
ARTICLE SIX
The Corporation reserves the right to amend, alter, change or repeal any
provision in this Amended and Restated Certificate of Incorporation, in the
manner now or- hereafter prescribed by statute.
ARTICLE SEVEN
No Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law (the "DGCL") or (iv) for any
transaction from which the Director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145 of
the DGCL, as the same may be amended and supplemented, indemnify each Director
and officer of the Corporation from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said Section and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders, vote of disinterested Directors or otherwise, and shall
continue as to a person who has ceased to be a Director or officer and shall
inure to the benefit of the heirs, executors and administrators of such persons
and the Corporation may purchase and maintain insurance on behalf of any
Director or officer to the extent permitted by Section 145 of the DGCL.
ARTICLE NINE
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under Section 279 of
Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on the Corporation.
ARTICLE TEN
Business Combination.
--------------------
(A) Special Vote by Stockholders. In addition to any affirmative vote
------------------------------
required by law or this Amended and Restated Certificate of Incorporation or the
Bylaws of the Corporation, and except as otherwise expressly provided in Section
10(B) of this Amended and Restated Certificate of Incorporation, a Business
Combination (as hereinafter defined) with, or proposed by or on behalf of, any
Interested Stockholder (as hereinafter defined) or any Affiliate or Associate
(as hereinafter defined) of any Interested Stockholder or any person who
thereafter would be an Affiliate or Associate of such Interested Stockholder
shall require the affirmative vote of not less than seventy-five percent (75%)
of the votes entitled to be cast by the holders of all the then outstanding
shares of Voting Stock (as hereinafter defined), voting together as a single
class, excluding Voting Stock beneficially owned by such Interested Stockholder.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage or separate class vote may be
specified, by law or in any agreement with any national securities exchange or
otherwise.
(B) Regular Vote by Stockholders. The provisions of Section 10(A) of
------- ----------------------
this Amended and Restated Certificate of Incorporation shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote, if any, as is required by law or by any
other provision of this Amended and Restated Certificate of Incorporation or the
Bylaws of the Corporation, or any agreement with any national securities
exchange, if the Business Combination shall have been approved either
specifically or as a transaction which is within an approved category of
transactions, by a majority (whether such approval is made prior to or
subsequent to the acquisition of, or announcement or public disclosure of the
intention to acquire, beneficial ownership of the Voting Stock that caused the
Interested Stockholder to become an Interested Stockholder) of the Continuing
Directors (as hereinafter defined).
(C) Definitions. The following definitions shall apply with respect to this
-----------
ARTICLE TEN:
(1) The term "Business Combination" shall mean: (i) any merger or
consolidation of the Corporation or any Subsidiary (as hereinafter defined) with
(x) any Interested Stockholder or (y) any other corporation (whether or not
itself an Interested Stockholder) which is or after such merger or consolidation
would be an Affiliate or Associate of an Interested Stockholder; (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition or security
arrangement, investment, loan, advance, guarantee, agreement to purchase,
agreement to pay, extension of credit, joint venture participation or other
arrangement (in one transaction or a series of transactions) with or for the
benefit of any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder which, together with all other such arrangements
(including all contemplated future events), has an aggregate Fair Market Value
and/or involves aggregate commitments of $500,000 or more or constitutes more
than ten percent (10%) of the book value of the total assets (in the case of
transactions involving assets or commitments other than Capital Stock (as
hereinafter defined)) or ten percent (10%) of the stockholders' equity (in the
case of transactions in Capital Stock) of the entity in question (the
"Substantial Part"), as reflected in the most recent fiscal year-end
consolidated balance sheet of such entity existing at the time the stockholders
of the Corporation would be required to approve or authorize the Business
Combination involving the assets, securities and/or commitments constituting any
Substantial Part; (iii) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation or for any amendment to the Corporation's
Bylaws or to this Amended and Restated Certificate of Incorporation proposed by
or on behalf of an Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder; (iv) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or otherwise involving an Interested
Stockholder) that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of any Subsidiary, that
is beneficially owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or (v) any agreement, contract or other
arrangement providing for any one or more of the actions specified in the
foregoing clauses (i) to (iv).
(2) The term "Capital Stock" shall mean all Capital Stock of the
Corporation authorized to be issued from time to time under ARTICLE FOUR of this
Amended and Restated Certificate of Incorporation, and the term "Voting Stock"
shall mean all Capital Stock which by its terms may be voted on all matters
submitted to stockholders of the Corporation generally.
(3) The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any person and any other
person with whom such person or any Affiliate or Associate of such person has
any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of Capital Stock.
(4) The term "Interested Stockholder" shall mean any person (other than
the Corporation or any Subsidiary and other than any profit-sharing, employee
stock ownership or other employee benefit plan of the Corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan when
acting in such capacity or any stockholder of the Corporation prior to the
adoption of this Amended and Restated Certificate of Incorporation) who (a) is
or has announced or publicly disclosed a plan or intention to become the
beneficial owner of Voting Stock representing ten percent (10%) or more of the
votes entitled to be cast by the holders of all then outstanding shares of
Voting Stock; or (b) is an Affiliate or Associate (other than any stockholder
prior to the adoption of this Amended and Restated Certificate of Incorporation)
of the Corporation and at any time within the two-year period immediately prior
to the date in question was the beneficial owner of Voting Stock representing
ten percent (10%) or more of the votes entitled to be cast by the holders of all
then outstanding shares of Voting Stock.
(5) A person shall be a "beneficial owner" of any Capital Stock (a)
which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time)
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or understanding; or
(c) which is beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Capital Stock. For the purpose of determining
whether a person is an Interested Stockholder pursuant to Section 10(C)(4) of
this Amended and Restated Certificate of Incorporation, the number of shares of
Capital Stock deemed to be outstanding shall include shares deemed beneficially
owned by such person through application of this Section 10(C)(5), but shall not
include any other shares of Capital Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(6) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 1 2b-2 under the Exchange Act as in
effect on the date of filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware (the term
"registrant" in said Rule 12b-2 meaning in this case the Corporation).
