<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1998
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 November 12, 1998, 2,534,733 shares of N-Viro International
Corporation $ .01 par value common stock were outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-1-
<PAGE>
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
----------------------------------------------------------------
1998 1997 1998 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 872,985 $ 995,539 $ 2,966,278 $ 3,145,698
Cost of revenues 467,253 425,871 1,387,726 1,341,785
----------------------------------------------------------------
Gross profit 405,732 569,668 1,578,552 1,803,913
Selling, general & administrative
expenses 596,600 425,927 1,639,558 1,294,004
----------------------------------------------------------------
Operating income (loss) (190,868) 143,741 (61,006) 509,909
Nonoperating income (expense):
Interest expense, net 2,185 (3,149) (6,891) (21,101)
Equity in gains (losses) of
joint venture (43,605) (10,179) (53,127) 8,361
Miscellaneous income (exp.) (118) (25,247) (118) (18,569)
----------------------------------------------------------------
Income (loss) before income tax
(credits) (232,406) 105,166 (121,142) 478,600
Federal and state income tax
(credits) - - - -
----------------------------------------------------------------
Net income (loss) $ (232,406) $ 105,166 $ (121,142) $ 478,600
----------------------------------------------------------------
----------------------------------------------------------------
Basic and diluted earnings (loss)
per share $ (0.09) $ 0.04 $ (0.05) $ 0.22
----------------------------------------------------------------
----------------------------------------------------------------
Weighted average common
shares outstanding 2,469,168 2,416,826 2,459,043 2,165,674
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE>
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
ASSETS (Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 273,552 $ 31,677
Securities available-for-sale 3,551 1,401
Trade receivables 842,639 1,493,427
Other receivables 284,164 394,718
Prepaid expenses and other assets 185,309 92,060
------------ ------------
Total current assets 1,589,215 2,013,283
Property and equipment 538,805 561,229
Investment in joint ventures 859,493 912,620
Deferred tax assets 312,000 312,000
Intangibles and other assets 603,782 624,237
------------ ------------
TOTAL ASSETS $ 3,903,295 $ 4,423,369
------------ ------------
------------ ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 94,869 $ 213,545
Accounts payable 824,666 1,196,714
Accrued expenses 222,810 183,071
------------ ------------
Total current liabilities 1,142,345 1,593,330
------------ ------------
Long-term Debt, less current maturities 22,147 64,742
------------ ------------
Stockholders' equity
Common stock, $.01 par value; authorized
7,000,000 shares; issued 1998 2,784,733
and 1997 2,755,733 shares 27,848 27,558
Additional paid-in capital 13,453,958 13,359,552
Retained earnings (deficit) (9,625,026) (9,503,796)
------------ ------------
3,856,780 3,883,314
Less treasury stock, at cost, 307,250 shares 1,117,977 1,117,977
------------ ------------
2,738,803 2,765,337
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 3,903,295 $ 4,423,369
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE>
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1998 1997
------------ -----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 488,621 $ 200,118
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (62,537) (43,934)
Expenditures for intangibles and other assets (20,826) (30,259)
Expenditures for marketable securities (2,150) -
Proceeds on assets held for sale - 200,000
Proceeds from sale of property and equipment - 4,665
------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (85,513) 130,472
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving credit agreement (95,000) -
Repayments of long-term debt (66,233) (780,889)
Repayments on notes receivable - 25,600
Issuance of common stock - 332,353
------------ -----------
NET CASH USED BY FINANCING ACTIVITIES (161,233) (422,936)
------------ -----------
NET INCREASE (DECREASE) IN CASH 241,875 (92,346)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,677 282,115
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 273,552 $ 189,769
------------ -----------
------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE>
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, 1998 may not be
indicative of the results of operations for the year ended December 31, 1998.
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, 1997.
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").
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 Company Common Stock. A total
of 2,112,000 new shares were issued in the initial public offering including
shares issued in the partial exercise by the Underwriters of an over-allotment
option.
The financial statements are consolidated as of September 30, 1998 and
December 31, 1997 for the Company. Adjustments have been made to eliminate all
intercompany transactions.
3. CONTINGENCIES
The Company leases office space under an agreement which requires monthly
payments of $4,664. The lease expires in December 2002. The total minimum
rental commitment at September 30, 1998 is $224,000. The total rental expense
included in the statements of operations for each of the periods ended September
30, 1998 and 1997 is approximately $42,000.
