<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 September 30, 2000
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 7, 2000, 2,698,533 shares of N-Viro International
Corporation $ .01 par value common stock were outstanding.
================================================================================
-1-
<PAGE> 2
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
-----------------------------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,083,134 $ 1,354,159 $ 3,302,630 $ 3,482,096
Cost of revenues 599,824 593,569 1,810,744 1,683,144
-----------------------------------------------------------------------------
Gross profit 483,310 760,590 1,491,886 1,798,952
Selling, general & administrative
expenses 566,103 466,277 1,590,157 1,390,642
-----------------------------------------------------------------------------
Operating income (loss) (82,793) 294,313 (98,271) 408,310
Nonoperating income (expense):
Interest income (expense), net (4,820) 5,015 (3,487) 8,976
Equity in losses of
Joint venture (68,196) (2,203) (128,695) (23,965)
Recovery of bad debts written off - - 275,000 -
Miscellaneous income (exp.) (5,621) - (28,068) -
-----------------------------------------------------------------------------
Income (loss) before income tax
(credits) (161,430) 297,125 16,479 393,321
Federal and state income tax
(credits) - - - -
-----------------------------------------------------------------------------
Net income (loss) $ (161,430) $ 297,125 $ 16,479 $ 393,321
=============================================================================
Basic and diluted earnings (loss)
per Share $ (0.06) $ 0.11 $ 0.01 $ 0.15
=============================================================================
Weighted average common
Shares outstanding 2,637,553 2,611,092 2,633,917 2,552,344
=============================================================================
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE> 3
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
ASSETS (Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 99,842 $ 552,846
Restricted - Certificate of Deposit 400,000 -
Securities available-for-sale 1,660 1,401
Trade receivables 1,555,933 1,302,036
Notes and other receivables 196,210 258,590
Related party receivables 41,212 48,599
Prepaid expenses and other assets 89,136 72,260
------------ ------------
Total current assets 2,383,993 2,235,732
Property and Equipment 557,400 596,060
Investment in Florida N-Viro, L.P. 661,972 790,667
Deferred Tax Assets 312,000 312,000
Intangibles and Other Assets 1,040,123 837,414
------------ ------------
TOTAL ASSETS $ 4,955,488 $ 4,771,873
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 226,441 $ 111,856
Accounts payable 753,001 707,324
Accrued expenses 312,738 326,740
------------ ------------
Total current liabilities 1,292,180 1,145,920
Long-Term Debt, less current maturities 211,528 240,379
Stockholders' Equity
Common stock, $.01 par value; authorized
7,000,000 shares; issued - 2000- 2,696,133
shares; 1999 - 2,688,133 shares 26,962 26,882
Additional paid-in capital 13,431,825 13,382,093
Retained earnings (deficit) (9,389,030) (9,405,424)
------------ ------------
4,069,757 4,003,551
Less treasury stock, at cost, 57,250 shares 617,977 617,977
------------ ------------
3,451,780 3,385,574
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,955,488 $ 4,771,873
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 4
N-VIRO INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 165,141 $ 152,481
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for intangibles and other assets (275,858) (178,340)
Expenditures for property and equipment (43,645) (3,851)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (319,503) (182,191)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on revolving credit agreement 120,000 -
Repayments of long-term debt (115,512) (109,265)
Borrowings under long-term obligations 96,870 175,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 101,358 65,735
----------- -----------
NET INCREASE (DECREASE) IN CASH (53,004) 36,025
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 552,846 322,827
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 499,842 $ 358,852
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<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 nine months ended September 30,
2000 may not be indicative of the results of operations for the year ended
December 31, 2000. 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, 1999.
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, 2000 and
December 31, 1999 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
$45,000 for the nine months ended September 30, 2000, and $45,000 for the nine
months ended September 30, 1999 under a contract arrangement signed in 1993 and
amended in 1998 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.
3. CONTINGENCIES
The Company leases office space under an agreement which requires
monthly payments of $4,812. The lease expires in December 2002. The total
minimum rental commitment at September 30, 2000 is $129,924. The total rental
expense included in the statements of operations for the periods ended September
30, 2000 and 1999 is approximately $43,300 and $43,300, respectively.
