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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, 1997
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 September 30, 1997, 2,695,750 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 Sept. 30 Nine Months Ended Sept. 30
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 995,539 $ 1,421,463 $ 3,145,698 $ 3,370,738
Cost of revenues 425,871 770,236 1,341,785 1,589,957
----------- ----------- ----------- -----------
Gross profit 569,668 651,227 1,803,913 1,780,781
Selling, general & admin. expenses 425,927 896,548 1,294,004 1,948,313
----------- ----------- ----------- -----------
Operating income (loss) 143,741 (245,321) 509,909 (167,532)
Other income (expense):
Interest income (expense), net (3,149) 9,924 (21,101) 14,881
Equity in gains (losses) of joint (10,179) (39,116) 8,361 (17,581)
ventures
Other income (loss) (25,247) 11,137 (18,569) 42,911
----------- ----------- ----------- -----------
Income (loss) before income taxes 105,166 (263,376) 478,600 (127,321)
Income taxes - - - -
----------- ----------- ----------- -----------
Net income (loss) $ 105,166 $ (263,376) $ 478,600 $ (127,321)
=========== =========== =========== ===========
Net income (loss) per share $ 0.04 $ (0.13) $ 0.22 $ (0.06)
=========== =========== =========== ===========
Weighted ave. common shares outstanding 2,416,826 2,037,000 2,165,674 2,037,000
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
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N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
ASSETS (Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 189,769 $ 282,115
Securities available-for-sale 1,401 1,401
Trade receivables 1,242,439 788,628
Other receivables 379,216 113,544
Assets held for sale 360,926 780,108
Prepaid expenses and other assets 218,051 225,597
------------ ------------
Total current assets 2,391,802 2,191,393
Property and equipment 568,097 621,558
Investment in joint ventures 914,414 919,352
Intangibles and other assets 618,947 434,634
------------ ------------
TOTAL ASSETS $ 4,493,260 $ 4,166,937
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 324,589 $ 911,706
Accounts payable 1,087,076 1,306,862
Accounts payable-related parties 5,517 -
Accrued expenses 203,405 258,779
------------ ------------
Total current liabilities 1,620,587 2,477,347
------------ ------------
Long-term debt, less current maturities 60,542 68,719
Long-term debt - related parties --- 207,312
------------ ------------
60,542 276,031
------------ ------------
Stockholders' equity
Common stock, $.01 par value; authorized
45,000,000 shares; issued 1997 2,505,750
and 1996 2,094,250 shares 25,058 20,943
Additional paid-in capital 12,964,319 12,048,455
Retained earnings (deficit) (9,559,269) (10,037,862)
------------ ------------
3,430,108 2,031,536
Less treasury stock, at cost, 57,250 shares 617,977 617,977
------------ ------------
2,812,131 1,413,559
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,493,260 $ 4,166,937
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 200,118 $ 63,557
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on assets held for sale 200,000 ---
Proceeds from joint venture --- 250,000
Proceeds from sale of property and equipment 4,665 67,511
Expenditures for property and equipment (43,934) (110,648)
Expenditures for intangibles and other assets (30,259) (31,653)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 130,472 175,210
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of debt (780,889) (652,674)
Issuance of common stock 332,353 ---
Issuance of notes payable --- 255,000
Repayments on notes receivable 25,600 23,500
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (422,936) (374,174)
--------- ---------
NET DECREASE IN CASH (92,346) (135,407)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 282,115 223,942
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 189,769 $ 88,535
========= =========
</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 nine months ended September 30,
1997 may not be indicative of the results of operations for the year ended
December 31, 1997. 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, 1996.
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 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.
The financial statements are consolidated as of September 30, 1997 and
December 31, 1996 for the Company. Adjustments have been made to eliminate all
intercompany transactions.
The Company'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. The Company has generated positive cash flows from operating
activities in 1997. However, the amount of cash and investments available at
September 30, 1997 are not sufficient to finance the current level of operations
and satisfy other cash requirements through 1997 and into 1998. Consequently,
the Company's ability to meet its current and future obligations is primarily
dependent upon its ability to continue profitable operations and obtain
additional debt financing. The Company is negotiating to obtain additional
short-term debt financing which, in management's opinion, would provide adequate
cash flow to finance the Company's cash requirements. The satisfactory
completion of those plans are the Company's principal means of providing
sufficient cash flows to meet 1997 obligations.
