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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
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
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N-VIRO INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-1741211
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3450 W. CENTRAL AVENUE, SUITE 328
TOLEDO, OHIO 43606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (419) 535-6374
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to the filing requirements for at least the past 90 days. Yes X No .
--- ---
As of November 6, 2002, 2,577,433 shares of N-Viro
International Corporation $ .01 par value common stock were outstanding.
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-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Sept. 30 Nine Months Ended Sept. 30
2002 2001 2002 2001
----------------------------- -----------------------------
Revenues $ 1,485,610 $ 1,175,057 $ 4,143,803 $ 3,453,299
Cost of revenues 897,218 747,823 2,723,272 2,144,181
----------------------------- -----------------------------
Gross Profit 588,392 427,234 1,420,531 1,309,118
Operating expenses:
Selling, general and administrative 454,421 525,400 1,436,289 1,571,837
Patent litigation expense - 182,767 545 384,708
----------------------------- -----------------------------
454,421 708,167 1,436,834 1,956,545
----------------------------- -----------------------------
Operating income (loss) 133,971 (280,933) (16,303) (647,427)
Nonoperating income (expense):
Interest and dividend income 17,671 15,950 33,011 47,847
Interest expense (5,633) (39,769) (25,278) (65,972)
Loss on sale of assets - (935) - (935)
Income (loss) from equity investment in joint venture (39,889) (51,171) 12,373 (113,266)
----------------------------- -----------------------------
(27,851) (75,925) 20,106 (132,326)
----------------------------- -----------------------------
Income (loss) before income taxes 106,120 (356,858) 3,803 (779,753)
Federal and state income taxes - - - -
----------------------------- -----------------------------
Net income (loss) $ 106,120 $ (356,858) $ 3,803 $ (779,753)
============================= =============================
Basic and diluted earnings (loss) per share $ 0.04 $ (0.13) $ 0.00 $ (0.29)
============================= =============================
Weighted average common shares outstanding 2,577,433 2,643,683 2,577,433 2,643,683
============================= =============================
See Notes to Consolidated Financial Statements
-2-
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 (Unaudited) 2001 (Audited)
---------------- --------------
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents:
Unrestricted $ 59,126 $ 45,427
Restricted 400,000 400,000
Securities available-for-sale 1,401 1,401
Receivables:
Trade, net of allowance of $50,000 in 2002 and $87,501 in 2001 781,712 854,011
Notes and other 22,255 22,000
Related parties - 24,461
Prepaid expenses and other assets 135,222 49,757
------------ ------------
Total current assets 1,399,716 1,397,057
Property and Equipment 590,902 479,541
Investment in Florida N-Viro, L.P. 537,459 525,086
Intangible and Other Assets 1,721,841 1,731,647
------------ ------------
$ 4,249,918 $ 4,133,331
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 383,934 $ 438,534
Line-of-credit 650,000 503,613
Accounts payable 1,012,905 991,344
Accrued liabilities 415,493 418,926
------------ ------------
Total current liabilities 2,462,332 2,352,417
Long-term debt, less current maturities 463,212 460,342
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 7,000,000 shares; issued
2,700,933 shares 27,010 27,010
Additional paid-in capital 13,495,602 13,495,602
Retained earnings (deficit) (11,513,348) (11,517,150)
------------ ------------
2,009,264 2,005,462
Less treasury stock, at cost, 123,500 shares 684,890 684,890
------------ ------------
Total stockholders' equity 1,324,374 1,320,572
------------ ------------
$ 4,249,918 $ 4,133,331
============ ============
See Notes to Consolidated Financial Statements
-3-
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Sept. 30,
2002 2001
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 186,549 $ 302,337
CASH FLOWS FROM INVESTING ACTIVITIES
Collections on notes receivable 16,391 -
Increase in notes receivable - (204,296)
Collections on related party receivables 145 -
Purchases of property and equipment (23,527) (15,222)
Expenditures for intangible assets (81,674) (34,089)
--------- ---------
Net cash used in investing activities (88,665) (253,607)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on line-of-credit 146,387 80,000
Borrowings under long-term obligations 71,811 63,519
Principal payments on long-term obligations (302,383) (115,075)
--------- ---------
Net cash provided (used) by financing activities (84,185) 28,444
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,699 77,174
CASH AND CASH EQUIVALENTS - BEGINNING 45,427 128,485
--------- ---------
CASH AND CASH EQUIVALENTS - ENDING $ 59,126 $ 205,659
========= =========
Non-cash investing and financing activities:
During the nine months ended September 30, 2002, the Company borrowed $178,842
to finance the purchase of equipment.