-5-
<PAGE> 6
During 1994, the Company reacquired territory rights from a former agent
and issued 66,250 shares of unregistered common stock. The former agreement
stated that if the former agent elected to sell these shares, the Company has
guaranteed the former agent $6 per common share.
In 1999 the Company reached a settlement agreement to modify its
royalty agreement with the former agent and the stock price guarantee agreement.
As part of this agreement, the former agent was required to pay royalties owed
and was not permitted to sell any common stock issued in connection with the
original agreement until September 2000 at which time the former agent would be
have been allowed to sell up to 10,000 shares per month. The former agent had
the right to offset future royalties owing against the difference between the $6
per share guarantee and the fair market value of the stock at the time the
shares would have been sold.
In 2000, this agreement was modified to remove the Company's $6 per
share guarantee, to permit sales of up to 15,000 shares per month (with the
Company's approval), and to waive the waiting period for sales of stock related
to this agreement.
During 1999, the Company entered into employment and consulting
agreements with two officers of the Company. One of the employment agreements
expires in July 2002 and called for payments totaling $144,000 annually, through
December 1999. Payments for 2000 will total $131,250 under this agreement. The
other agreement expires in June 2004 and calls for payments totaling $144,000
annually through December 31, 2000. Payments for 2000 will total $120,000 under
this agreement. Future compensation amounts are to be determined annually by the
Board. In addition, one of the agreements provides for payment of life insurance
premiums and the provision of health insurance coverage to the officer and his
spouse for their lives. The present value of estimated costs related to the
provisions of this agreement are expected to total $129,000, which will be
recognized over the remaining terms of the applicable employment agreement.
The consulting agreements begin upon termination of the respective
employment agreements and extend through July 2015 and June 2014, respectively.
The agreements require minimum future services to be provided to be eligible for
compensation. The effect of these agreements impacted the Company's operations
through September 30, 2000 as an expense of $40,324.
On February 25, 2000, the Company filed a Complaint for Patent
Infringement in the United States District Court, Northern District of Ohio,
Eastern Division, and Jury Demand against the City of Warren, Ohio. The Company
believed that the City of Warren had willfully and intentionally infringed on
patents the Company owns and was seeking both equitable remedies in the form of
an injunction and legal remedies in the form of damages. On April 17, 2000, the
City of Warren responded by filing an Answer and Counterclaims against the
Company. In July, 2000, the parties entered into arbitration to settle the
dispute. On September 14, 2000, the Company and the City of Warren settled for
the sum of $100,000, to be paid to the Company in resolution of the dispute. The
Settlement Agreement is included as Exhibit 99. The legal fees expended on this
dispute impacted the Company's operations through September 30, 2000 as a net
expense of approximately $28,000.
The successful conclusion of the litigation with the City of Warren
reinforces both the Company's commitment to defend its intellectual property and
the validity of its patents.
In July, 2000 the Company terminated the license of N-Viro Worldwide,
and on July 24, 2000 filed a Complaint in the United States District Court,
Northern District of Ohio, Western Division, against R3 Management Limited and
Mr. Robin Millard. Mr. Millard is the President and owner of both N-Viro
Worldwide and R3 Management Limited. In its Complaint, the Company has asserted
that Mr. Millard and R3 Management Limited have willfully and intentionally
committed breach of contract,
-6-
<PAGE> 7
breach of fiduciary duty and misappropriated trade secrets, and is seeking both
equitable remedies in the form of an injunction and legal remedies in the form
of damages. Mr. Millard and R3 Management filed two Motions to Dismiss, which
the Company is defending vigorously by filing an Opposition to Defendant's
Motion to Dismiss in U.S. District Court, in October, 2000.
On August 2, 2000, RDP Technologies, Inc. ("RDP") filed a Complaint
against the Company in the State of Delaware alleging intentional interference
with prospective business relationships. On September 22, 2000, the Company
filed a Motion to Dismiss. Subsequently, RDP has filed an Amended Complaint, and
in October, 2000 the Company filed an additional Motion to Dismiss for this
Amended Complaint. The Company believes that the claims made by RDP in its
Complaint and Amended Complaint are without merit and the Company is and will
continue to vigorously defend itself in this matter.