(7) The term "Subsidiary" means any company of which a majority of any
class of equity security is beneficially owned by the Corporation; provided,
--------
however that for purposes of the definition of Interested Stockholder set forth
in Section 10(C)(4) of this Amended and Restated Certificate of Incorporation,
the term "Subsidiary" shall mean only a company of which a majority of each
class of equity security is beneficially owned by the Corporation.
(8) The term "Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who is not
an Affiliate or Associate or representative of the Interested Stockholder and
was a member of the Board of Directors prior to the time that an Interested
Stockholder became an Interested Stockholder, and any successor of a Continuing
Director while such successor is a member of the Board of Directors, who is not
an Affiliate or Associate or representative of the Interested Stockholder and is
recommended or elected to succeed the Continuing Director by a majority of
Continuing Directors.
(9) The term "Fair Market Value" means (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a share
- -of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks,
or, if such stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on the New York Stock Exchange, on the
principal United States securities exchange registered, or, if such stock is not
listed on any such exchange, the highest closing bid quotation with respect to a
share of such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated Quotations
Systems or any similar system then in use, or, if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Continuing Directors in good faith; and
(c) in the case of property other than cash or stock, the Fair Market Value of
such property on the date in question as determined in good faith by a majority
of the Continuing Directors.
(D) Authority. A majority of the Continuing Directors shall have the power
---------
and duty to determine for the purpose of this ARTICLE TEN, on the basis of
information known to them after reasonable inquiry, all questions arising under
this ARTICLE TEN, including, without limitation, (i) whether a person is an
Interested Stockholder, (ii) the number of shares of Capital Stock or other
securities beneficially owned by any person, (iii) whether a person is an
Affiliate or Associate of another, (iv) whether a Proposed Action (as
hereinafter defined) is with, or proposed by, or on behalf of an Interested
Stockholder or an Affiliate or Associate of an interested Stockholder, (v)
whether the assets that are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by the
Corporation or any Subsidiary in any Business Combination has, an aggregated
Fair Market Value of $500,000 or more and (vi) whether the assets or securities
that are the subject of any Business Combination constitute a Substantial Part.
Any such determination made in good faith shall be binding and conclusive on all
parties.
(E) Fiduciary Obligation. Nothing contained in this ARTICLE TEN shall be
---------------------
construed to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
(F) Proposed Action. For the purposes of this ARTICLE TEN, a Business
----------------
Combination or any proposal to amend, repeal or adopt any provision of this
Amended and Restated Certificate of Incorporation inconsistent with this ARTICLE
TEN (collectively, "Proposed Action") is presumed to have been proposed by, or
on behalf of, an Interested Stockholder or a person who thereafter would become
such if (i) after the Interested Stockholder became such, the Proposed Action is
proposed following the election of any director of the Corporation who, with
respect to such Interested Stockholder, would not qualify to serve as a
Continuing Director or (ii) such Interested Stockholder, Affiliate, Associate or
person votes for or consents to the adoption of any such Proposed Action, unless
as to such Interested Stockholder, Affiliate, Associate or person, a majority of
the Continuing Directors makes a good-faith determination that such Proposed
Action is not proposed by or on behalf of such Interested Stockholder,
Affiliate, Associate or person, based on information known to them after
reasonable inquiry.
(G) Amendment. Notwithstanding any other provisions of this Amended and
---------
Restated Certificate of Incorporation or the Bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage or separate class vote may be
specified by law, this Amended and Restated Certificate of Incorporation or the
Bylaws of the Corporation), the affirmative vote of the holders of not less than
seventy-five percent (75%) of the votes entitled to be cast by the holders of
all the then outstanding shares of Voting Stock, voting together as a single
class, excluding Voting Stock beneficially owned by such Interested Stockholder,
shall be required to amend or repeal, or adopt any provisions inconsistent with,
this ARTICLE TEN; provided, however, that this Section 10(G) shall not apply to,
--------- -------
and such seventy-five percent (75%) vote shall not be required for, any
amendment, repeal or adoption unanimously recommended by the Board of Directors
if all of such directors are persons who would be eligible to serve as
Continuing Directors within the meaning of Section 10(C)(8) of this Amended and
Restated Certificate of Incorporation.
I, J. Patrick Nicholson, being the Chairman of the Board, Chief Executive
Officer and President of the Corporation, do hereby declare and certify that the
foregoing Amended and Restated Amended and Restated Certificate of Incorporation
was duly adopted in accordance with DGCL Sections 103, 242 and 245, at the
Annual Meeting of Stockholders of the Corporation held on June 2, 1998, and I
further state that the execution of the Amended and Restated Amended and
Restated Certificate of Incorporation is my own act and deed and that the facts
herein stated are true, and accordingly I have hereunto set my hand this 17th
----
day of June, 1998.
By: /s/ J. Patrick Nicholson
---------------------------
J. Patrick Nicholson, Chairman of the
Board, Chief Executive Officer and
President
ATTESTED BY:
/s/ James K. McHugh
- ------------------------
James K. McHugh, Chief Financial Officer, Secretary and Treasurer
STATE OF OHIO )
) SS
COUNTY OF LUCAS )
The foregoing Amended and Restated Amended and Restated Certificate of
Incorporation of N-Viro International Corporation was acknowledged before me
this 17thday of June, 1998 by J. Patrick Nicholson, Chairman of the Board, Chief
----
Executive Officer and President, on behalf of N-Viro International Corporation,
a Delaware corporation.