See Notes to Consolidated Financial Statements
-4-
N-VIRO INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements of N-Viro
International Corporation (the "Company") are unaudited but, in management's
opinion, reflect all adjustments (including normal recurring accruals) necessary
to present fairly such information for the period and at the dates indicated.
The results of operations for the nine months ended September 30, 2002 may not
be indicative of the results of operations for the year ended December 31, 2002.
Since the accompanying consolidated financial statements have been prepared in
accordance with Article 10 of Regulation S-X, they do not contain all
information and footnotes normally contained in annual consolidated financial
statements; accordingly, they should be read in conjunction with the
consolidated financial statements and notes thereto appearing in the Company's
Form 10-K for the period ending December 31, 2001.
The financial statements are consolidated as of September 30, 2002 and
December 31, 2001 for the Company. Adjustments have been made to eliminate all
intercompany transactions.
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The following are certain significant estimates and assumptions made
in preparation of the financial statements:
Non-domestic license and territory fees - The Company does not
recognize revenue on any non-domestic 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 of the likelihood of success in collecting the receivable.
Income Taxes - The Company assumes the deductibility of certain costs
in income tax filings and estimates the recovery of deferred income tax assets.
2. RELATED PARTY TRANSACTIONS
The Company recognized an expense to Mr. Bobby B. Carroll, a Director of
the Company and a former shareholder of Tennessee-Carolina N-Viro, Inc., of
$45,000 for the nine months ended September 30, 2002 under a contract
arrangement signed in 1993 and amended in 1998 for consulting services. To
secure this obligation, the Company granted Mr. Carroll a security interest in
all present and future receivables and contract rights from licenses in the
states of Tennessee, North Carolina and South Carolina pursuant to the contract
agreement.
-5-
3. LONG-TERM DEBT
During the nine months ended September 30, 2002, the Company borrowed
$178,842 to finance the purchase of equipment in two separate transactions. The
face amount of the notes are $115,350 and $63,492 and bear interest at 5.99% and
9.8%, respectively. Monthly payments of principal and interest are $2,708 and
$1,520, respectively, and both notes mature in 48 months. Interest expensed and
paid on this equipment was approximately$6,400 for the nine months ended.
4. CONTINGENCIES
In November, 2001, and as filed under Form 8-K dated December 14, 2001,
the Company and Hydropress Environmental Services, Inc. ("Hydropress") signed a
settlement agreement (the "Settlement Agreement") of a lawsuit between the
parties related to alleged price guarantees on shares of the Company's common
stock and to alleged breaches of a license agreement between the parties. Each
party dismissed its claims against the other with prejudice and entered into
general releases in favor of the other party. Pursuant to the terms of the
Settlement Agreement, among other things, N-Viro purchased back 66,250 N-Viro
shares held by Hydropress at the market price as of November 15, 2001, which was
$1.01 per share, for a total of $66,913. Also pursuant to the Settlement
Agreement, the Company purchased back three patent license agreements (including
territory rights) from Hydropress valued at approximately $287,000. The first
license concerned the exclusive right to sell and use the N-Viro technology in
Massachusetts, Vermont and New Hampshire. The second license concerned the
non-exclusive right to sell and use the N-Viro technology in New Jersey,
Delaware, Maryland and Eastern Pennsylvania. The third license concerned
amendments to the two prior-mentioned agreements and the exclusive right to use
the N-Viro technology at Hydropress' facility in Phillipsburg, New Jersey.
N-Viro and Hydropress entered into a new patent license agreement granting
Hydropress the non-exclusive right to use the N-Viro technology at its facility
in Phillipsburg, New Jersey. The Company paid certain amounts due to Hydropress
under the Settlement Agreement pursuant to the terms of a promissory note (the
"Note"). The original principal amount of the Note was $204,587, was
non-interest bearing and matured on October 15, 2002 with a balloon payment of
$144,587. At September 30, 2002, the outstanding principal balance on the Note
was $144,587, which was paid in full to Hydropress in October 2002. In
conjunction with the final discharge of the Hydropress Note, the Company
arranged an unsecured loan from a third-party licensee for $144,587, with
monthly payments of $13,966 due for one year through October 15, 2003.
The Company has voluntarily approached state tax authorities in South
Carolina and acknowledged failing to file sales tax returns within that state.
The Company has collected and accrued approximately $170,000 in sales tax from
customers in South Carolina that has not been remitted to South Carolina tax
authorities. The Company believes that the sales at issue are exempt from sales
tax. The Company has retained counsel in South Carolina to assist it in
negotiating a settlement of this matter.