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
$90,000 for the nine months ended September 30, 1997, and $45,000 for the nine
months ended September 30, 1996 under a contract arrangement signed in 1993 for
consulting services. The Company granted Mr. Carroll a security interest in all
present and
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future receivables and contract rights from licenses in the states
of Tennessee, North Carolina and South Carolina pursuant to the contract
agreement.
In June of 1997, the Company reached agreements with three trade
creditors to eliminate, in the aggregate, $259,500 of the Company's short-term
debt in exchange for the Company's issuance and delivery to such creditors, in
the aggregate, 86,500 shares of Common Stock. All three trade creditors are
current members of the Board of Directors of the Company, J. Patrick Nicholson,
Bobby Carroll and Frederick Kurtz. Additionally, Mr. Nicholson is the Chairman
of the Board, Chief Executive Officer and President of the Company. The number
of shares of Common Stock issued to, and the corresponding amount of short-term
debt forgiven by, Mr. Nicholson, Mr. Carroll and Mr. Kurtz is set forth in the
table below:
<TABLE>
<CAPTION>
====================== ======================== ==================================
Creditor Amount of Canceled Debt No. of Shares Issued in Exchange
- ---------------------- ------------------------ ----------------------------------
<S> <C> <C>
J. Patrick Nicholson $48,000 16,000
- ---------------------- ------------------------ ----------------------------------
Bobby Carroll $150,000 50,000
- ---------------------- ------------------------ ----------------------------------
Frederick Kurtz $61,500 20,500
====================== ======================== ==================================
</TABLE>
All such shares of Common Stock were issued and delivered to the Company's
creditors pursuant to appropriate exemptions from registration under federal and
state securities laws. All of the exchanges were evidenced by written Share
Exchange Agreements between the Company and each of the creditors. Copies of
such Share Exchange Agreements were filed as Exhibits to the Company's Form 8-K
filed on July 18, 1997 which has been incorporated herein by reference.
In addition to the share exchanges described above, the Company, in
June of 1997, also reached agreement with N-Viro Energy Systems, Ltd. an Ohio
limited partnership ("NVESL") and the holder of 45% of the issued and
outstanding share of the Common Stock to cancel $150,000 of the Company's
short-term debt to NVESL in exchange for the Company's issuance and delivery to
NVESL of 50,000 shares of Common Stock. At the time of this agreement, the
Company's total indebtedness to NVESL was $176,500. Such indebtedness was
evidenced by three promissory notes in the aggregate amount of $191,500. In
exchange for the cancellation of the three original promissory notes, the
Company agreed to issue and deliver to NVESL (i) 50,000 shares of Common Stock
and (ii) a promissory note in the amount of $26,500. The shares of Common Stock
issued and delivered to NVESL were issued and delivered pursuant to applicable
exemptions from registration under the Securities Act and state securities laws.
Further, this exchange was evidenced by a written Share Exchange Agreement which
was filed by the Company as an Exhibit to the Company's Form 8-K filed on July
18, 1997.
3. CONTINGENCIES
The Company leases office space under an agreement which requires
monthly payments of $4,664. The lease expires in December 1997. The total
minimum rental commitment at September 30, 1997 is $14,000. The total rental
expense included in the statements of operations for each of the periods ended
September 30, 1997 and 1996 is approximately $42,000.
During 1994, the Company reacquired territory rights to several states
from a former agent. In consideration for the rights, the Company paid $200,000
in cash and issued 66,250 shares of unregistered Common Stock with a designated
value of $324,625. In the event the former agent elects to sell all these shares
at the earliest date possible, the Company has guaranteed the former agent $6
per share. If the former agent receives in excess of $10 per share, the Company
will receive 50% of the excess amount.
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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 of the Company.
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. There are currently 37 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 150,000 dry tons per year.