/s/ James D. O'Neil
-----------------------
Notary Public
My Commission Expires: [SEAL]
JAMES D. O'NEIL
Notary Public - State of Ohio
My Commission Expires June 11, 2000
Exhibit 3.3
CERTIFICATE OF DESIGNATION
OF
SERIES A REDEEMABLE PREFERRED STOCK
OF
N-VIRO INTERNATIONAL CORPORATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned duly authorized officer of N-Viro International
Corporation, a corporation organized and existing under the General Corporation
Law of the State of Delaware (the "Corporation"), does hereby certify that,
pursuant to authority conferred upon the Board of Directors of the Company (the
"Board") by the [Amended and Restated] Certificate of Incorporation of the
Corporation and pursuant to Section 151 of the General Corporation Law of the
State of Delaware, the Board at a meeting duly held on August 8, 2003 adopted a
resolution (i) authorizing a new series of the Corporation's previously
authorized Preferred Stock, $.01 par value per share (the "Preferred Stock"),
and (ii) providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of 1 share of Series A Redeemable Preferred Stock of the
Corporation, as follows:
RESOLVED, that the Corporation is authorized to issue 1 share of
Series A Redeemable Preferred Stock, $.01 par value per share, which shall have
the following powers, designations, preferences and other special rights:
Section 1. Designation and Amount. The share of such series shall
----------------------
be designated as "Series A Redeemable Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting such series shall be one (1).
Section 2. Maturity. The Series A Preferred Stock shall mature in
--------
ten (10) years following the date of issuance thereof, and shall be subject to
mandatory re-purchase by the Corporation, and sale by the holder thereof, for an
amount payable in cash equal to its par value. The Series A Preferred Stock
will not be subject to any sinking fund.
Section 3. Rank. The Series A Preferred Stock shall, with respect
----
to dividend rights and rights upon liquidation, dissolution or winding up of the
Corporation, rank (i) senior to all classes or series of common stock of the
Corporation, and to all equity securities ranking junior to the Series A
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Corporation, (ii) on a parity with all other
equity securities issued by the Corporation the terms of which specifically
provide that such equity securities rank on a parity with the Series A Preferred
Stock with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Corporation, and (iii) junior to equity securities issued
by the Corporation to the extent that the terms of such equity securities
specifically provide that such equity securities rank senior to the Series A
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Corporation.
Section 4. Dividends. The shares of the Series A Preferred Stock
---------
shall not be entitled to receive any dividends, notwithstanding the payment of
dividends on any other shares of the capital stock of the Corporation, including
common stock.
Section 5. Liquidation Preference. Upon any voluntary or
-----------------------
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of the Series A Preferred Stock shall be entitled to be
paid out of the assets of the Corporation legally available for distribution to
its stockholders a liquidation preference of One Dollar ($1.00) per share,
before any distribution of assets is made to holders of Common Stock or any
other class or series of capital stock of the Corporation that ranks junior to
the Series A Preferred Stock as to liquidation rights. For such purposes, the
consolidation or merger of the Corporation with or into any other corporation,
or the sale, lease or conveyance of all or substantially all of the property or
business of the Corporation, shall not be deemed to constitute a liquidation,
dissolution or winding up of the Corporation.
Section 6. Redemption.
----------
(A) The Series A Preferred Stock shall be redeemable following the
first to occur of the following events: (i) the transfer, by sale, gift or
otherwise, whether voluntary or involuntary, by operation of law or otherwise,
of the Series A Preferred Stock by the initial holder thereof, or (ii) the
transfer or sale by the initial holder of the Series A Preferred Stock, his
family members, or entities controlled by him or them, of shares of the common
stock of the Corporation such that the initial holder of the Series A Preferred
Stock ceases to be the beneficial owner of at least 17.50% of the outstanding
shares of the common stock of the Corporation, as reflected in the reports filed
by such initial holder with the Securities and Exchange Commission under Section
16 of the Securities Exchange Act of 1934. On and after the occurrence of the
first to occur of such events, the Corporation, at its option, upon not less
than 10 nor more than 60 days' written notice, may redeem the share of the
Series A Preferred Stock at any time for cash at a redemption price of One
Dollar ($1.00) per share, to the extent the Corporation has funds legally
available therefor. In the event that the Corporation does not have funds
legally available for such redemption, the Corporation may redeem the share of
the Series A Preferred Stock by delivering to the holder of such share of Series
A Preferred Stock such number of whole shares of the common stock of the
Corporation as shall be determined by dividing One Dollar by the per share
closing price of the common stock of the Corporation on the fifth business day
prior to the redemption date, rounded up to the nearest whole share. Holders of
Series A Preferred Stock to be redeemed shall surrender such Series A Preferred
Stock at the place designated in such notice and shall be entitled to the
redemption price following such surrender. If notice of redemption of any
shares of Series A Preferred Stock has been given and if the funds (or shares of
common stock) necessary for such redemption have been set aside by the
Corporation in trust for the benefit of the holder of the share of Series A
Preferred Stock so called for redemption, then from and after the redemption
date, such shares of Series A Preferred Stock shall no longer be deemed
outstanding and all rights of the holder of such shares will terminate, except
the right to receive the redemption price.
(B) Notice of redemption shall be mailed by the Corporation,
postage prepaid, not less than 10 nor more than 60 days prior to the redemption
date, addressed to the holder of record of the Series A Preferred Stock to be
redeemed at his address as it appears on the stock transfer records of the
transfer agent. The notice shall state: (i) the redemption date; and (ii) the
place or places where the Series A Preferred Stock is to be surrendered for
payment of the redemption price.
(C) From and after the redemption date (unless default shall be
made by the Corporation in providing for the payment of the redemption price),
all rights of the holder thereof (except the right to receive the redemption
price) shall cease.
Section 7. Voting Rights.
--------------
(A) The holder of the Series A Preferred Stock shall not have any
voting rights except as set forth in this Section 7 or as otherwise required by
law. To the extent that voting rights otherwise required by law can be waived
or released, such voting rights are hereby waived and released.