Prior to May 9, 2002, the Company's shares of voting, common stock were
traded on the SmallCap Market of the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"). On Thursday, May 9, 2002, the Company
received notice from the NASD that the Company's shares of voting, common stock
would be de-listed effective with the open of business on May 10, 2002. In July,
2002 the Company decided not to pursue further appeal of the NASD's decision to
de-list its voting common stock. Currently, the Company's shares of common stock
are traded on the Over-The-Counter ("OTC") market. The Company does not believe
that the delisting of its common stock from the Nasdaq SmallCap Market has or
will have a material adverse effect on the financial condition or results of
operations of the Company. The delisting of the Company's common stock from
NASDAQ, however, may have had a material adverse effect on the marketability of
the Company's shares, as shares traded on the OTC market generally experience
lower trading value than those traded on the organized exchanges.
-6-
The Company anticipates the possibility of listing its shares on the
Bulletin Board Exchange sometime in 2003. This new exchange is scheduled to
launch in 2003 and is a listed, electronic exchange owned and operated by
NASDAQ. It should provide the Company with greater flexibility, liquidity and
access to capital than the current OTC system.
The Company's executive and administrative offices are located in
Toledo, Ohio, under a lease that expires on December 31, 2002. The Company
believes its relationship with its lessor is satisfactory. The total minimum
rental commitment at September 30, 2002 is approximately $33,000. The total
rental expense included in the statements of operations for the nine months
ended September 30, 2002 and 2001 is approximately $47,300 and $47,800,
respectively. The Company is currently under negotiations to renew its lease for
reduced space at its current offices starting January 1, 2003.
The Company's remaining minimum commitment under an agreement with a
consultant (see Note 2 above) is $15,000, payable in cash or stock in 2002.
During 1999, the Company entered into employment and consulting
agreements with two officers of the Company. One employment agreement expired in
July 2002 and the other will expire in June 2004. Future compensation amounts
are to be determined annually by the Board. In addition, one of the agreements
provides for payment of life insurance premiums and the provision of health
insurance coverage to the officer and his spouse for their lives. The present
value of estimated costs related to the provisions of this agreement totalled
approximately $130,500 at September 30, 2002. The cost was recognized over the
term of the employment agreement. The Company charged $29,708 to operations
through July 31, 2002, and future payments will be offset against this
liability. The consulting agreements begin upon termination of the respective
employment agreements and extend through July 2015 and June 2014, respectively.
The agreements require the officers to provide minimum future services to be
eligible for compensation.
The Company from time to time 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.
5. NEW ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, as amended by SFAS No. 137, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. In June 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 141, "Business
Combinations." SFAS No. 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method and further clarifies the criteria to recognize
intangible assets separately from goodwill. In June 2001, FASB issued SFAS No.
142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to periodic impairment tests. Other intangible assets will
continue to be amortized over their useful lives. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. In June 2001, FASB issued SFAS
No. 143, "Accounting for Asset Retirement Obligations," which is effective the
first quarter of fiscal year 2003. SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of long-lived assets
and the associated asset retirement cost. In August 2001, FASB issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-lived Assets," which is
effective the first quarter of fiscal year 2002. SFAS No. 144 modifies and
expands the
-7-
financial accounting and reporting for the impairment or disposal of long-lived
assets other than goodwill. The adoption of SFAS Nos. 133, 141, 142 and 144 had
no material effect on the Company's financial statements. The Company is still
evaluating the impact of SFAS No. 143, but at this time does not believe its
adoption will have a significant impact on the financial position and results of
operations of the Company.
6. SEGMENT INFORMATION
EARNINGS VARIATION DUE TO BUSINESS CYCLES AND SEASONAL FACTORS. The
Company's operating results can experience quarterly or annual variations due to
business cycles, seasonality and other factors. The market price for its common
stock may decrease if its operating results do not meet the expectations of the
market.
Currently, approximately 47% of the Company's revenue is from
management operations, 48% from other domestic operations, 4% 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.
COMPETITION. The Company does business in a highly competitive market
and has fewer resources than most of its competitors. Businesses in this market
compete within and outside the United States principally on the basis of price,
product quality, custom design, technical support, reputation, equipment
financing assistance and reliability. Competitive pressures and other factors
could cause the Company to lose market share or could result in decreases in
prices, either of which could have a material adverse effect on its financial
position and results of operations.
RISKS OF DOING BUSINESS IN OTHER COUNTRIES. The Company conducts
business in markets outside the United States, and expects to continue to do so.
In addition to the risk of currency fluctuations, the risks associated with
conducting business outside the United States include: social, political and
economic instability; slower payment of invoices; underdeveloped infrastructure;
underdeveloped legal systems; and nationalization. The Company has not entered
into any currency swap agreements which may reduce these risks. The Company may
enter into such agreements in the future if it is deemed necessary to do so.
