<PAGE> 1
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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 JUNE 30, 1996
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 (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3450 W. CENTRAL AVENUE, SUITE 328
TOLEDO, OHIO 43606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (419) 535-6374
----------------------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to the filing requirements for at least the past 90 days. Yes X No .
--- ---
As of June 30, 1996, 2,094,250 shares of N-Viro International
Corporation $ .01 par value common stock were outstanding.
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1996 1995 1996 1995
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues $ 995,703 $ 1,692,689 $1,949,275 $ 2,875,829
Cost of revenues 409,109 984,890 819,721 1,688,541
----------- ----------- ---------- -----------
Gross profit 586,594 707,799 1,129,554 1,187,288
Selling, general & administrative expenses 552,848 901,019 1,051,765 2,006,889
----------- ----------- ---------- -----------
Operating income (loss) 33,746 (193,220) 77,789 (819,601)
Other income (expense):
Interest income (expense), net 2,643 3,376 4,957 11,983
Equity in gains (losses) of joint ventures (1,125) (17,103) 21,535 (41,478)
Other income (loss) (3,724) (39,099) 31,774 (52,687)
----------- ----------- ---------- -----------
Income (loss) before income taxes 31,540 (246,046) 136,055 (901,783)
Income taxes -- -- -- 11,000
----------- ----------- ---------- -----------
Net income (loss) $ 31,540 $ (246,046) $ 136,055 $ (912,783)
=========== =========== ========== ===========
Net income (loss) per common share $ 0.02 $ (0.12) $ 0.07 $ (0.45)
=========== =========== ========== ===========
Weighted average common shares outstanding 2,037,000 2,037,000 2,037,000 2,037,000
=========== =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
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N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1996 December 31,
ASSETS (Unaudited) 1995
- ------ ------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 87,033 $ 223,942
Securities available-for-sale 1,401 1,401
Trade receivables 819,083 961,681
Other receivables 162,849 254,718
Assets held for sale 888,633 1,095,024
Prepaid expenses and other assets 290,221 189,669
------------ ------------
Total Current assets 2,249,220 2,726,435
Property and equipment 731,255 703,495
Property and Equipment Held for Investment in Joint Ventures 1,263,674 1,244,213
Intangibles and Other assets 389,212 388,168
------------ ------------
TOTAL ASSETS $ 4,633,361 $ 5,062,311
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 810,858 $ 819,990
Accounts payable 1,157,470 1,396,793
Accrued expenses 441,991 543,403
------------ ------------
Total Current liabilities 2,410,319 2,760,186
Long-Term Debt, less current maturities 502,711 720,000
Stockholders' Equity
Common stock, $.01 par value; authorized 45,000,000
shares; issued 1996 and 1995 2,094,250 shares 20,943 20,943
Additional paid-in capital 12,024,060 12,024,060
Retained earnings (deficit) (9,706,695) (9,844,901)
------------ ------------
2,338,308 2,200,102
Less treasury stock, at cost, 57,250 shares 617,977 617,977
------------ ------------
1,720,331 1,582,125
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,633,361 $ 5,062,311
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
--------- -----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 29,885 $ 357,384
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from joint venture 250,000 --
Proceeds from sale of property and equipment 67,511 100
Expenditures for intangibles and other assets (15,375) (82,388)
Expenditures for property and equipment (110,648) (1,996,404)
Proceeds from sales of investments in available-for-sale securities -- 1,973,672
--------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 191,488 (105,020)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (458,282) (199,118)
Issuance of notes payable 100,000 --
--------- -----------
NET CASH USED BY FINANCING ACTIVITIES (358,282) (199,118)
NET INCREASE (DECREASE) IN CASH (136,909) 53,246
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 223,942 474,841
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 87,033 $ 528,087
========= ===========
</TABLE>
See Notes to Consolidated Financial Statements
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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 only normal recurring accruals) necessary to present
fairly such information for the period and at the dates indicated. The results
of operations for the six months ended June 30, 1996 may not be indicative of
the results of operations for the year ended December 31, 1996. 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 and
combined financial statements and notes thereto appearing in the Company's Form
10-K for the period ending December 31, 1995.