(B) So long as the Series A Preferred Stock remains outstanding,
the holder of the Series A Preferred Stock shall have the special right, voting
separately as a single class, to nominate, as provided in Section 7(C), and
elect one member of the Board of Directors of the Corporation at the 2003 annual
meeting of the shareholders of the Corporation and to nominate, as provided in
Section 7(C), and elect his or her successor at each succeeding annual meeting
of the shareholders of the Corporation thereafter at which such successor is to
be elected. The director so elected from time to time in respect of this
Section 7(B) shall be one of such number of members of the Board of Directors as
has been set by the Board of Directors pursuant to the Certificate of
Incorporation or Bylaws of the Corporation, and not a director in addition to
such number, and shall be referred to herein as the "Section 7(B) Director." In
case of the resignation or death of the Section 7(B) Director while the Series A
Preferred Stock remains outstanding, the holder of the Series A Preferred Stock,
voting as a single class, shall be entitled to nominate, as provided in Section
7(C), and elect his or her successor by written consent, setting forth the
action so taken, which consent shall be signed by the holder of the Series A
Preferred Stock and shall be delivered to the Secretary of the Corporation for
placement among the minutes of proceedings of the shareholders of the
Corporation.
(C) The holder of the Series A Preferred Stock shall give notice
to the Secretary of the Corporation of the identity of such holder's nominee for
director at least 60 days prior to the date of each annual meeting of
shareholders. Such notice shall be accompanied by a Directors and Officers
Questionnaire, in the form then in use by the Corporation (which is available
from the Secretary of the Corporation), completed and executed by such nominee.
The Corporation, acting through a majority of its Directors, shall have the
right to reject any such nominee (i) who is less than 21 years old, or (ii) who
is a principal shareholder, officer or director of (or holds a similar position
in a non-corporate entity), or is employed by, a competitor of the Corporation,
or any person or entity which controls, is controlled by, or is under common
control with, a competitor of the Corporation, (iii) who is the initial holder
of the Series A Preferred Stock or such holder's spouse, sibling or lineal
descendent, or (iv) with respect to whom any of the following events have
occurred during the past five years, in which event the holder of the Series A
Preferred Stock shall be required to nominate another individual for election to
the Board:
(a) A petition under the Federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of such person, or
any partnership in which he was a general partner at or within two years before
the time of such filing, or any corporation or business association of which he
was an executive officer at or within two years before the time of such filing;
(b) Such person was convicted in a criminal proceeding or is a named
subject of a pending criminal proceeding (excluding traffic violations and other
minor offenses);
(c) Such person was the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:
(1) Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the Commodity Futures
Trading Commission, or an associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
(2) Engaging in any type of business practice; or
(3) Engaging in any activity in connection with the purchase or sale of
any security or commodity or in connection with any violation of Federal or
State securities laws or Federal commodities laws;
(d) Such person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described in paragraph (f)(3)(i) of this
section, or to be associated with persons engaged in any such activity; or
(e) Such person was found by a court of competent jurisdiction in a
civil action or by the Commission to have violated any Federal or State
securities law, and the judgment in such civil action or finding by the
Commission has not been subsequently reversed, suspended, or vacated.
(f) Such person was found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to have violated any
Federal commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
Such rejection shall be communicated in writing to the holder of the Series A
Preferred Stock within 10 days after the delivery to the Secretary of the
Corporation of the identity of such holder's nominee for director and the
completed and executed Directors' and Officers' Questionnaire. If such notice
of rejection is not delivered by such date, such nominee shall be deemed to be
accepted.
(D) So long as the Series A Preferred Stock remains outstanding,
the Corporation shall not, without the consent or the affirmative vote of the
holder of the Series A Preferred Stock, given in person or by proxy, either in
writing or at a meeting (such Series A Preferred Stock voting separately as a
class), repeal, amend, or otherwise change any of the provisions applicable to
the Series A Preferred Stock in any manner that materially and adversely affects
the powers, preferences, or other special rights or privileges of the Series A
Preferred Stock or the holder thereof; provided, however, that any increases in
the amount of the authorized Preferred Stock or the creation or issuance of
other series of Preferred Stock, or any increase in the amount of authorized
shares of such series or of any other series of Preferred Stock, in each case
ranking on a parity with or junior to the Series A Preferred Stock, shall not be
deemed to materially and adversely affect such powers, preferences, or other
special rights or privileges.
(E) The foregoing voting provisions will not apply if, at or prior
to the time when the act with respect to which such vote would otherwise be
required shall be effected, the Series A Preferred Stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds (or
common stock) shall have been deposited in trust to effect such redemption.
(F) The term of office of any director elected pursuant to this
section shall end and such director shall be deemed to have resigned upon the
redemption of the Series A Preferred Stock.
(G) Except as expressly stated in this Certificate of Designation,
the Series A Preferred Stock shall not have any relative, participating,
optional or other special voting rights and powers, and the consent of the
holders thereof shall not be required for the taking of any corporate action,
including but not limited to any merger or consolidation involving the
Corporation or a sale of all or substantially all of the assets of the
Corporation, irrespective of the effect that such merger, consolidation or sale
may have upon the powers, preferences, rights or privileges of the holders of
the Series A Preferred Stock.
Section 8. Conversion. The Series A Preferred Stock shall not be
convertible into or exchangeable for any other property or securities of the
Corporation.
Section 9. Amendment. This Certificate of Designation shall not
---------
be amended in any manner that would materially and adversely affect the holders
of the Series A Preferred Stock without the affirmative consent or vote of the
holder of the Series A Preferred Stock.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
certificate and does affirm the foregoing as true under the penalties of perjury
this 27th day of August, 2003.
/s/ Terry J. Logan
-----------------------
Terry Logan
President
ATTEST:
/s/ James K. McHugh
- -------------------------
Corporate Secretary
Exhibit 3.4
AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
N-VIRO INTERNATIONAL CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is:
N-VIRO INTERNATIONAL CORPORATION
2. This Amendment to the Corporation's Amended and Restated Certificate of
Incorporation hereby amends Article FIVE, Section 1, of the Amended and Restated
Certificate of Incorporation of the Corporation as set forth herein.