Current economic and political conditions in the Asia Pacific and Middle East
regions have affected the Company outlook for potential revenue there. The
Company cannot predict the full impact of this economic instability, but it
could have a material adverse effect on revenues and profits.
The Company has determined that its reportable segments are those that
are based on the Company's method of internal reporting, which segregates its
business by product category and service lines. The Company's reportable
segments are as follows:
Management Operations - The Company provides employee and
management services to operate the City of Toledo Sludge 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 countries.
-8-
Research and Development - The Company contracts with Federal and
State agencies to perform or assist in research and development on the Company's
technology.
The accounting policies of the segments are the same as the Company's
significant accounting policies. Fixed assets generating specific revenue are
identified with their respective segments and are accounted for as such in the
internal accounting records. All other assets, including cash and other current
assets and all long-term assets, other than fixed assets, are identified with
the Corporate segment. The Company allocates a total of approximately 6% of its
labor cost contained in selling, general, and administrative expenses to the
segments, to reflect the indirect cost of maintaining these segments. All of the
net nonoperating income (expense) are non-apportionable and not allocated to a
specific segment. The Company accounts for and analyzes the operating data for
its segments generally by geographic location, with the exception of the
Management Operations and Research and Development segments. 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 several years and are not expected to change
in the near term.
The Research and Development segment accounts for approximately 4% of
the total year-to-date revenue of the Company, and is unlike any other revenue
in that it is generated as a result of a specific project to conduct initial or
additional ongoing research into the Company's emerging technologies.
-9-
The table below presents information about the segment profits and
segment identifiable assets used by the chief operating decision makers of the
Company for the periods ended September 30, 2002 and 2001 (dollars in
thousands):
Other
Management Domestic Foreign Research &
Operations Operations Operations Development Total
----------------- --------------- --------------- ------------------ -----------
Quarter Ended September 30, 2002
---------------------------------------------------------------------------------
Revenues $ 705 $ 718 $ 13 $ 50 $ 1,486
Cost of revenues 403 484 1 10 898
Segment profits 302 234 12 40 588
Identifiable assets 354 75 - 46 475
Depreciation 11 10 - 2 23
Quarter Ended September 30, 2001
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Revenues $ 474 $ 448 $ 185 $ 68 $ 1,175
Cost of revenues 329 231 132 56 748
Segment profits 145 217 53 12 427
Identifiable assets 189 65 - 52 306
Depreciation 8 10 - 2 20
Nine Months Ended September 30, 2002
---------------------------------------------------------------------------------
Revenues $ 1,846 $ 2,084 $ 38 $ 176 $ 4,144
Cost of revenues 1,147 1,454 2 121 2,724
Segment profits 699 630 36 55 1,420
Identifiable assets 354 75 - 46 475
Depreciation 32 30 - 6 68
Nine Months Ended September 30, 2001
---------------------------------------------------------------------------------
Revenues $ 1,338 $ 1,717 $ 211 $ 187 $ 3,453
Cost of revenues 934 928 132 150 2,144
Segment profits 404 789 79 37 1,309
Identifiable assets 189 65 - 52 306
Depreciation 24 30 - 6 60
-10-
A reconciliation of total segment revenues, cost of revenues, and segment
profits to consolidated revenues, cost of revenues, and segment information to
the consolidated financial statements for the quarters ended September 30, 2002
and 2001 is as follows (dollars in thousands):
Quarter Quarter
Ended Sept. Ended Sept.
30, 2002 30, 2001
----------- -----------
Segment profits:
Segment profits for reportable segments $ 588 $ 427
Corporate selling, general and administrative
expenses and research and development costs (454) (708)
Other income (expense) (28) (76)
------- -------
Consolidated earnings before taxes $ 106 $ (357)
======= =======
Identifiable assets:
Identifiable assets for reportable segments $ 475 $ 306
Corporate property and equipment 116 206
Current assets not allocated to segments 1,400 2,070
Intangible and other assets not allocated to
segments 2,493 2,264
Consolidated eliminations (234) (234)
------- -------
Consolidated assets $ 4,250 $ 4,612
======= =======
Depreciation and amortization:
Depreciation for reportable segments $ 23 $ 20
Corporate depreciation and amortization 41 32
------- -------
Consolidated depreciation and amortization $ 64 $ 52
======= =======
7. INVESTMENT IN FLORIDA N-VIRO, L. P.
Florida N-Viro, L.P. was formed in January 1996 pursuant to a joint
venture agreement between the Company and VFL Technology Corporation. The
Company owns a 47.5% interest in the joint venture.