Total revenues were $996,000 for the quarter ended September 30, 1997
compared to $1,421,000 for the same period of 1996. The decrease in revenue is
due primarily to a decrease in territory fees. The Company, however, decreased
its cost of revenues for the same period of 1996. The decrease in cost of
revenues was due primarily to the decrease in commissions expense. As a result,
the gross profit percentage increased to 57% for the quarter September 30, 1997
from 46% for the same period of 1996. Selling, general and administrative costs
also decreased for the same period of 1996. These changes collectively resulted
in a net profit of $105,000 for the quarter ended September 30, 1997 compared to
a net loss of ($263,000) for the quarter ended September 30, 1996.
The Company anticipates that its development of a network of marketing
representatives and regional partnerships will more than offset the Company's
reduced staffing in generating new sales revenue.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996
Overall revenue decreased $426,000, or 30%, to $996,000 for the three
months ended September 30, 1997 from $1,422,000 for the three months ended
September 30, 1996. The net decrease in revenue was due primarily to the
following:
a) Licensing of the N-Viro process, including territory fees, earned the
Company $201,000 for the quarter, a decrease of $399,000 from the same period in
1996. The Company also recorded a $600,000 territory sale in the third quarter
1996 that was fully offset by commission and bad debt expenses;
b) The Company's processing revenue, including facility management
revenue, posted a net increase of $18,000 over the same period ended September
30, 1996;
c) Sales of alkaline admixture increased $9,000 from the same period
ended September 30, 1996;
d) Rental income decreased $33,000 from the same period ended September
30, 1996, and,
e) Other sources of revenue decreased by a net of $21,000.
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Gross profit decreased $81,000, or 12%, to $570,000 for the three months
ended September 30, 1997 from $651,000 for the three months ended September 30,
1996. This increase in gross profit was primarily a result of the net decrease
in license and territory fees. The gross profit margin however, increased to 57%
from 46% for the same nine month comparison.
Selling, general and administrative expenses decreased $471,000, or 52%,
to $426,000 for the three months ended September 30, 1997 from $897,000 for the
three months ended September 30, 1996. The decrease was due to a bad debt
expense of $400,000 in 1996, and the balance primarily from reduced personnel
and costs related thereto.
As a result of the foregoing factors, the Company recorded operating
income of $144,000 for the three months ended September 30, 1997 compared to
operating loss of ($245,000) for the three months ended September 30, 1996.
For the quarter ended September 30, 1996, the Company has not fully
recognized the tax benefit of the losses incurred in prior periods. For the
quarter ended September 30, 1997, the losses have been recognized to reduce the
current year income. Accordingly, the effective tax rate for the period was
zero.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 WITH NINE MONTHS ENDED
SEPTEMBER 30, 1996
Overall revenue decreased $171,000, or 5% to $3,146,000 for the nine
months ended September 30, 1997 from $3,317,000 for the nine months ended
September 30, 1996. The net decrease in revenue was due primarily to the
following:
a) Licensing of the N-Viro process, including territory fees, earned the
Company $446,000 for the year, a decrease of $254,000 from the same period in
1996;
b) The Company's processing revenue, including facility management
revenue, posted a net increase of $64,000 over the same period ended September
30, 1996;
c) Sales of alkaline admixture increased $82,000 from the same period
ended September 30, 1996;
d) Rental income decreased $28,000 from the same period ended September
30, 1996, and,
e) Other sources of revenue decreased by a net of $35,000.
Gross profit increased $23,000, or 1%, to $1,804,000 for the nine months
ended September 30, 1997 from $1,781,000 for the nine months ended September 30,
1996. This increase in gross profit was primarily a result of the net increase
in license fee income which has a lower associated cost of sales compared to
territory fees. The gross profit margin increased to 57% from 53% for the same
nine month comparison.
Selling, general and administrative expenses decreased $654,000, or 34%,
to $1,294,000 for the nine months ended September 30, 1997 from $1,948,000 for
the nine months ended September 30, 1996. The decrease was due to a bad debt
expense of $400,000 in 1996, and the balance primarily from reduced personnel
and costs related thereto.
As a result of the foregoing factors, the Company recorded operating
income of $510,000 for the nine months ended September 30, 1997 compared to
operating loss of ($168,000) for the nine months ended September 30, 1996.