3. Article FIVE, Section 1, is hereby deleted in its entirety and the
following shall be inserted herein:
ARTICLE FIVE
1. BOARD OF DIRECTORS
The number of Directors shall initially be seven (7); provided, however, that
such number of Directors may from time to time be increased and decreased by a
duly adopted resolution of the Board but shall in no event be reduced to less
than seven (7) nor increased to more than nine (9). The Board of Directors
shall be divided into two classes (designated as "Class One Directors" and
"Class Two Directors"), as nearly equal in number as the then total number of
Directors constituting the entire Board permits, with the term of office of one
class expiring each year. The initial Class One Directors shall consist of four
(4) Directors and shall hold office for a term expiring at the 2005 annual
meeting of stockholders and the initial Class Two Directors shall consist of
three (3) Directors and shall hold office for a term expiring at the 2004 annual
meeting of stockholders, with the members of each class of Directors to hold
office until their successors shall be elected and qualified, subject to prior
death, retirement, resignation or removal. At each such annual meeting of
stockholders and at each annual meeting thereafter, successors to the class of
Directors whose term expires at that meeting shall be elected and qualified,
subject to prior death, retirement, resignation or removal. At each annual
meeting of stockholders at which a quorum is present, the persons receiving a
plurality of the votes cast shall be Directors. No Director or class of
Directors may be removed from office by a vote of the stockholders at any time
except for cause. Election of Directors need not be by written ballot unless the
Bylaws of the Corporation so provide.
4. This Amendment to the Restated Certificate of Incorporation has been duly
adopted by the required vote of stockholders in accordance with Section 242 of
the General Corporation Law of Delaware.
5. This Amendment to the Amended and Restated Certificate of Incorporation
has been duly adopted by the Board of Directors in accordance with Section 242
of the General Corporation Law of the State of Delaware.
Signed and attested to on November 13, 2003.
--------------
By: /s/ Terry J. Logan
-----------------------
Terry J. Logan, Chief Executive Officer
ATTEST:
/s/ James K. McHugh
- ------------------------
James K. McHugh, Secretary
Exhibit 3.6
AMENDMENT TO BYLAWS
OF
N-VIRO INTERNATIONAL CORPORATION
The undersigned, constituting all of the Directors of N-Viro International
Corporation, a Delaware corporation (the "Corporation"), hereby amends Article
II, Section I of the Bylaws of the Corporation to read as follows:
ARTICLE II
Section 1. Number and Term of Office. The business and affairs of the
--------------------------
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need to be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall
be classified with respect to the time for which they shall severally hold
office into two (2) classes as nearly equal in number as possible. Except as
hereinafter otherwise provided for the filling of vacancies, the Class I
Directors shall hold office for an initial term expiring at the 2004 annual
meeting of stockholders and the Class II Directors shall hold office for an
initial term expiring at the 2005 annual meeting of stockholders, with the
members of each class of Directors to hold office until their respective
successors have been duly elected and qualified or until their earlier
resignation, removal, retirement or death. Thereafter at each annual meeting of
stockholders, the successors to the class of Directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the second year following the year of their
election and until their respective successors have been duly elected and
qualified or until their earlier resignation, removal, retirement or death.
IN WITNESS WHEREOF, the undersigned have executed this Amendment this 29th
day of August, 2003.
"DIRECTORS"
/s/ J. Patrick Nicholson /s/ Michael G. Nicholson
- ------------------------------ -----------------------------
J. Patrick Nicholson Michael G. Nicholson
/s/ Terry J. Logan /s/ R. Francis DiPrete
- ----------------------- ---------------------------
Terry J. Logan, Ph.D. R. Francis DiPrete
/s/ Phillip Levin /s/ Bobby B. Carroll
- --------------------- -------------------------
Phillip Levin Bobby B. Carroll
/s/ B.K. Wesley Copeland /s/ Daniel J. Haslinger
- ----------------------------- ----------------------------
B.K. Wesley Copeland Daniel J. Haslinger
Exhibit 3.7
AMENDED AND RESTATED BY-LAWS
OF
N-VIRO INTERNATIONAL CORPORATION
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of the stockholders of the
---------------
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of electing Directors and for the transaction of such other
business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
-----------------
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the
President. Any special meeting of the stockholders shall be held on such date,
at such time and at such place within or without the State of Delaware as the
Board of Directors or the officer calling the meeting may designate. At a
special meeting of the stockholders, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of the
meeting unless all of the stockholders are present in person or by proxy, in
which case any and all business may be transacted at the meeting even though the
meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
--------------------
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders of a
------
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. AdjournedMeetings. Whether or not a quorum shall be present in
-----------------
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holder of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The President or, in his absence, a Vice President
------------
shall call all meetings of the stockholders to order, and shall act as Chairman
of such meetings. In the absence of the President and all of the Vice
Presidents, the holders of a majority in number of the shares of stock of the
Corporation present in person or represented by proxy and entitled to vote at
such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint,
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten (10) days
next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate of
------
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
SECTION 8. Inspectors. When required by law or directed by the presiding
----------
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two or more Inspectors who may
be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise
------------------------------------ -------
provided in the Certificate of Incorporation, any action required to be taken or
which may be taken at any annual or special meeting of the stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize to take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of any such corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
Board of Directors
------------------
SECTION 1. Number and Term of Office. The business and affairs of the
-----------------------------
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need to be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall
be classified with respect to the time for which they shall severally hold
office into two (2) classes as nearly equal in number as possible. Except as
hereinafter otherwise provided for the filling of vacancies, the Class I
Directors shall hold office for an initial term expiring at the 2004 annual
meeting of stockholders and the Class II Directors shall hold office for an
initial term expiring at the 2005 annual meeting of stockholders, with the
members of each class of Directors to hold office until their respective
successors have been duly elected and qualified or until their earlier
resignation, removal, retirement or death. Thereafter at each annual meeting of
stockholders, the successors to the class of Directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the second year following the year of their
election and until their respective successors have been duly elected and
qualified or until their earlier resignation, removal, retirement or death.