Condensed financial information of the partnership for the quarters
ended September 30, 2002 and 2001 is as follows:
Quarter Ended September 30,
----------------------------------
2002 2001
------------- -------------
Net sales $ 599,640 $ 607,310
Gross profit (4,824) (45,948)
Loss from continuing operations (83,975) (107,728)
Net loss (83,975) (107,728)
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in April, 1993, and became a public company
on October 12, 1993. The Company's business strategy is to market the N-Viro
Process, which produces an "exceptional quality" sludge product as defined in
the Section 503 Sludge Regulations under the Clean Water Act of 1987, with
multiple commercial uses. To date, the Company's revenues primarily have been
derived from the licensing of the N-Viro Process to treat and recycle wastewater
sludge generated by municipal wastewater treatment plants and from the sale to
licensees of the alkaline admixture used in the N-Viro Process. 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.
Total revenues were $1,486,000 for the quarter ended September 30, 2002
compared to $1,175,000 for the same period of 2001. The net increase in revenue
is due primarily to an increase in revenues from the sale of alkaline admixture,
service fees from the management of alkaline admixture and facility management.
The Company's cost of revenues increased to $897,000 in 2002 from $748,000 for
the same period in 2001, and the gross profit percentage increased to 40% from
36% for the quarters ended September 30, 2002 and 2001. This increase in gross
profit percentage is primarily due to the decreased share of equipment sales in
the third quarter of 2002 compared to 2001, and decreased costs associated with
the facility management operations for the same period. Operating expenses
decreased for the comparative period, while the Company's share of the income of
a joint venture, the Company's interest in Florida N-Viro, L.P., decreased for
the same period of 2002. These changes collectively resulted in net income of
approximately $106,000 for the quarter ended September 30, 2002 compared to a
net loss of $357,000 for the quarter ended September 30, 2001.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002 WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001
Overall revenue increased $311,000, or 26%, to $1,486,000 for the
quarter ended September 30, 2002 from $1,175,000 for the quarter ended September
30, 2001. The net increase in revenue was due primarily to the following:
a) Sales of alkaline admixture increased $217,000 from the same period
ended in 2001;
b) Revenue from the service fees for the management of alkaline
admixture was $154,000 for 2002. This type of revenue is the fee charged by the
Company to manage and sell the alkaline admixture on behalf of a third party
customer;
c) The Company's processing revenue, including facility management
revenue, showed a net increase of $121,000 over the same period ended in 2001;
d) Revenue from the sale of equipment earned the Company $-0- for the
period, a decrease of $144,000 from 2001;
e) Miscellaneous revenues increased $10,000 from the same period ended
in 2001;
f) Licensing of the N-Viro Process, including territory fees, earned
the Company $-0- for the period, a decrease of $28,000 from 2001; and,
g) Research and development revenue decreased $19,000 from the same
period ended in 2001.
-12-
Gross profit increased $161,000, or 38%, to $588,000 for the three
months ended September 30, 2002 from $427,000 for the three months ended
September 30, 2001. This increase in gross profit was primarily due to the
increase in sales from new and existing operating facilities. The gross profit
margin increased to 40% from 36%, and was primarily due to the decreased share
of equipment sales in the third quarter of 2002 compared to 2001, and decreased
costs associated with the facility management operations for the same period. In
conjunction with the facility management operation, the Company continued its
start-up in the quarter of a soil blending operation initiated in May 2002, and
expensed approximately $47,000 with no revenue. This operation has started
realizing revenue in the fourth quarter of 2002. If the Company had not started
this operation, the gross margin would have been approximately 41%.
Operating expenses decreased $254,000, or 36%, to $454,000 for the three
months ended September 30, 2002 from $708,000 for the three months ended
September 30, 2001. The decrease was primarily due to a decrease in patent
litigation costs of $183,000 and reductions in selling, general and
administrative expenses of $71,000.
As a result of the foregoing factors, the Company recorded operating
income of $134,000 for the three months ended September 30, 2002 compared to an
operating loss of $281,000 for the three months ended September 30, 2001, an
increase of approximately $415,000.
Net nonoperating expense decreased by $48,000 to a net nonoperating
expense of $28,000 for the three months ended September 30, 2002 from a net
nonoperating expense of $76,000 for the three months ended September 30, 2001.
The decrease was primarily due to a decrease in interest expense of $34,000 and
an increase in the equity of a joint venture from a loss of $51,000 in 2001 to a
loss of $40,000 in 2002.
The Company recorded a net profit of $106,000 for the three months
ended September 30, 2002 compared to a net loss of $357,000 for the same period
ended in 2001, an increase in net profit of approximately $463,000.