N-Viro International Corporation was incorporated in April 1993 and is the
successor to N-Viro Energy Systems, Ltd. (the Partnership) and five Company
Agents. The Company Agents together with the Partnership are the Company
Entities.
On October 19, 1993, the Partnership 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 shareholders of the Company Agents contributed to the
Company all of the outstanding capital stock of such entities in exchange for a
total of six million shares of common stock of the Company and organization
notes totaling $5,221,709 (such transactions are collectively referred to as the
Organization). The Organization notes were repaid out of the proceeds from an
initial public offering (the IPO) of two million shares of N-Viro International
Corporation common stock. A total of 2,112,000 new shares were issued in the
IPO, including shares issued in the partial exercise by the Underwriters of an
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. Earnings (loss) per
share have been restated for the six month period and quarter ended June 30,
1995.
The financial statements are consolidated as of June 30, 1996, December
31, 1995 and June 30, 1995 for the Company. Adjustments have been made to
eliminate all intercompany transactions.
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N-VIRO INTERNATIONAL CORPORATION COMPANY ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
NVIC's consolidated financial statements have been presented on the basis
that it is a going concern. Such basis assumes the realization of assets and the
satisfaction of liabilities, each in the normal course of business. NVIC has
generated profit from operations, but negative cash flows from operating
activities. The amount of cash and investments available at June 30, 1996 are
not sufficient to finance the current level of operations and satisfy other cash
requirements throughout 1996. Consequently, NVIC's ability to meet its current
and future obligations is primarily dependent upon its ability to increase
revenues and obtain working capital financing. NVIC is currently negotiating
with third parties to pay for use of its patented processes, which, when
finalized will increase its gross revenue and provide additional cash flow. With
most of management's cost containment programs implemented, NVIC's operating
results reflect improved operating profits, which should aid management's
efforts to successfully obtain commitments for working capital financing of
NVIC's cash requirements. The satisfactory completion of these negotiations is
essential as these avenues are NVIC's principal means of providing sufficient
cash flows to meet 1996 requirements. Because the negotiations are still in
progress, there can be no assurance that the Company will have sufficient funds
to finance its operations.
2. RELATED PARTY TRANSACTIONS
The Company paid the former shareholder of Tennessee-Carolina N-Viro, Inc.
$15,000 for the three months and $30,000 for the six months ended June 30, 1996,
and $30,000 for the three months and $60,000 for the six months ended June 30,
1995 under a contract arrangement for consulting services. The Company granted
this former shareholder of Tennessee-Carolina 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.
3. CONTINGENCIES
In 1993, the Company entered into an agreement with a licensee under which
it has paid the licensee $100,000 for research and development costs associated
with developing and testing a new drying process. Under the agreement, the
Company will be the sole owner of the resulting technology. However, the Company
has agreed to reimburse the licensee up to an additional $200,000 by remitting
25% of gross receipts generated by the technology, including licensing fees,
royalty payments and commissions. Such amounts are not due until the process
begins generating gross revenue.
In May 1993, a complaint was filed alleging that the N-Viro process
infringes a patent relating to the treatment of sludge. The complaint sought
damages and an injunction enjoining NVIC from further infringement of the
plaintiff's patent. In early 1995, NVIC agreed to settle the claim and the loss
has been provided for in the 1995 financial statements.
From time to time, NVIC is involved in legal proceedings and subject to
claims which have arisen in the ordinary course of its business. There are no
legal proceedings involving NVIC during this reporting period.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
N-Viro International Corporation 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 that 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. The Company has granted 43 licenses to use the N-Viro Process.
There are currently 36 N-Viro facilities operating throughout the world using
the N-Viro Process. The Company estimates that these operating N-Viro facilities
are treating and recycling sludge at an annualized rate of approximately 140,000
dry tons per year.