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For the year ended September 30, 1996, the Company has not fully
recognized the tax benefit of the losses incurred in prior periods. For the year
ended September 30, 1997, the losses have been recognized to reduce the current
year income. Accordingly, the effective tax rate for the period was zero.
LIQUIDITY AND CAPITAL RESOURCES
In its February 26, 1997 Report of Independent Auditors to the Company's
Board of Directors, the Company's auditors raise the issue of the Company's
ability to continue as a "going concern", in light of the Company's current
financial position.
The Company had working capital of $771,000 at September 30, 1997,
compared to a deficit of ($286,000) at December 31, 1996. Current assets at
September 30, 1997 included cash and investments of $191,000, which is a
decrease of $92,000 from December 31, 1996. The increase in working capital was
principally due to the restructuring of debt to equity and the operating income
for the period.
On August 1, 1997, the Company issued 75,000 shares of unregistered
Common Stock to Synagro Technologies, a licensee of the Company, in exchange for
the remaining 50% interest in Pan-American N-Viro, Inc.
The market value of the stock at the time of issuance was $2.375 per share.
On September 9, 1997, the Company executed a Subscription Agreement
with Gregory Meyer, to purchase 42,000 unregistered shares of the Company's
Common Stock for $1.75 per share. This subscription agreement was included by
the Company as an exhibit to the Company's Form 8-K filed on October 9, 1997.
On September 23, 1997, the Company executed a Stock Purchase Agreement
with Heartland Limited Partnership I ("Heartland"), a Wisconsin Limited
Partnership, to purchase 158,000 unregistered shares of the Company's Common
Stock for $1.75 per share. Also on September 23, 1997, the Company executed a
Registration Rights Agreement with Heartland, in connection with the Stock
Purchase Agreement, 120,000 shares of the Company's Common Stock. Both
agreements were included by the Company as exhibits to the Company's Form 8-K
filed on October 9, 1997.
Much of the Company's available funds have been used to reduce its
litigation settlement obligation to Frank Manchak, Jr. that originated in 1995.
The Company paid Mr. Manchak a total of $440,000 in the first nine months of
1997.
At September 30, 1997, the Company had a balance due Mr. Manchak of
$260,000. On October 7, 1997, the Company made an additional payment to Mr.
Manchak of $60,000.
On July 18, 1997, the Company and Mr. Manchak entered into a Second
Amendment to the original Settlement Agreement (the "Second Amendment") between
the parties with respect to that certain lawsuit entitled FRANK MANCHAK, JR. V.
N-VIRO ENERGY SYSTEMS, LTD. that was filed by Mr. Manchak in the United States
District Court for the Central District of California, Case No. CV-93-3042-ABC.
Pursuant to the terms of the Second Amendment, the Company issued to
Frank Manchak, Jr. 250,000 shares (the "Shares") of the Company's voting common
stock, with par value of $.01 per share (the "Common Stock") as well as an
option (the "Option") to purchase an additional 100,000 shares of Common Stock,
at a purchase price of $2.50 per share. The Second Amendment further provided
that the Company's remaining obligation to Mr. Manchak would be due and payable
in full on November 15, 1997 without interest. The amount of this obligation,
however, was to be reduced if Mr. Manchak sold any of the Shares prior to
November 1, 1997 and would be further reduced by certain payments that might
have been made to Mr. Manchak by or on behalf of the Company prior to November
15, 1997, all as more particularly described in the Second Amendment. The Second
Amendment was filed with the Securities &
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<PAGE> 10
Exchange Commission as an exhibit to the Company's Current Report on Form 8-K
dated July 18, 1997 which is incorporated herein by reference.
Under the terms of the Second Amendment, prior to November 1, 1997, Mr.
Manchak was permitted, but was not required, to sell Shares. Of the 250,000
shares of Common Stock issued to Mr. Manchak under the Second Amendment, 100,000
shares were held in escrow by Shumaker, Loop & Kendrick, LLP, special counsel to
the Company (the "Escrow Agent"). The terms of the escrow are described in the
paragraphs below.
All sums received by Mr. Manchak as a result of his sale of the Shares,
reduced by any transaction costs, such as broker's fees and commissions incurred
by him in the course of such sales, were to have reduced the aggregate amount of
the Company's remaining obligation to Mr. Manchak on a dollar for dollar basis.