For the three months ended September 30, 2002 and 2001, the Company has
not fully recognized the tax benefit of the losses incurred in prior periods.
Accordingly, the effective tax rate for each period was zero.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2002 WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001
Overall revenue increased $691,000, or 20%, to $4,144,000 for the nine
months ended September 30, 2002 from $3,453,000 for the nine months ended
September 30, 2001. The net increase in revenue was due primarily to the
following:
a) Sales of alkaline admixture increased $256,000 from the same period
ended in 2001;
b) Revenue from the service fees for the management of alkaline
admixture was $422,000 for 2002. This type of revenue is new this year, and is
the fee charged by the Company to manage and sell the alkaline admixture on
behalf of third party customers;
c) The Company's processing revenue, including facility management
revenue, showed a net increase of $107,000 over the same period ended in 2001;
d) Revenue from the sale of equipment earned the Company $-0- for the
period, a decrease of $144,000 from 2001;
-13-
e) Miscellaneous revenues increased $4,000 from the same period ended
in 2001;
f) Licensing of the N-Viro Process, including territory fees, earned
the Company $92,000 for the nine months ended, an increase of $64,000 from the
same period in 2001; and,
g) Research and development revenue decreased $18,000 from the same
period ended in 2001.
Gross profit increased $112,000, or 9%, to $1,421,000 for the nine
months ended September 30, 2002 from $1,309,000 for the nine months ended
September 30, 2001. This increase in gross profit was primarily due to the
increase in sales from new and existing operating facilities, partially offset
by a larger percentage of revenue derived from lower margin sources. The gross
profit margin decreased to 34% from 38%, mainly from the larger percentage of
total revenues derived from the service fees from the management of alkaline
admixture and facility management operations. In conjunction with the facility
management operation, the Company also started a soil blending operation in the
second quarter, and expensed approximately $124,000 with no revenue for the year
to date. This operation has started realizing revenue in the fourth quarter of
2002. If the Company had not started this operation, the gross margin for the
nine month period would have been approximately 36%.
Operating expenses decreased $520,000, or 27%, to $1,437,000 for the
nine months ended September 30, 2002 from $1,957,000 for the nine months ended
September 30, 2001. The decrease was primarily due to a decrease in patent
litigation costs of $384,000, and reductions in selling, general and
administrative expenses of $136,000.
As a result of the foregoing factors, the Company recorded an operating
loss of $16,000 for the nine months ended September 30, 2002 compared to an
operating loss of $647,000 for the nine months ended September 30, 2001, an
improvement in operating earnings of $631,000.
Net nonoperating income (expense) increased by $152,000 to net
nonoperating income of $20,000 for the nine months ended September 30, 2002 from
a net nonoperating expense of $132,000 for the nine months ended September 30,
2001. The increase was primarily due to an increase in the equity of a joint
venture from a loss of $113,000 in 2001 to income of $12,000 in 2002, an
improvement of $125,000, and from a decrease of $41,000 in interest expense.
The Company recorded a net profit of $4,000 for the nine months ended
September 30, 2002 compared to a net loss of $780,000 for the same period ended
in 2001, an increase in net profit of approximately $784,000.
For the nine months ended September 30, 2002 and 2001, the Company has
not fully recognized the tax benefit of the losses incurred in prior periods.
Accordingly, the effective tax rate for each period was zero.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $1,063,000 at September
30, 2002, compared to a working capital deficit of $955,000 at December 31,
2001, a decrease in working capital of $108,000. Current assets at September 30,
2002 included cash and investments of $461,000 (including restricted cash of
$400,000), which is an increase of $14,000 from December 31, 2001. The decrease
in working capital was principally due to the operating loss for the nine month
period and additional debt financing for equipment purchases.
-14-
The Company maintains a $400,000 certificate of deposit with a bank
which is held as collateral on the Company's working capital line of credit.
In April 2000, the Company renewed its agreement for a line of credit of
$1 million, and in May 2001 the line was renewed for $750,000. The lender
extended the line in April, 2002 and again July 31, 2002 and now expires January
31, 2003. The current agreement contains two demand Notes, for $400,000 and
$350,000, each expiring January 31, 2003. The first Note is secured by a
certificate of deposit with the lender of $400,000, and the second Note is
secured by all business assets and the assignment of the contract between the
City of Toledo and the Company, and requires the Company to maintain certain
financial covenants. Borrowings on the first Note bear interest at prime plus
1%, and borrowings on the second Note bear interest at prime plus 3%. The
balance owed on the existing line at September 30, 2002 was $650,000.
The normal collection terms for accounts receivable are approximately 30
or 60 days for a majority of the customers. This is a result of the nature of
the license contracts and type of customer.