On May 9, 2000, the Company filed Form S-8, registering the Company's
Amended and Restated Stock Option Plan's 600,000 shares of Common Stock. As of
the date hereof approximately 2,400 were exercised and 305,000 shares were
eligible for exercise by optionees. While the exercise of all eligible shares
will not impact the Company's Statement of Operations, dilution of a maximum of
approximately 11% would result with full participation on exercise.
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.
4. NEW ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements."
SAB 101, which, as amended, is effective for the Company for quarters ending
after December 15, 2000, summarizes the staff's views in applying generally
accepted accounting principles to revenue recognition. The Company has not
determined the effects, if any, the SAB may have on its financial statements.
5. SEGMENT INFORMATION
EARNINGS VARIATION DUE TO BUSINESS CYCLES AND SEASONAL FACTORS. Our
operating results can experience quarterly or annual variations due to business
cycles, seasonality and other factors. The market price for our common stock may
decrease if our operating results do not meet the expectations of the market.
Sales of the N-Viro technology are affected by general fluctuations in the
business cycles in the United States and worldwide, instability of economic
conditions and interest rates, as well as other factors. In addition, operating
results of some of our business segments are influenced, along with other
factors such as interest rates, by particular business cycles and seasonality.
COMPETITION. We compete against companies in a highly competitive
market and we have fewer resources than most of those companies. Our business
competes within and outside the United States principally on the basis of price,
product quality, custom design, technical support, reputation, equipment
financing assistance and reliability. Competitive pressures and other factors
could cause us to lose market share or could result in decreases in prices,
either of which could have a material adverse effect on our financial position
and results of operations.
-7-
<PAGE> 8
RISKS OF DOING BUSINESS IN OTHER COUNTRIES. We conduct business in
markets outside the United States, and we expect to continue to do so. In
addition to the risk of currency fluctuations, the risks associated with
conducting business outside the United States include: social, political and
economic instability; slower payment of invoices; underdeveloped infrastructure;
underdeveloped legal systems; and nationalization. The Company has not entered
into any currency swap agreements which may reduce these risks. The Company may
enter into such agreements in the future if it is deemed necessary to do so.
The Company has determined that its reportable segments are those that
are based on the Company's method of internal reporting, which segregates its
business by product category and service lines. Fixed assets generating specific
revenue are identified with their respective segments as they are accounted for
as such in the internal accounting records. All other assets, including cash and
other current assets and all long-term assets, other than fixed assets, are
identified with the Corporate segment. The Company does not allocate any
selling, general, and administrative expenses to any specific segments. All of
the other income (expense) costs or income are non-apportionable and not
allocated to a specific segment. The Company accounts for and analyzes the
operating data for its segments generally by geographic location, with the
exception of the Management segment, as this revenue accounts for over 10% of
the total revenue of the Company. This segment represents both a significant
amount of business generated as well as a specific location and unique type of
revenue. The other two segments are divided between domestic and foreign
sources, as these segments differ in terms of environment and municipal legal
issues, nature of the waste disposal infrastructure, political climate, and
availability of funds for investing in the Company's technology. These factors
have not changed significantly over the past two years and are not expected to
do so in the near term.
The table below presents information about the segment profits and
segment identifiable assets used by the chief operating decision makers of the
Company for the quarters ended September 30, 2000 and 1999 (dollars in
thousands).