On or about October 1, 1997, based solely upon information provided by
Mr. Manchak and reviewed by the Company, the Escrow Agent was to have calculated
(i) the amount of the Company's remaining obligation to Mr. Manchak as at the
close of business on September 30, 1997 (the Remaining Obligation") and (ii) the
number of Shares held by Mr. Manchak as at the close of business on September
30, 1997 (the "Remaining Shares"). After determining the amount of the Remaining
Obligation and the number of Remaining Shares, the Escrow Agent was to have
multiplied the number of Remaining Shares by two and subtract such number of
dollars from the amount of the Remaining Obligation to calculate the "Share
Deficit Amount". Finally, the Escrow Agent was to have divided the Share Deficit
Amount by two and delivered to Mr. Manchak such number of shares of Common Stock
from the shares of Common Stock held in escrow. The remaining shares of escrowed
Common Stock, if any, were to be returned to the Company and retired. None of
the shares held in escrow were delivered to Mr. Manchak or returned to the
Company. Instead, such shares remain in escrow with the Escrow Agent.
On November 15, 1997, the remaining portion of the Company's obligation
to Mr. Manchak, if any, was to become due and payable. Under the terms of the
Second Amendment, the Company was to satisfy any remaining portion of the
Company's obligation by redeeming, at a price of $2.00 per share, such number of
the Shares held by Mr. Manchak at such time as was necessary such that the
aggregate amount of funds received by Mr. Manchak as a result of his sales of
the Shares, exclusive of any transaction costs, such as broker's fees and
commissions, plus any cash payments received by him from the Company or the
Escrow Agent pursuant to the terms of the Second Amendment would equal $410,000.
All of Mr. Manchak's sales of the Shares were to be made under and
pursuant to the terms of an S-3 registration statement to be filed by the
Company with the Securities & Exchange Commission. The Company filed such an S-3
registration statement with the Securities & Exchange Commission on July 21,
1997. However, such registration statement was never made effective.
Accordingly, Mr. Manchak did not sell any of the Shares.
In July of 1997, the Company made a $30,000 cash payment to Mr.
Manchak. Additional cash payments of $60,000 each were made in August,
September and October of 1997.
In light of the fact that the S-3 had not been declared effective yet,
the Company, in September of 1997, entered into negotiations with Mr. Manchak
regarding the cash settlement of its remaining obligations to him and the return
to the Company of the Shares and the Option. In early November, 1997, the
Company and Mr. Manchak reached an agreement in principle that (i) the Company
would satisfy its entire remaining obligation to Mr. Manchak in exchange for a
cash payment of $250,000 and (ii) in exchange for such payment, Mr. Manchak
would return the Shares, including the Shares held in escrow, and the Option to
the Company. The Company presently is negotiating the terms of a definitive
agreement with Mr. Manchak with respect to this matter. On November 13, 1997,
the Company transferred $250,000 to Mr. Manchak's counsel to be held in escrow
by such counsel until the definitive agreement is signed. The Company reasonably
anticipates executing the definitive agreement with Mr. Manchak prior to the end
of the year.
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<PAGE> 11
The other debt of the Company includes an interest bearing short-term
note payable to its former legal counsel who represented the Company in the
alleged patent infringement lawsuit with an outstanding balance of $12,500 that
matures in December, 1997.
Effective June 30, 1997, the Company issued 136,500 shares of
unregistered common stock to four individuals in exchange for eliminating
$409,500 in debt. This transaction is reflected in the balance sheet of the
Company as of September 30, 1997. This transaction was reported in the Form 8-K
filed by the Company on July 18, 1997.
The Company incurred costs through the third quarter of 1997 for
engineering work for a privately operated facility to be constructed in
Honolulu, Hawaii. In February, 1997, the Company made a formal request with the
City of Honolulu to reimburse all costs incurred to date, plus incidental costs.
On July 15, 1997, the Company signed Contract Change Order No. 1 with the City
of Honolulu to reimburse the Company "non-transferable" costs of $200,000 by
July 30, 1997 and $250,000 by July 15, 1998. An additional $299,651 in
"transferable" costs will be included in a new operating contract fee structure
with the City. The Company has received the $200,000 due July 30, 1997. This
transaction was reported in the Form 8-K filed by the Company on July 18, 1997.