During 1994, the Company reacquired territory rights from a former agent
and issued 66,250 shares of unregistered common stock. In the event the former
agent elects to sell all these shares, the Company has guaranteed the former
agent $6 per share. This guarantee expires December 30, 1999.
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
-5-
<PAGE>
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 $873,000 for the quarter ended September 30, 1998
compared to $996,000 for the same period of 1997. The net decrease in revenue
is due primarily to a decrease in territorial and site license revenue,
partially offset by an increase in facility management and research and
development revenue. The Company increased its cost of revenues for the same
period of 1998. The increase in cost of revenues was due primarily to the
increase in costs in generating facility management revenue. As a result, the
gross profit percentage decreased to 47% from 57% for the quarters ended
September 30, 1998 and 1997. Selling, general and administrative costs and
losses in the equity of a joint venture increased for the same period of 1998.
These changes collectively resulted in a net loss of ($232,000) for the quarter
ended September 30, 1998 compared to a net profit of $105,000 for the quarter
ended September 30, 1997.
On June 1, 1998, the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission, to register certain shares of
Common Stock of the Company, presently held by Heartland Limited Partnership I
("Heartland"). The Company subsequently received a comment letter from the
Commission in July of 1998 relating to the Registration Statement and the
periodic reports of the Company incorporated therein be reference and
subsequently responded to such comments of the Commission. As of the date
hereof, the registration statement has not been declared effective by the
Commission and no shares of the Company's Common Stock have been sold, pursuant
to the terms thereof. Heartland has, however, recently sold a portion of its
holdings of Company Common Stock pursuant to Rule 144 as promulgated under the
Securities Act of 1933, as amended.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 WITH THREE MONTHS ENDED
SEPTEMBER 30, 1997
Overall revenue decreased $123,000, or 12.3%, to $873,000 for the three
months ended September 30, 1998 from $996,000 for the three months ended
September 30, 1997. The net decrease in revenue was due primarily to the
following:
a) Licensing of the N-Viro Process, including territory fees, earned the
Company $-0- for the quarter, a decrease of $201,000 from the same period in
1997;
b) The Company's processing revenue, including facility management
revenue, showed a net increase of $65,000 over the same period ended in 1997;
c) Sales of alkaline admixture decreased $24,000 from the same period
ended in 1997;
d) Research and development revenue increased $50,000 from the same period
ended in 1997;
e) Testing income decreased $4,000 from the same period ended in 1997;
and,
f) Commission income decreased $9,000 from the same period ended September
30, 1997.
-6-
<PAGE>
Gross profit decreased $164,000, or 29%, to $406,000 for the three months
ended September 30, 1998 from $570,000 for the three months ended September 30,
1997. This decrease in gross profit was primarily a result of the decrease in
territory and license fee revenue, which have no associated cost of revenue, and
an increase in storage and product transportation costs in generating the
facility management revenue. The gross profit margin decreased to 47% from 57%
for the same three month comparison.
Selling, general and administrative expenses increased $171,000, or 40%, to
$597,000 for the three months ended September 30, 1998 from $426,000 for the
three months ended September 30, 1997. The increase was primarily due to an
increase in outside professional services of $63,000, salaries and related costs
of $51,000, and outside consultants of $23,000. The Company continued to focus
its efforts on international sales and research and development of the process.
As a result of the foregoing factors, the Company recorded an operating
loss of ($191,000) for the three months ended September 30, 1998 compared to
operating income of $144,000 for the three months ended September 30, 1997.
For the quarters ended September 30, 1998 and 1997, 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, 1998 WITH NINE MONTHS ENDED
SEPTEMBER 30, 1997
Overall revenue decreased $180,000, or 6%, to $2,966,000 for the nine
months ended September 30, 1998 from $3,146,000 for the nine months ended
September 30, 1997. The net decrease in revenue was due primarily to the
following:
a) Licensing of the N-Viro Process, including territory fees, earned the
Company $350,000 for the nine-month period ended, a decrease of $96,000 from the
same period in 1997;
b) The Company's processing revenue, including facility management
revenue, showed a net decrease of $71,000 for the nine-month period ended;
c) Sales of alkaline admixture decreased $53,000 from the same period
ended September 30, 1997. Approximately $40,000 of this decrease was a delay in
reporting 1996 sales into 1997 from one of its licensees;
d) Research and development revenue increased $51,000 from the same period
ended in 1997;
e) Testing income decreased $31,000 from the same period ended in 1997;
and,
f) Commission income increased $22,000 from the same period ended
September 30, 1997.