<TABLE>
<CAPTION>
Management Domestic Foreign
Operations Operations Operations Total
---------------- ------------- --------------- -----------------
2000
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 424 $ 648 $ 11 $ 1,083
Cost of revenues 342 258 -0- 600
Segment profits 82 390 11 483
Identifiable assets 192 137 -0- 329
Depreciation 6 12 -0- 18
1999
---------------------------------------------------------------------
Revenues $ 429 $ 869 $ 56 $ 1,354
Cost of revenues 283 310 -0- 593
Segment profits 146 559 56 761
Identifiable assets 76 261 -0- 337
Depreciation 3 12 -0- 15
</TABLE>
-8-
<PAGE> 9
A reconciliation of total segment revenues, cost of revenues, and segment
profits sales to consolidated revenues, cost of revenues, and segment
information to the consolidated financial statements for the quarters ended
September 30, 2000 and 1999 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Revenues
Total revenues for reportable segments $ 1,083 $ 1,354
======= =======
Cost of revenues:
Total cost of revenues for reportable segments $ 600 $ 593
Other -0- -0-
------- -------
Consolidated cost of revenues $ 600 $ 593
======= =======
Segment profits:
Segment profits for reportable segments $ 483 $ 761
Corporate selling, general, and adminis-
trative expenses (566) (466)
Other income (expense) (79) 3
------- -------
Consolidated Earnings before Interest and
Taxes $ (162) $ 297
======= =======
Depreciation and amortization:
Depreciation for reportable segments $ 18 $ 15
Corporate depreciation and amortization 29 23
------- -------
Consolidated depreciation and amortization $ 47 $ 38
======= =======
</TABLE>
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company was incorporated in April, 1993, and became a public company
on October 12, 1993. The Company's business strategy is to market the N-Viro
Process, which produces an "exceptional quality" sludge product as defined in
the Section 503 Sludge Regulations under the Clean Water Act of 1987, with
multiple commercial uses. To date, the Company's revenues primarily have been
derived from the licensing of the N-Viro Process to treat and recycle wastewater
sludge generated by municipal wastewater treatment plants and from the sale to
licensees of the alkaline admixture used in the N-Viro Process. The Company has
also operated N-Viro facilities for third parties on a start-up basis and
currently operates one N-Viro facility on a contract management basis.
Total revenues were $1,083,000 for the quarter ended September 30, 2000
compared to $1,354,000 for the same period of 1999. The net decrease in revenue
is due primarily to a decrease in site license revenue. The Company's cost of
revenues remained the same for the same period of 2000, but the gross profit
percentage decreased to 45% from 56% for the quarters ended September 30, 2000
and 1999. This decrease in gross profit percentage is primarily due to the
decrease in site license revenues, which have a high gross profit margin
associated with them. Selling, general and administrative costs increased for
the comparative period, and losses in the equity of a joint venture and patent
litigation costs increased for the same period of 2000. These changes
collectively resulted in a net loss of approximately $161,000 for the quarter
ended September 30, 2000 compared to net income of $297,000 for the quarter
ended September 30, 1999.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 WITH THREE MONTHS ENDED
SEPTEMBER 30, 1999
Overall revenue decreased $271,000, or 20%, to $1,083,000 for the
quarter ended September 30, 2000 from $1,354,000 for the quarter ended September
30, 1999. The net decrease in revenue was due primarily to the following:
a) Licensing of the N-Viro Process, including territory fees, earned
the Company $152,000 for the period, a decrease of $255,000 from the same
period in 1999;
b) Alkaline admixture revenue increased $98,000 from the same period
ended in 1999;
c) Research and development revenue decreased $77,000 from the same
period ended in 1999;
d) The Company's processing revenue, including facility management
revenue, showed a net decrease of $21,000 over the same period ended in
1999; and,
e) Testing and miscellaneous revenues decreased $16,000 from the same
period ended in 1999.
Gross profit decreased $277,000, or 36%, to $483,000 for the three
months ended September 30, 2000 from $760,000 for the three months ended
September 30, 1999. This decrease in gross profit was primarily a result of the
decrease in site license revenues, which have a lower associated cost of revenue
as a percentage than other types of revenue. The gross profit margin decreased
to 45% from 56% for the same three month comparison.
-10-
<PAGE> 11
Selling, general and administrative expenses increased $100,000, or 21%,
to $566,000 for the three months ended September 30, 2000 from $466,000 for the
three months ended September 30, 1999. The increase was primarily due to an
increase in professional fees of $40,000, personnel and related costs of $34,000
and research and development costs $23,000.
As a result of the foregoing factors, the Company recorded an operating
loss of $83,000 for the three months ended September 30, 2000 compared to
operating income of $294,000 for the three months ended September 30, 1999.
Nonoperating income (expense) decreased by $82,000 to a net expense of
$79,000 for the three months ended September 30, 2000 from a net income of
$3,000 for the three months ended September 30, 1999. The decrease was primarily
due to the loss in the equity of a joint venture from a loss of $2,000 in 1999
to a loss of $68,000 in 2000, a decrease in net interest income (expense) of
$10,000 from 1999 and the increase in the net costs of patent litigation
initiated in 2000 of $6,000.