In February, 1997, the Company obtained a working capital line of credit
of $100,000. Borrowings against the line bear interest at prime plus 1.75%, and
are collateralized by accounts receivable, inventories and equipment, and
assignment of the wastewater treatment contract with the City of Toledo, Ohio,
and are due on demand. Their is no balance owed on the line of credit at
September 30, 1997.
The Company believes that its working capital together with the line of
credit, will provide sufficient cash to meet the Company's cash requirements
through 1997.
The Company cautions that words used in this document such as "expects",
"anticipates", "believes" and "may" as well as similar words and expressions
used herein identify and refer to statements describing events to 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.
-11-
<PAGE> 12
PART II - OTHER INFORMATION
Item 5. Other Information.
(a) None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
99 Press release dated November 12, 1997
(b) No reports were filed on Form 8-K during the quarter.
-12-
<PAGE> 13
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.
N-VIRO INTERNATIONAL CORPORATION
Date: November 14, 1997 /S/ J. Patrick Nicholson
--------------------- -------------------------
J. Patrick Nicholson
Chairman , President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 /S/ James K. McHugh
--------------------- --------------------
James K. McHugh
Chief Financial Officer
(Principal Financial & Accounting Officer)
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000904896
<NAME> N-VIRO INTERNATIONAL
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 189,769
<SECURITIES> 1,401
<RECEIVABLES> 1,242,439
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,391,802
<PP&E> 568,097
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,493,260
<CURRENT-LIABILITIES> 1,620,587
<BONDS> 0
0
0
<COMMON> 25,058
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,493,260
<SALES> 0
<TOTAL-REVENUES> 3,145,698
<CGS> 0
<TOTAL-COSTS> 1,341,785
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 478,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478,600
<EPS-PRIMARY> $0.22
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99
NEWS RELEASE FOR IMMEDIATE RELEASE
For More Information Contact:
J. Patrick Nicholson
Chief Executive Officer
or
James K. McHugh
Chief Financial Officer
(419) 535-6374
N-VIRO REPORTS PROFITS FOR THIRD SUCCESSIVE QUARTER
---------------------------------------------------
Toledo, Ohio, November 12, 1997 - N-Viro International Corporation [NASDAQ/NVIC]
announced today it had a net profit of $105,000, or $.04 per share, for its
third quarter, ended September 30, 1997, compared to a net loss of $263,000, or
$.13 per share, for the comparable quarter in 1996. For the nine months ended
September 30, 1997, the Company had a net profit of $479,000, or $.22 per share,
compared to a net loss of $127,000, or $.06 per share, for the comparable period
in 1996. This marks the third successive quarter that net income has been
reported by the Company.
After excluding $600,000 in revenues pertaining to the defaulted Malaysian
contract and associated commission expense and reserves reported in the third
quarter of 1996, during the three months and nine months ended September 30,
1997, revenues increased by $174,000 and $375,000, respectively, or 21 percent
and 14 percent, respectively. General and administrative expenses decreased by
$71,000 and $254,000, respectively, or 14 percent and 16 percent, respectively,
over the comparable periods in 1996.
J. Patrick Nicholson, N-Viro CEO said: "Typically, the third quarter has been
our most difficult period. We are encouraged by 1997 results, by a greatly
improved balance sheet, by our recently announced new contracts for New York
City and Israel and with the renewed vigor shown by the USEPA in enforcing
biosolids regulations. We also firmly believe that increased public concern over
CO2 and methane emissions and water quality will significantly encourage the
selection of Exceptional Quality (EQS) treatment processes that create real
products. The EQS processes will be chosen in lieu of disposal or organic waste
management options that generate ozone-depleting emissions or negatively impact
water quality and watersheds with excessive nutrients, organics and pathogens."
N-Viro International develops, markets and licenses the N-Viro technology.
N-Viro's patented process uses mineral-rich, combustion by-products to treat,
pasteurize, immobilize and convert wastewater sludges and other bio-organic
wastes into bio-mineral agricultural and soil-enrichment products with real
market value.
- 30 -