The Company's cash requirements for the next 120 days include the
expiration of its line of credit with a local bank at the end of January, 2003
and the remittance of sales tax to the State of South Carolina (see Note 4
discussions). The Company also expects to realize significant seasonal revenue
from the sale of its soil products, and is completing a plan of overhead
cost-cutting and other measures to improve its cash flow through and after the
year end.
The Company is currently negotiating with several third parties on the
sale of its investment in Florida N-Viro LLC, which may provide, in management's
opinion, additional funds to finance the Company's cash requirements. Because
they are still in progress, there can be no assurance the Company will
successfully complete these negotiations.
The Company has agreed to go forward on a contract with the investment
banking firm of Laux & Company of Medina, Ohio, with respect to a proposal to
obtain up to $1.25 million in equity financing. The Company hopes to sell up to
500,000 shares of preferred stock at a price per share of $2.50. The specific
terms and conditions applicable to the preferred shares will be determined once
Laux & Company has identified a potential purchaser. There can be no assurance
that the Company will be successful in finding a buyer for the preferred stock
or in selling these shares. If the shares are sold, the proceeds from the
offering will be used to supplement the Company's working capital.
Also, the Company has agreed to go forward on contracts with two
investment banking firms with respect to a proposal to obtain up to $800,000 of
mezzanine debt financing. The specific terms and conditions applicable to the
debt will be determined once either firm has identified a potential debtor.
There can be no assurance that the Company will be successful in finding a
lender for the financing. If the financing is obtained, 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
utility 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 has filed for federal and State of Ohio grants for the
demonstration of this N-Viro Fuel technology. The Company believes significant
value can be derived from the implementation of a system which will divert Class
B biosolids for land application into alternative fossil fuel markets.
The Company continues to focus on the development of regional biosolids
processing facilities. Currently the Company is in negotiations with several
large privatization firms to permit and develop independent, regional
facilities.
-15-
Current market trends and Company business development provide
significant basis for the Company's optimistic outlook for 2002 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.
The Company believes that its working capital together with the line of
credit and satisfactory completion of negotiations with third parties will
provide sufficient cash to meet the Company's cash requirements through 2002 and
into early 2003.
OUR ABILITY TO GROW MAY BE LIMITED BY COMPETITION
We provide a variety of technology and services relating to the
transportation and treatment of wastewater residuals. We are 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.
Some of these competitors are larger and have greater capital resources than we
do.
We derive a substantial portion of our revenue from services provided
under municipal contracts, and many of these are subject to competitive bidding.
We also intend to bid on additional municipal contracts, however, we may not be
the successful bidder. In addition, some of our contracts will expire in the
future and those contracts may be renewed on less attractive terms. If we are
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 our business and financial condition.
WE ARE AFFECTED BY UNUSUALLY ADVERSE WEATHER CONDITIONS
Our 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 business. In addition, our
revenues and operational results are adversely affected during the winter months
which limits the level of land application that can be performed. Long periods
of adverse weather could have a material negative effect on our 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 to run the trucks that purchase the processing materials and
supplies for our customers, price escalations or reductions in the supply of
fuel could increase our operating expenses and have a negative impact on the
results of operations. We are 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.
WE ARE DEPENDENT ON THE MEMBERS OF OUR MANAGEMENT TEAM
We are highly dependent on the services of our management team, the
loss of any of whom may have a material adverse effect on our business and
financial condition.
-16-
We have entered into employment agreements with certain members of our
management team, which contain non-compete and other provisions. The laws of
each state differ concerning the enforceability of non-competition agreements.
We 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 our key executive officers were to leave us and the
courts refused to enforce the non-compete covenant, we might be subject to
increased competition, which could have a material and adverse effect on our
business and financial condition.
OUR INTELLECTUAL PROPERTY MAY BE MISAPPROPRIATED OR SUBJECT TO CLAIMS OF
INFRINGEMENT
We attempt to protect our intellectual property rights through a
combination of patent, trademark, and trade secret laws, as well as licensing
agreements. Our 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.
Our 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 our ability to offer our services. We
have not conducted an independent review of patents issued to third parties.
We also rely on unpatented technology. It is possible that others will
independently develop the same or similar technology or otherwise obtain access
to similar technology, and could materially and adversely affect the Company.
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 N-Viro Fuel pilot program to
commence operations in the near future, such program may not begin until 2003 or
may never begin. 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 N-Viro Fuel significantly
exceeding current estimates, or (3) competing technologies rendering the N-Viro
Fuel process less attractive.
