<PAGE> 1
================================================================================
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, 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 June 30, 1998, 2,525,733 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
-----------------------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,061,036 $ 1,081,293 $ 2,093,294 $ 2,150,159
Cost of revenues 457,526 434,983 920,473 915,914
-----------------------------------------------------------------
Gross profit 603,510 646,310 1,172,821 1,234,245
Selling, general & administrative
expenses 555,514 437,849 1,042,840 868,077
-----------------------------------------------------------------
Operating income 47,996 208,461 129,981 366,168
Nonoperating income (expense):
Interest expense, net (4,325) (8,302) (9,076) (17,952)
Equity in gains (losses) of
Joint venture 0 0 (9,522) 18,540
Miscellaneous income (exp.) (118) 9,375 (118) 6,678
-----------------------------------------------------------------
Income before income tax
(credits) 43,553 209,534 111,265 373,434
Federal and state income tax
(credits) - - - -
-----------------------------------------------------------------
Net income $ 43,553 $ 209,534 $ 111,265 $ 373,434
=================================================================
Basic and diluted earnings per
Share $ 0.02 $ 0.10 $ 0.05 $ 0.18
=================================================================
Weighted average common
Shares outstanding 2,459,252 2,037,000 2,453,897 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, December 31,
1998 1997
ASSETS (Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 14,115 $ 31,677
Securities available-for-sale 1,740 1,401
Trade receivables 1,478,951 1,493,427
Other receivables 284,164 394,718
Prepaid expenses and other assets 205,311 92,060
------------ ------------
Total current assets 1,984,281 2,013,283
Property and Equipment 509,321 561,229
Investment in joint ventures 903,098 912,620
Deferred Tax Assets 312,000 312,000
Intangibles and Other Assets 613,313 624,237
------------ ------------
TOTAL ASSETS $ 4,322,013 $ 4,423,369
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 185,276 $ 213,545
Accounts payable 967,974 1,196,714
Accrued expenses 202,885 183,071
------------ ------------
Total current liabilities 1,356,135 1,593,330
------------ ------------
Long-term Debt, less current maturities 29,523 64,742
------------ ------------
Stockholders' equity
Common stock, $.01 par value; authorized
7,000,000 shares; issued 1998 2,775,733
and 1997 2,755,733 shares 27,862 27,558
Additional paid-in capital 13,419,090 13,359,552
Retained earnings (deficit) (9,392,620) (9,503,796)
------------ ------------
4,054,332 3,883,314
Less treasury stock, at cost, 307,250 shares 1,117,977 1,117,977
------------ ------------
2,936,355 2,765,337
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,322,013 $ 4,423,369
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 4
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 63,929 $ 316,691
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for intangibles and other assets (16,451) (23,879)
Expenditures for property and equipment (1,593) (32,137)
Proceeds from sale of property and equipment -- 4,665
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (18,044) (51,351)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (33,447) (555,883)
Net borrowings (repayments) on revolving credit agreement (30,000) 87,500
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (63,447) (468,383)
--------- ---------
NET INCREASE (DECREASE) IN CASH (17,562) (203,043)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,677 282,115
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,116 $ 79,072
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 5
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, 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 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 June 30, 1998 and
December 31, 1997 for the Company. Adjustments have been made to eliminate all
intercompany transactions.
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
$60,000 for the six months ended June 30, 1998, and $60,000 for the six months
ended June 30, 1997 under a contract arrangement signed in 1993 for consulting
services. 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.
In January of 1998, the Company reached an agreement with a trade
creditor to eliminate $60,000 of the Company's short-term debt in exchange for
the Company's issuance and delivery to such creditor of 20,000 shares of Common
Stock. The number of shares of Common Stock issued to, and the corresponding
amount of short-term debt forgiven by is set forth in the table below:
<TABLE>
<CAPTION>
====================================================================================================================
Creditor Amount of Canceled Debt No. of Shares Issued in Exchange
====================================================================================================================
<S> <C> <C>
Morgan, Lewis & Bockius $60,000 20,000
====================================================================================================================
</TABLE>
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All such shares of Common Stock were issued to the Company's creditor pursuant
to appropriate exemptions from registration under federal and state securities
laws. The exchange was evidenced by a written Share Exchange Agreement between
the Company and the creditor. The shares were delivered in May, 1998.
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 March 31, 1998 is $252,000. The total rental
expense included in the statements of operations for each of the periods ended
June 30, 1998 and 1997 is approximately $28,000.