SECTION 2. Removal. Vacancies and Additional Directors. The stockholders
--------------------------------------------
may, at any special meeting the notice of which shall state that it is called
for that purpose, remove, with or without cause, any Director and fill the
vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal. The Directors chosen to fill vacancies shall hold office
for a term expiring at the end of the next annual meeting of stockholders at
which the term of the class to which they have been elected expires. No decrease
in the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold its meetings
----------------
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
-----------------
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every Director at least
five (5) days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
-----------------
shall be held whenever called by direction of the President, or by any two of
the Directors then in office.
Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two (2) days before the meeting or by
causing the same to be transmitted by telegraph, cable or wireless at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these By-Laws
may be transacted at any special meeting, and an amendment of these By-Laws may
be acted upon if the notice of the meeting shall have stated that the amendment
of these By-Laws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this ARTICLE
------
II, a majority of the members of the Board of Directors in office (but in no
case less than one-third (1/3) of the total number of Directors nor less than
two (2) Directors) shall constitute a quorum for the transaction of business and
the vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board there is less than a quorum present, a
majority of those present may adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board shall preside at all
------------
meetings of the Board of Directors. In the absence of the Chairman of the Board,
an acting Chairman shall be elected from the Directors present. The Secretary of
the Corporation shall act as Secretary of all meetings of the Directors; but in
the absence of the Secretary, the Chairman of the Board or acting Chairman may
appoint any person to act as Secretary of the meeting.
SECTION 8. Committees. The Board of Directors may, by resolution passed by
----------
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided by resolution
passed by a majority of the whole Board, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and the affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these By-Laws; and unless such resolution, these By-Laws, Or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise restricted by
------------------------------
the Certificate of Incorporation or by these By-Laws, the members of the Board
of Directors or any committee designated by the Board, may participate in a
meeting of the Board of such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 10. Consentof Directors or Committee in lieu of Meeting. Unless
------------------------------------------------------
otherwise restricted by the Certificate of Incorporation or by these By-Laws,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
Officers
--------
SECTION 1. Officers. The officers of the Corporation shall be a President,
--------
one or more Vice Presidents, a Secretary and a Treasurer, and such additional
officers, if any, as shall be elected by the Board of Directors pursuant to the
provisions of Section 6 of this ARTICLE III. The President, one or more Vice
Presidents, the Secretary and the Treasurer shall be elected by the Board of
Directors at its first meeting after each annual meeting of the stockholders.
The failure to hold such election shall not of itself terminate the term of
office of any officer. All officers shall hold office at the pleasure of the
Board of Directors. Any officers may resign at any time upon written notice to
the Corporation. Officers may, but need not, be Directors. Any number of offices
may be held by the same person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these By-Laws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. Powers and Duties of the President. The President shall be the
----------------------------------
chief executive officer of the Corporation and, subject to the control of the
Board of Directors, shall have general charge and control of all its business
and affairs and shall have all powers and shall perform all duties incident to
the office of President. He shall preside at all meetings of the stockholders
and at all meetings of the Board of Directors and shall have such other powers
and perform such other duties as may from time to time be assigned to him by
these By-Laws or by the Board of Directors.
SECTION 3. Powers and Duties of the Vice Presidents. Each Vice President
-----------------------------------------
shall have all powers and shall perform all duties incident to the office of
Vice President and shall have such other powers and perform such other duties as
may from time to time be assigned to him by these By-Laws or by the Board of
Directors or by the President.
SECTION 4. Powers andDuties of the Secretary. The Secretary shall keep the
---------------------------------
minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and he shall have all powers
and shall perform all duties incident to the office of Secretary and shall have
such other powers and shall perform such other duties as may from time to time
be assigned to him by these By-Laws or by the Board of Directors or the
President.
SECTION 5. Powers andDutiesof the Treasurer. The Treasurer shall have
-----------------------------------
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors or the President shall render statements of such accounts; he
shall, at all reasonable times, exhibit his books and accounts to any Director
of the Corporation, upon application, at the office of the Corporation during
business hours; and he shall have all powers and shall perform all duties
incident of the office of Treasurer and shall also have such other powers and
shall perform such other duties as may from time to time be assigned to him by
these By-Laws or by the Board of Directors or the President.
SECTION 6. Additional Officers. The Board of Directors may from time to
--------------------
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties herein assigned to the
Secretary.
SECTION 7. Giving of Bond by Officers. All officers of the Corporation, if
--------------------------
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 8. Voting Upon Stocks. Unless otherwise ordered by the Board of
--------------------
Directors, the President or any Vice President shall have full power and
authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any corporation in which the Corporation may hold stock, and at
any such meeting shall possess and may exercise, in person or by proxy, any and
all rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers upon
any other person or persons.
SECTION 9. Compensationof Officers. The officers of the Corporation shall
------------------------
be entitled to receive such compensation for their services as shall from time
to time be determined by the Board of Directors.
ARTICLE IV
Indemnification of Directors and Officers
-----------------------------------------
SECTION 1. Nature of Indemnity. The Corporation shall indemnify any person
-------------------
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was or has
agreed to become a Director or officer of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a Director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he is or was or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (i) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (ii) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. Successful Defense. To the extent that a Director, officer,
-------------------
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in SECTION 1
of this ARTICLE IV or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 3. Determination that Indemnification is Proper. Any
------------------------------------------------
indemnification of a Director or officer of the Corporation under SECTION 1 of
this ARTICLE IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in SECTION 1. Any indemnification of an employee
or agent of the Corporation under SECTION 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in SECTION 1. Any such determination
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
SECTION 4. Advance Payment of Expenses. Unless the Board of Directors
------------------------------
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this ARTICLE IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
SECTION 5. Survival; Preservation of Other Rights. The foregoing
------------------------------------------
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in whole
or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this ARTICLE IV shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys' fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expense created by this ARTICLE IV.