Total revenues of about $996,000 for the quarter ended June 30, 1996
compared to about $1,693,000 for the same period of 1995. The decline in revenue
appears alarming, however since June 1995, the company sold two subsidiaries and
contributed an operating facility to a joint venture, all of which produced
gross revenues during 1995. Also, in the second quarter of 1995, the company
signed license agreements which provided for retroactive collection of revenue,
which created non-recurring, one time increases (above expected levels) in
alkaline admixture sales to second quarter 1995 revenues. As a result of the
implementation of both a change in business strategy and cost containment
programs in late 1995, the Company decreased its cost of revenues and selling,
general and administrative costs substantially from the same period of 1995.
These changes resulted in a profit of about $31,500 for the three months ended
June 30, 1996 compared to a loss of about $246,000 for the three months ended
June 30, 1995.
The Company believes that it's development of a network of marketing
representatives and regional partnerships will more than offset the Company's
reduced staffing in generating new sales revenue. In the second quarter of 1996,
the Company entered in to written agreements to provide N-Viro Soil to a
national distributor of agricultural products, soil fertilizers and bagged
topsoil products; licensing the rights for the N-Viro process in Singapore; and,
granting a license to use the N-Viro Process in Buncombe County (Asheville),
North Carolina.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 WITH THREE MONTHS
ENDED JUNE 30, 1995
Overall revenue declined about $697,000, or about 42% to about $996,000
for the three months ended June 30, 1996 from about $1,693,000 for the three
months ended June 30, 1995. The decline in revenue was due primarily to
elimination in 1996 of revenues of:
a) about $207,000 from N-Viro Worldwide, which was sold in July 1995;
b) about $188,000 from the Fort Meade, Florida facility, which opened in
February 1995, and later contributed to a joint venture in December 1995;
Also, in the second quarter of 1995, the company signed license agreements
that provided for retroactive collection of revenue, which created
non-recurring, one time increases in alkaline admixture sales to second quarter
1995; and, in April, 1996, Laboratory Resources, Inc. purchased the operations
of the company's wholly owned subsidiary, BioCheck Laboratories, Inc.
Gross profit decreased about $121,200, or 17% to about $586,600 for the
three months ended June 30, 1996 from about $707,800 for the three months ended
June 30, 1995 primarily from the combined
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<PAGE> 8
elimination of revenues and direct costs associated with N-Viro Worldwide, the
Fort Meade, Florida facility and BioCheck Laboratories. However, the gross
profit margin increased to 59% from 42% for the same three month comparison.
Selling, general and administrative decreased about $348,200, or 39%, to
about $552,800 for the three months ended June 30, 1996 from about $901,000 for
the three months ended June 30, 1995. The expenses reached a peak of $2,017,000
during the second quarter of 1994 and have declined each successive quarter as
part of the Company's ongoing plan to reduce expenses. Expense reductions have
been achieved through closure of regional sales offices, reduced staffing, and
lower consulting expenses.
As a result of the foregoing factors, the Company recorded an operating
profit of about $34,000 for the three months ended June 30, 1996 compared to an
operating loss of about $193,000 for the three months ended June 30, 1995.
The Company has not recognized the tax benefit of the losses incurred in
prior periods and accordingly, the effective tax rate for the period was zero.
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<PAGE> 9
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 WITH SIX MONTHS ENDED JUNE 30, 1995
Gross revenues for the six month period ending June 30, 1996 was about
$926,500 less than for the same period in 1995. The decline in revenue was due
primarily to elimination in 1996 of revenues from N-Viro Worldwide, which was
sold in July 1995 and from the Fort Meade, Florida facility, which opened in
February 1995, and later contributed to a joint venture in December 1995. The
net profit for the six months ended June 30, 1996 improved to about $136,000
compared to a net loss of about $902,000 for the same period in 1995. The gross
margin improved to about 58% for the first six months of 1996 from about 41% for
the first six months of 1995. The first two quarters of 1996 are the first two
consecutive quarters in the company's history to post operational profits.