Gross profit decreased $225,000, or 12%, to $1,579,000 for the nine months
ended September 30, 1998 from $1,804,000 for the nine months ended September
30, 1997. This decrease in gross profit was primarily a result of the decrease
in royalty, license and territory fee revenue, which types have no associated
cost of revenue. The gross profit margin decreased to 53% from 57% for the same
nine-month comparison.
Selling, general and administrative expenses increased $346,000, or 27%, to
$1,640,000 for the nine months ended September 30, 1998 from $1,294,000 for the
nine months ended September 30, 1997. The
-7-
<PAGE>
increase was primarily due to increases in salaries and related costs of
$122,000, sales and promotion of $68,000, and outside professional services of
$64,000. The Company has focused its efforts on international sales and
research and development of the process.
As a result of the foregoing factors, the Company recorded an operating
loss of ($61,000) for the nine months ended September 30, 1998 compared to
operating income of $510,000 for the nine months ended September 30, 1997.
For the nine months ended September 30, 1998 and 1997, 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 working capital of $447,000 at September 30, 1998, compared
to working capital of $420,000 at December 31, 1997. Current assets at
September 30, 1998 included cash and investments of $277,000, which is an
increase of $244,000 from December 31, 1997. As previously reported by the
Company in its earlier periodic reports, the increase in working capital was
principally due to the restructuring of debt to equity, specifically the
conversion of a $60,000 obligation to Morgan, Lewis & Bockius, special counsel
to the Company for the initial public offering of its Common Stock.
In 1997 the Company obtained a working capital line of credit of $200,000.
In the third quarter of 1998 the line was increased to $500,000. Borrowings
against the line bear interest at prime minus .50% for amounts borrowed up to
$250,000, and prime plus 1% on the excess amount borrowed over $250,000. This
debt is collateralized by a certificate of deposit with the lender of $250,000,
accounts receivable, inventories and equipment, and are due on demand. Also,
the Company must maintain certain financial covenants. The balance owed on the
line of credit at September 30, 1998 was $25,000.
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 1998.
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the Year 2000 Issue, and has developed an
implementation plan to resolve the issue. The issue is whether computer systems
will properly recognize date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. Based on the review of the computer
systems, management does not believe the cost of remediation will be material to
the Company's financial position and results of operations.
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 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.
-8-
<PAGE>
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 13, 1998
(b) Reports on Form 8-K:
A Form 8-K was filed on August 20, 1998, regarding approval by
the Board of Directors of the Company for the grant of certain
stock options.
-9-
<PAGE>
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 13, 1998 /s/ J. Patrick Nicholson
----------------- -----------------------------------------------
J. Patrick Nicholson
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1998 /s/ James K. McHugh
----------------- -----------------------------------------------
James K. McHugh
Chief Financial Officer
(Principal Financial & Accounting Officer)
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM N-VIRO
INTERNATIONAL FORM 10-Q FOR THE QUARTER ENDED 9/30/98 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 273,552
<SECURITIES> 3,551
<RECEIVABLES> 842,639
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,589,215
<PP&E> 538,805
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,903,295
<CURRENT-LIABILITIES> 1,142,345
<BONDS> 0
0
0
<COMMON> 27,848
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,903,295
<SALES> 0
<TOTAL-REVENUES> 872,985
<CGS> 0
<TOTAL-COSTS> 467,253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (232,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (232,406)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
[N-Viro International Corporation Letterhead]
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 INTERNATIONAL CORPORATION
REPORTS 3RD QUARTER RESULTS
Toledo, Ohio, November 13, 1998 -- N-Viro International Corporation [NASDAQ:
NVIC] reported a net loss of $232,000, or $.09 per share, for the third quarter
ended September 30, 1998, compared to net income of $105,000, or $.04 per share,
for the same period of 1997. The initial nine months of 1998 produced a loss of
$121,000, or $.05 per share, compared to net income of $479,000 for the same
period in 1997.
Total revenues of $873,000 for the quarter ended September 30, 1998, were
down 12 percent over the same period for 1997. For the nine months ended
September 30, 1998, total revenues were down 5.7 percent to $2.97 million.
According to J. Patrick Nicholson, Chairman and CEO: "We are naturally
disappointed to interrupt our string of six profitable quarters, but we are
working hard toward a turnaround in the fourth quarter in hopes that the Company
will achieve a small profit in 1998. In the face of difficult Pacific Rim and
Indian economic and political conditions, N-Viro expended additional funds for
promotion, international sales, patent defense review and research and
development. These increased efforts, though a burden in 1998, are expected to
bear fruit in 1999 and beyond.