SECTION 6. Severability. If this ARTICLE IV or any portion hereof shall be
------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation- shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this ARTICLE IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
SECTION 7. Subrogation. In the event of payment of indemnification to a
-----------
person described in SECTION 1 of this ARTICLE IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
SECTION 8. NoDuplication of Payments. The Corporation shall not be liable
--------------------------
under this ARTICLE IV to make any payment in connection with any claim made
against a person described in SECTION 1 of this ARTICLE IV to the extent such
person has otherwise received payment (under any insurance policy, By-Law or
otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE V
Stock-Seal-Fiscal Year
----------------------
SECTION 1. Certificates for Shares of Stock. The certificates for shares of
--------------------------------
stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the President or a Vice President and by the
Secretary or an Assistant Secretary of the Treasurer or an Assistant Treasurer,
and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby
with the number of such shares and the date of issue thereof shall be entered on
the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. Lost. Stolen or Destroyed Certificates. Whenever a person owning
--------------------------------------
a certificate for shares of stock of the Corporation alleges that it has been
lost, stolen or destroyed, he shall file in the office of the Corporation an
affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall be
------------------
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in SECTION 2 of this ARTICLE V.
SECTION 4. Regulations. The Board of Directors shall have power and
-----------
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine the
------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting, prior to, or more than ten (10) days
after, the date upon which the resolution fixing the record date is adopted by
the Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the date next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is delivered to the Corporation; and the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate of
---------
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. CorporateSeal. The Board of Directors may provide a suitable
-------------
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A duplicate of the seal may be kept and be used by
any officer of the Corporation designated by the Board of Directors or the
President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be such
------------
fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
Miscellaneous Provisions
------------------------
SECTION 1. Checks, Notes, Etc.. All checks, drafts, bills of exchange,
---------------------
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be contracted
-----
on behalf of the Corporation except as authorized by the Board of Directors.
When authorized to do so, any officer or agent of the Corporation may effect
loans and advances for the Corporation from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Corporation. When authorized so to do, any
officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws or by
---------
law or as otherwise directed by the Board of Directors, the President or any
Vice President shall be authorized to execute and deliver, in the name and on
behalf of the Corporation, all agreements, bonds, contracts, deeds, mortgages,
and other instruments, either for the Corporation's own account or in a
fiduciary or other capacity, and the seal of the Corporation, if appropriate,
shall be affixed thereto by any of such officers or the Secretary or an
Assistant Secretary. The Board of Directors, the President or any Vice President
designated by the Board of Directors may authorize any other officer, employee
or agent to execute and deliver, in the name and on behalf of the Corporation,
agreements, bonds, contracts, deeds, mortgages, and other instruments, either
for the Corporation's own account or in a fiduciary or other capacity, and, if
appropriate, to affix the seal of the Corporation thereto. The grant of such
authority by the Board of any such officer may be general or confined to
specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is required to
---------- ------
be given by law, by the Certificate of Incorporation or by these By-Laws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise required by the
---------------------------
laws of the State of Delaware, the Corporation may have an office or offices and
keep its books, documents and papers outside of the State of Delaware at such
place or places as from time to time may be determined by the Board of Directors
or the President.
ARTICLE VII
Amendments
----------
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof may be altered, amended
or repealed or new By-Laws may be adopted by the holders of a majority of the
total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special meeting,
that notice of such proposed alteration, amendment, repeal or adoption is
included in the notice of the meeting.
N00030EXHIBIT 21.1
------------
LIST OF SUBSIDIARIES OF THE COMPANY
- ----------------------------------------
National N-Viro Tech., Inc. (Ohio)
Midwest N-Viro, Inc. (Illinois)
Tennessee-Carolina N-Viro, Inc. (Tennessee)
N-Viro Soil South, Inc. (Florida)
N-Viro Honolulu, Inc. (Hawaii)
Pan-American N-Viro, Inc. (Delaware)
BioCheck Laboratories, Inc. (Ohio)
American N-Viro Resources, Inc. (Ohio)
------
EXHIBIT 24.1
------------
POWER OF ATTORNEY
-------------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a Director of
N-Viro International Corporation (the "Company"), a Delaware corporation that is
filing an Annual Report on Form 10-K ("Form 10-K") for the year ended December
31, 2003 with the Securities and Exchange Commission under the provisions of the
Securities and Exchange Act of 1934, as amended, hereby constitutes and appoints
James K. McHugh his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, in the capacity as Chief Executive Officer, President
and Director of the Company, to sign such Form 10-K and any and all amendments
thereto, and to file such Form 10-K and each such amendment so signed, with all
exhibits thereto, and any and all other documents in connection therewith,
hereby granting unto said attorney-in-fact and agent full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 23rd
day of March, 2004.
/s/ Terry J. Logan, Ph.D.
-----------------------------
Terry J. Logan, Ph.D.
------
EXHIBIT 24.1
------------
POWER OF ATTORNEY
-------------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a Director of
N-Viro International Corporation (the "Company"), a Delaware corporation that is
filing an Annual Report on Form 10-K ("Form 10-K") for the year ended December
31, 2003 with the Securities and Exchange Commission under the provisions of the
Securities and Exchange Act of 1934, as amended, hereby constitutes and appoints
James K. McHugh his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, in the capacity as Chief Operating Officer, Senior
Vice-President and Director, to sign such Form 10-K and any and all amendments
thereto, and to file such Form 10-K and each such amendment so signed, with all
exhibits thereto, and any and all other documents in connection therewith,
hereby granting unto said attorney-in-fact and agent full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 23rd
day of March, 2004.