During 1994, the Company reacquired territory rights from a former
agent and issued 66,250 shares of unregistered common stock with a designated
value of $6 per share. 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
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.
Total revenues were $1,061,000 for the quarter ended June 30, 1998
compared to $1,081,000 for the same period of 1997. The net decrease in revenue
is due primarily to a decrease in royalty and facility management revenue, most
of which was offset by an increase in license and alkaline admixture sales. 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 alkaline admixture
sales having a higher cost of revenue associated with this type. As a result,
the gross profit percentage decreased to 57% from 60% for the quarters ended
June 30, 1998 and 1997. Selling, general and administrative costs increased for
the same period of 1998. These changes collectively resulted in a net profit of
$44,000 for the quarter ended June 30, 1998 compared to a net profit of $210,000
for the quarter ended June 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
voting common stock of the Company, presently held by Heartland Limited
Partnership I. As of the date hereof, the registration statement has not been
made
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<PAGE> 7
effective and no shares of the Company's voting common stock have been sold,
pursuant to the terms thereof.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 WITH THREE MONTHS ENDED JUNE 30,
1997
Overall revenue decreased $20,000, or 1.9%, to $1,061,000 for the three
months ended June 30, 1998 from $1,081,000 for the three months ended June 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 $200,000 for the quarter, an increase of $35,000 from the same period in
1997;
b) The Company's processing revenue, including facility management
revenue, showed a net decrease of $101,000 over the same period ended in 1997;
c) Sales of alkaline admixture increased $31,000 from the same period
ended in 1997;
d) Testing income decreased $6,000 from the same period ended in 1997,
and,
e) Commission income increased $21,000 from the same period ended June
30, 1997.
Gross profit decreased $43,000, or 6.6%, to $604,000 for the three
months ended June 30, 1998 from $647,000 for the three months ended June 30,
1997. This decrease in gross profit was primarily a result of the decrease in
royalty revenue, which type has no associated cost of revenue. The gross profit
margin decreased to 57% from 60% for the same three month comparison.
Selling, general and administrative expenses increased $118,000, or 27%,
to $556,000 for the three months ended June 30, 1998 from $438,000 for the three
months ended June 30, 1997. The increase was primarily due to an increase in
sales and promotion of $56,000, salaries and related costs of $34,000, and
outside consultants of $21,000.
As a result of the foregoing factors, the Company recorded operating
income of $48,000 for the three months ended June 30, 1998 compared to operating
income of $208,000 for the three months ended June 30, 1997.
For the quarters ended June 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 SIX MONTHS ENDED JUNE 30, 1998 WITH SIX MONTHS ENDED JUNE 30, 1997
Overall revenue decreased $57,000, or 3%, to $2,093,000 for the six
months ended June 30, 1998 from $2,150,000 for the six months ended June 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 six month period ended, an increase of $105,250 from
the same period in 1997;
b) The Company's processing revenue, including facility management
revenue, showed a net decrease of $133,000 for the six month period ended;
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<PAGE> 8
c) Sales of alkaline admixture decreased $29,000 from the same period
ended June 30, 1997. Approximately $40,000 of this decrease was a delay in
reporting 1996 sales into 1997 from one of its licensees;
d) Testing income decreased $27,000 from the same period ended June 30,
1997, and,
e) Commission income increased $31,000 from the same period ended June
30, 1997.
Gross profit decreased $61,000, or 5%, to $1,173,000 for the six months
ended June 30, 1998 from $1,234,000 for the six months ended June 30, 1997. This
decrease in gross profit was primarily a result of the decrease in royalty
revenue, which type has no associated cost of revenue. The gross profit margin
decreased to 56% from 57% for the same six month comparison.
Selling, general and administrative expenses increased $175,000, or 20%,
to $1,043,000 for the six months ended June 30, 1998 from $868,000 for the six
months ended June 30, 1997. The increase was primarily due to an increase in
salaries and related costs of $71,000, sales and promotion of $56,000, as well
as an increase in research and development costs of almost $28,000.
As a result of the foregoing factors, the Company recorded operating
income of $130,000 for the six months ended June 30, 1998 compared to operating
income of $366,000 for the six months ended June 30, 1997.