"So far," Nicholson said, "1998 has produced many outstanding results for
the Company:
* The list of pending domestic and international projects where
N-Viro is the primary disinfection and stabilization technology has
increased significantly,
* Increased interest of international mineral byproduct generators
(e.g. ash), and the global need for biomineral products to ensure
sustainable soil fertility,
* Our animal manure pasteurization, vector reduction and
metals/nutrients immobilization demonstration at the United States
Department of Agricultures Beltsville, Maryland, research center is up
and running with excellent, cost-effective results,
* The appointment of Dr. Terry Logan, a well recognized leader and
pioneer in the biosolids industry, as our President and Chief
Operating Officer effective in July 1999 and,
* The assertion of meaningful and challenging industry leadership
by the Company, while continuing to support the concept of beneficial
utilization."
In Nicholson's opinion: "The Company is anticipating significant
improvement in revenue and profitability for 1999. These earnings estimates are
predicated on projected increased revenues from new
-11-
<PAGE>
domestic and international N-Viro projects treating wastewater and water
treatment residuals and green wastes (N-Viro's Bio-Blend process). These
projections do not include potential manure technology revenue based on the
Beltsville project, which may not contribute materially to profits until at
least 2000," Nicholson concluded.
N-Viro International develops, markets and licenses the N-Viro technology
used to produce N-Viro Soil-TM-. N-Viro's patented process uses mineral-rich,
combustion byproducts to treat, pasteurize, immobilize and convert wastewater
sludges and other bio-organic wastes into biomineral agricultural and
soil-enrichment products with real market value.
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 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.
- Tables to Follow -
-12-
<PAGE>
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30 Nine Months Ended Sept. 30
------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 872,985 $ 995,539 $ 2,966,278 $ 3,145,698
Cost of revenues 467,253 425,871 1,387,726 1,341,785
------------------------------------------------------------
Gross profit 405,732 569,668 1,578,552 1,803,913
Selling, general & administrative
expenses 596,600 425,927 1,639,558 1,294,004
------------------------------------------------------------
Operating income (loss) (190,868) 143,741 (61,006) 509,909
Nonoperating income (expense):
Interest expense, net 2,185 (3,149) (6,891) (21,101)
Equity in gains (losses) of
joint venture (43,605) (10,179) (53,127) 8,361
Miscellaneous income (exp.) (118) (25,247) (118) (18,569)
------------------------------------------------------------
Income (loss) before income tax
(credits) (232,406) 105,166 (121,142) 478,600
Federal and state income tax
(credits) - - - -
------------------------------------------------------------
Net income (loss) $ (232,406) $ 105,166 $ (121,142) $ 478,600
------------------------------------------------------------
------------------------------------------------------------
Basic and diluted earnings (loss)
per share $ (0.09) $ 0.04 $ (0.05) $ 0.22
------------------------------------------------------------
------------------------------------------------------------
Weighted average common
shares outstanding 2,469,168 2,416,826 2,459,043 2,165,674
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
-13-
<PAGE>
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
ASSETS (Unaudited) (Audited)
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 273,552 $ 31,677
Securities available-for-sale 3,551 1,401
Trade receivables 842,639 1,493,427
Other receivables 284,164 394,718
Prepaid expenses and other assets 185,309 92,060
------------- -------------
Total Current assets 1,589,215 2,013,283
Property and equipment 538,805 561,229
Investment in joint ventures 859,493 912,620
Deferred tax assets 312,000 312,000
Intangibles and other assets 603,782 624,237
------------- -------------
TOTAL ASSETS $ 3,903,295 $ 4,423,369
------------- -------------
------------- -------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 94,869 $ 213,545
Accounts payable 824,666 1,196,714
Accrued expenses 222,810 183,071
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Total Current liabilities 1,142,345 1,593,330
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Long-term Debt, less current maturities 22,147 64,742
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Stockholders' equity
Common stock, $.01 par value; authorized
7,000,000 shares; issued 1998 2,784,733
and 1997 2,755,733 shares 27,848 27,558
Additional paid-in capital 13,453,958 13,359,552
Retained earnings (deficit) (9,625,026) (9,503,796)
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3,856,780 3,883,314
Less treasury stock, at cost, 307,250 shares 1,117,977 1,117,977
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2,738,803 2,765,337
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 3,903,295 $ 4,423,369
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</TABLE>
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