/s/ Michael G. Nicholson
---------------------------
Michael G. Nicholson
------
EXHIBIT 24.1
------------
POWER OF ATTORNEY
-------------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a Director of
N-Viro International Corporation (the "Company"), a Delaware corporation that is
filing an Annual Report on Form 10-K ("Form 10-K") for the year ended December
31, 2003 with the Securities and Exchange Commission under the provisions of the
Securities and Exchange Act of 1934, as amended, hereby constitutes and appoints
James K. McHugh his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, in the capacity as Director, to sign such Form 10-K
and any and all amendments thereto, and to file such Form 10-K and each such
amendment so signed, with all exhibits thereto, and any and all other documents
in connection therewith, hereby granting unto said attorney-in-fact and agent
full power and authority to do and perform any and all acts and things requisite
and necessary to be done in and about the premises, as fully to all intents and
purposes as he might do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 23rd
day of March, 2004.
/s/ Brian Burns
-----------------
Brian Burns
------
EXHIBIT 24.1
------------
POWER OF ATTORNEY
-------------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a Director of
N-Viro International Corporation (the "Company"), a Delaware corporation that is
filing an Annual Report on Form 10-K ("Form 10-K") for the year ended December
31, 2003 with the Securities and Exchange Commission under the provisions of the
Securities and Exchange Act of 1934, as amended, hereby constitutes and appoints
James K. McHugh his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, in the capacity as Director, to sign such Form 10-K
and any and all amendments thereto, and to file such Form 10-K and each such
amendment so signed, with all exhibits thereto, and any and all other documents
in connection therewith, hereby granting unto said attorney-in-fact and agent
full power and authority to do and perform any and all acts and things requisite
and necessary to be done in and about the premises, as fully to all intents and
purposes as he might do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 23rd
day of March, 2004.
/s/ Christopher Anderson
--------------------------
Christopher Anderson
------
EXHIBIT 24.1
------------
POWER OF ATTORNEY
-------------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a Director of
N-Viro International Corporation (the "Company"), a Delaware corporation that is
filing an Annual Report on Form 10-K ("Form 10-K") for the year ended December
31, 2003 with the Securities and Exchange Commission under the provisions of the
Securities and Exchange Act of 1934, as amended, hereby constitutes and appoints
James K. McHugh his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, in the capacity as Director, to sign such Form 10-K
and any and all amendments thereto, and to file such Form 10-K and each such
amendment so signed, with all exhibits thereto, and any and all other documents
in connection therewith, hereby granting unto said attorney-in-fact and agent
full power and authority to do and perform any and all acts and things requisite
and necessary to be done in and about the premises, as fully to all intents and
purposes as he might do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 9th
day of April, 2004.
/s/ Daniel J. Haslinger
--------------------------
Daniel J. Haslinger
------
EXHIBIT 24.1
------------
POWER OF ATTORNEY
-------------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a Director of
N-Viro International Corporation (the "Company"), a Delaware corporation that is
filing an Annual Report on Form 10-K ("Form 10-K") for the year ended December
31, 2003 with the Securities and Exchange Commission under the provisions of the
Securities and Exchange Act of 1934, as amended, hereby constitutes and appoints
James K. McHugh his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, in the capacity as Director, to sign such Form 10-K
and any and all amendments thereto, and to file such Form 10-K and each such
amendment so signed, with all exhibits thereto, and any and all other documents
in connection therewith, hereby granting unto said attorney-in-fact and agent
full power and authority to do and perform any and all acts and things requisite
and necessary to be done in and about the premises, as fully to all intents and
purposes as he might do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 26th
day of March, 2004.
/s/ R. Francis DiPrete
-------------------------
R. Francis DiPrete
------
EXHIBIT 24.1
------------
POWER OF ATTORNEY
-------------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a Director of
N-Viro International Corporation (the "Company"), a Delaware corporation that is
filing an Annual Report on Form 10-K ("Form 10-K") for the year ended December
31, 2003 with the Securities and Exchange Commission under the provisions of the
Securities and Exchange Act of 1934, as amended, hereby constitutes and appoints
James K. McHugh his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, in the capacity as Director, to sign such Form 10-K
and any and all amendments thereto, and to file such Form 10-K and each such
amendment so signed, with all exhibits thereto, and any and all other documents
in connection therewith, hereby granting unto said attorney-in-fact and agent
full power and authority to do and perform any and all acts and things requisite
and necessary to be done in and about the premises, as fully to all intents and
purposes as he might do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 23rd
day of March, 2004.
/s/ Phillip Levin
-------------------
Phillip Levin
Exhibit 31.1
-----------
CERTIFICATION
I, Terry J. Logan, certify that:
1. I have reviewed this Form 10-K of N-Viro International Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Dated: April 14, 2004
/s/ Terry J. Logan
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Terry J. Logan, Chief Executive Officer
Exhibit 31.2
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CERTIFICATION
I, James K. McHugh, certify that:
1. I have reviewed this Form 10-K of N-Viro International Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Dated: April 14, 2004
/s/ James K. McHugh
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James K. McHugh, Chief Financial Officer
Exhibit 32.1
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Terry J. Logan, the Chief Executive Officer of N-Viro International
Corporation, certify that (i) the Form 10-K fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the
information contained in the Form 10-K fairly presents, in all material
respects, the financial condition and results of operations of N-Viro
International Corporation.
/s/ Terry J. Logan
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Terry J. Logan, Chief Executive Officer
April 14, 2004
Exhibit 32.2
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CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, James K. McHugh, the Chief Financial Officer of N-Viro International
Corporation, certify that (i) the Form 10-K fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the
information contained in the Form 10-K fairly presents, in all material
respects, the financial condition and results of operations of N-Viro
International Corporation.
/s/ James K. McHugh
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James K. McHugh, Chief Financial Officer
April 14, 2004