Through June 30, 1996, operational profits were about $136,000 compared to
operational losses of about $902,000 for the first two quarters of 1995. These
improvements were a result of implementing a change in business strategy and
through a concerted effort to reduce direct, selling, general and administrative
costs as more fully described in the three month comparative section of this
report.
LIQUIDITY AND CAPITAL RESOURCES
The Company had negative working capital of $161,100 at June 30, 1996
compared to a negative working capital of $1,547,100 at June 30, 1995 and a
negative working capital of $34,000 at December 31, 1995. The reduction in
working capital at June 30, 1996 from December 31, 1995 was caused primarily
from the reduction in long-term debt, paid from the liquidation of current
assets.
The Company's business strategy has changed from the development and
operation of a number of N-Viro facilities that may be owned either by the
Company or by joint ventures between the Company and third parties, which
requires substantial capital expenditures, to marketing the N-Viro process which
will require minimal, if any, capital expenditures.
During 1994, the Company began construction of a new Company-owned
facility in Fort Meade, Florida. The new facility started producing N-Viro Soil
from wastewater solids in February 1995. The Company paid for the facility out
of the proceeds of the initial public offering. In December 1995, the Company
entered in to a Memorandum of Understanding with VFL Technologies, Inc. and
agreed to contribute the Fort Meade facility to a equally owned joint venture,
to be known as N-Viro Florida, LLP. This joint venture commenced operations on
January 1, 1996. At June 30, 1996, the Company has received the first two of
four $250,000 payments from VFL Technologies, Inc. as its contribution to the
joint venture. The balance of these payments are scheduled to be received in
1996. The Company also started the engineering work for a privately operated
facility in Honolulu and is awaiting final permits for this project which will
be operated by a third party.
At June 30, 1996, the Company had a non-interest bearing contractual
obligation with an outstanding balance of $1,060,000 requiring monthly payments
of $60,000, and a balloon payment of $280,000 in July 1997; and, an interest
bearing long-term note payable to a bank with an outstanding balance of $43,324
and matures in June 1997.
The Company considers improvement of its working capital position as a top
priority. It has received a $100,000 working capital loan from N-Viro Energy
Systems, Ltd., the majority stockholder in the Company, during the second
quarter of 1996 and has initiated discussions regarding a private placement. The
Company is also considering a number of financing alternatives that would result
in increased working capital and the ability to construct the Honolulu project
and other similar opportunities. The following options are also under active
consideration: traditional bank debt; project financing; selection of a partner
to develop a specific project, a group of projects or a geographic territory;
and
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<PAGE> 10
venture capital. The Company believes that its working capital together with any
internally generated funds and externally generated funds, will provide
sufficient cash to meet the Company's capital and other cash requirements
through 1996.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K: One report on Form 8-K was filed May 15, 1996
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<PAGE> 11
N-VIRO INTERNATIONAL CORPORATION
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.
<TABLE>
<S> <C>
N-VIRO INTERNATIONAL CORPORATION
Date: August 12, 1996 /S/ J. Patrick Nicholson
----------------------------- ------------------------
J. Patrick Nicholson
Chairman , President and Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1996 /S/ John R. Kolpien
----------------------------- ------------------------
John R. Kolpien
Chief Financial Officer
(Principal Financial Officer)
Date: August 12, 1996 /S/ James K. McHugh, CPA
----------------------------- ------------------------
James K. McHugh
Controller
(Principal Accounting Officer)
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000904896
<NAME> N-VIRO INTERNATIONAL CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 87,033
<SECURITIES> 1,401
<RECEIVABLES> 819,083
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,249,220
<PP&E> 731,255
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,633,361
<CURRENT-LIABILITIES> 2,410,319
<BONDS> 0
<COMMON> 20,943
0
0
<OTHER-SE> 12,024,060
<TOTAL-LIABILITY-AND-EQUITY> 4,633,361
<SALES> 1,949,275
<TOTAL-REVENUES> 1,949,275
<CGS> 819,721
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 136,055
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<EPS-PRIMARY> .07
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</TABLE>