For the six months ended June 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 $630,000 at June 30, 1998, compared
to working capital of $420,000 at December 31, 1997. Current assets at June 30,
1998 included cash and investments of $16,000, which is a decrease of $17,000
from December 31, 1997. The increase in working capital was principally due to
the operating income for the period and the restructuring of debt to equity,
specifically the conversion of a $60,000 obligation to Morgan, Lewis & Bockius,
referred to in Note 2 of the Consolidated Financial Statements contained herein.
In 1997 the Company obtained a working capital line of credit of
$200,000. 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. The balance owed on the line of credit at June 30, 1998 was $90,000.
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 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
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<PAGE> 9
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.
PART II - OTHER INFORMATION
Item 5. Other Information.
(a) Consistent with the recommendation of the Securities and Exchange
Commission (the "Commission") that the notice deadline for shareholder
proposals referred to in new Commission Rule 14a-4 be disclosed on the
Company's next Form 10-Q, the Company states that the notice deadline date for
shareholder proposals is March 26, 1999 for the 1999 Annual Meeting. Notice of
a shareholder proposal must be received by the Company prior to such date at
3450 West Central Avenue, Suite 328, Toledo, Ohio 43606, Attention: James K.
McHugh, Chief Financial Officer, Secretary and Treasurer.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
99 Press release dated August 13, 1998
(b) A Form 8-K was filed on June 19, 1998, for a change in the Company's
authorized shares as approved by Shareholders on June 2, 1998.
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<PAGE> 10
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: August 14, 1998 /S/ J. Patrick Nicholson
--------------------- -------------------------
J. Patrick Nicholson
Chairman , President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 /S/ James K. McHugh
--------------------- --------------------
James K. McHugh
Chief Financial Officer
(Principal Financial & Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 14,115
<SECURITIES> 0
<RECEIVABLES> 1,478,951
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,984,281
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,322,013
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 27,862
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,322,013
<SALES> 0
<TOTAL-REVENUES> 2,093,294
<CGS> 0
<TOTAL-COSTS> 920,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 111,265
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,265
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
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
CONTINUES PROFITABILITY
Toledo, Ohio, August 13, 1998 -- N-Viro International Corporation
[Nasdaq: NVIC] reported net income of $44,000, or $.02 per share, for the second
quarter ended June 30, 1998, compared to net income of $210,000, or $.10 per
share, for the same period of 1997. For the six months of 1998, net income
decreased to $111,000, or $.05 per share, compared to $373,000 for the same
period in 1997.
Total revenues of $1.06 million for the quarter ended June 30, 1998,
were down 1.9 percent over the same period for 1997. For the six-months ended,
total revenues were down 2.6 percent to $2.09 million.
James K. McHugh, CFO, said: "Because of our size and the nature of our
business, our interim reporting periods will tend to fluctuate. The Company is
experiencing the beginning of an expansion cycle, which is evidenced by the
numbers. New licenses require time to generate growth and profits.
"Following the end of the second quarter, we collected cash owed us by
the City and County of Honolulu for costs previously recognized on a project
eliminated in 1997, which has helped our cash flow immensely. We continue to
generate positive cash from everyday operations. This is significant since few
public enviromental technology companies are able to do this," McHugh said.
According to J. Patrick Nicholson, Chairman and CEO: "We have achieved
our sixth-consecutive quarter of net profits. Moreover, we met targeted
objectives while additional resources were committed to research, international
sales and domestic marketing efforts. While the short-term impact of such
investments is negative, the long-term ramifications are important, very
important.
"Significant positive developments occurred in the second quarter.
Licenses for four, new international facilities were executed. We began
construction on a manure-processing pilot plant at the United States Department
of Agriculture Research Center in Beltsville, Maryland. We believe that N-Viro's
new, patent-pending process to be utilized at this plant will provide over 99
percent disinfection and over 90 percent immobilization of phosphorus as well as
significant odor reduction.
"In addition, patents were issued on N-Viro's BioBlend process, which
utilizes conventional N-Viro SoilTM to co-compost bio-organic waste, e.g. yard
waste, in less than 50 percent of normal composting time. Moreover, the process
increases value and decreases process odors," Nicholson said.
"Recent federal action on nonpoint-source water pollution,
animal-manure contamination and global-warming reduction are efforts that have
been strongly encouraged by N-Viro. Biomineral
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<PAGE> 2
technology, such as N-Viro Soil(TM), is a powerful and economic solution to the
problems created by widespread organic waste mismanagement," Nicholson
concluded.
N-Viro International develops, markets and licenses the N-Viro
technology. 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.