-17-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November, 2001, and as filed under Form 8-K dated December 14, 2001,
the Company and Hydropress Environmental Services, Inc. ("Hydropress") signed a
settlement agreement (the "Settlement Agreement") of a lawsuit between the
parties related to alleged price guarantees on shares of the Company's common
stock and to alleged breaches of a license agreement between the parties. Each
party dismissed its claims against the other with prejudice and entered into
general releases in favor of the other party. Pursuant to the terms of the
Settlement Agreement, among other things, N-Viro purchased back 66,250 N-Viro
shares held by Hydropress at the market price as of November 15, 2001, which was
$1.01 per share, for a total of $66,913. Also pursuant to the Settlement
Agreement, the Company purchased back three patent license agreements (including
territory rights) from Hydropress valued at approximately $287,000. The first
license concerned the exclusive right to sell and use the N-Viro technology in
Massachusetts, Vermont and New Hampshire. The second license concerned the
non-exclusive right to sell and use the N-Viro technology in New Jersey,
Delaware, Maryland and Eastern Pennsylvania. The third license concerned
amendments to the two prior-mentioned agreements and the exclusive right to use
the N-Viro technology at Hydropress' facility in Phillipsburg, New Jersey.
N-Viro and Hydropress entered into a new patent license agreement granting
Hydropress the non-exclusive right to use the N-Viro technology at its facility
in Phillipsburg, New Jersey. The Company paid certain amounts due to Hydropress
under the Settlement Agreement pursuant to the terms of a promissory note (the
"Note"). The original principal amount of the Note was $204,587, was
non-interest bearing and matured on October 15, 2002 with a balloon payment of
$144,587. At September 30, 2002, the outstanding principal balance on the Note
was $144,587, which was paid in full to Hydropress in October 2002. In
conjunction with the final discharge of the Hydropress Note, the Company
arranged an unsecured loan from a third-party licensee for $144,587, with
monthly payments of $13,966 due for one year through October 15, 2003.
The Company has voluntarily approached state tax authorities in South
Carolina and acknowledged failing to file sales tax returns within that state.
The Company has collected and accrued approximately $170,000 in sales tax from
customers in South Carolina that has not been remitted to South Carolina tax
authorities. The Company believes that the sales at issue are exempt from sales
tax. The Company has retained counsel in South Carolina to assist it in
negotiating a settlement of this matter.
Prior to May 9, 2002, the Company's shares of voting, common stock were
traded on the SmallCap Market of the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"). On Thursday, May 9, 2002, the Company
received notice from the NASD that the Company's shares of voting, common stock
would be de-listed effective with the open of business on May 10, 2002. In July,
2002 the Company decided not to pursue further appeal of the NASD's decision to
de-list its voting common stock. Currently, the Company's shares of common stock
are traded on the Over-The-Counter ("OTC") market. The Company does not believe
that the delisting of its common stock from the Nasdaq SmallCap Market has or
will have a material adverse effect on the financial condition or results of
operations of the Company. The delisting of the Company's common stock from
NASDAQ, however, may have had a material adverse effect on the marketability of
the Company's shares, as shares traded on the OTC market generally experience
lower trading value than those traded on the organized exchanges.
The Company anticipates the possibility of listing its shares on the
Bulletin Board Exchange sometime in 2003. This new exchange is scheduled to
launch in 2003 and is a listed, electronic exchange owned and operated by
NASDAQ. It should provide the Company with greater flexibility, liquidity and
access to capital than the current OTC system.
-18-
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
CHANGES IN REGISTRANT'S BOARD OF DIRECTORS
On November 4, 2002, at a meeting of the Board of Directors, Phillip
Levin was nominated and unanimously approved as a Class II member to
the Board of Directors of the Company, effective immediately. Mr. Levin
replaces James O'Neil, who resigned on March 7, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 99.1 - Certification(s) Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None.
-19-
N-VIRO INTERNATIONAL CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
N-VIRO INTERNATIONAL CORPORATION
Date: November 14, 2002 /s/ Terry J. Logan
--------------------- ------------------------------------------------
Terry J. Logan
Chief Executive Officer and President
(Principal Executive Officer)
Date: November 14, 2002 /s/ James K. McHugh
--------------------- ------------------------------------------------
James K. McHugh
Chief Financial Officer, Secretary and Treasurer
(Principal Financial & Accounting Officer)
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
N-VIRO INTERNATIONAL CORPORATION
CERTIFICATIONS
I, Terry J. Logan, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of N-Viro International
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Terry J. Logan
----------------------------------
President and
Chief Executive Officer
-21-
N-VIRO INTERNATIONAL CORPORATION
CERTIFICATIONS
I, James K. McHugh, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of N-Viro International
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ James K. McHugh
----------------------------------
Chief Financial Officer
-22-