For the three months ended September 30, 2000 and 1999, 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, 2000 WITH NINE MONTHS ENDED
SEPTEMBER 30, 1999
Overall revenue decreased $179,000, or 5%, to $3,302,000 for the nine
months ended September 30, 2000 from $3,482,000 for the nine months ended
September 30, 1999. The net decrease in revenue was due primarily to the
following:
a) Licensing of the N-Viro Process, including territory fees, earned
the Company $305,000 for the period, a decrease of $177,000 from the same
period in 1999;
b) Alkaline admixture revenue increased $214,000 from the same period
ended in 1999;
c) Research and development revenue decreased $61,000 from the same
period ended in 1999;
d) The Company's processing revenue, including facility management
revenue, showed a net decrease of $147,000 over the same period ended in
1999; and,
e) Testing and miscellaneous revenues decreased $8,000 from the same
period ended in 1999.
Gross profit decreased $307,000, or 17%, to $1,492,000 for the nine
months ended September 30, 2000 from $1,799,000 for the nine months ended
September 30, 1999. This decrease in gross profit was primarily a result of the
decrease in site license revenues, which have a lower associated cost of revenue
as a percentage than other types of revenue. The gross profit margin decreased
to 45% from 52% for the same nine month comparison.
Selling, general and administrative expenses increased $199,000, or 14%,
to $1,590,000 for the nine months ended September 30, 2000 from $1,391,000 for
the nine months ended September 30, 1999. The increase was primarily due to an
increase in personnel and related costs of $114,000, professional fees of
$50,000 and research and development of $33,000.
-11-
<PAGE> 12
As a result of the foregoing factors, the Company recorded an operating
loss of $98,000 for the nine months ended September 30, 2000 compared to
operating income of $408,000 for the nine months ended September 30, 1999.
Nonoperating income (expense) increased by $130,000 to income of
$115,000 for the nine months ended September 30, 2000 from an expense of $15,000
for the nine months ended September 30, 1999. The increase was primarily due to
the recovery of $275,000 in a bad debt previously written off, partially offset
by an increase in the net costs of patent litigation initiated in 2000 of
$28,000 and an increase in the loss of the equity of a joint venture from a loss
of $24,000 in 1999 to a loss of $129,000 in 2000. The bad debt is a Note
Receivable from a Canadian licensee, which in previous years was fully reserved
in allowance for bad debts.
For the nine months ended September 30, 2000 and 1999, 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 $1,092,000 at September 30, 2000,
compared to working capital of $1,090,000 at December 31, 1999, an increase of
$2,000. Current assets at September 30, 2000 included cash and investments of
$502,000, which is a decrease of $53,000 from December 31, 1999.
The Company maintains a $400,000 certificate of deposit with a bank and
held as collateral on the Company's working capital line of credit.
In April 2000, the Company renewed its agreement for a line of credit of
$1 million (an increase of $500,000 from $500,000 as of December 31, 1999),
secured by a certificate of deposit with the lender of $400,000. Borrowings up
to $400,000 (up from $250,000 as of December 31, 1999) bear interest at prime
minus .5% and borrowings above $400,000 (up from $250,000 as of December 31,
1999) bear interest at prime plus 1%. The balance owed on the line of credit at
September 30, 2000 was $120,000.
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 2000.
The Company cautions that words used in this document such as
"expects," "anticipates," "believes," "may," and "optimistic," as well as
similar words and expressions used herein, identify and refer to statements
describing events that may or may not occur in the future. These forward-looking
statements and the matters to which they refer are subject to considerable
uncertainty that may cause actual results to be materially different from those
described herein. Some, but not all, of the factors that could cause actual
results to be different than those anticipated or predicted by the Company
include: (i) a deterioration in economic conditions in general; (ii) a decrease
in demand for the Company's products or services in particular; (iii) the
Company's loss of a key employee or employees; (iv) regulatory changes,
including changes in environmental regulations, that may have an adverse affect
on the demand for the Company's products or services; (v) increases in the
Company's operating expenses resulting from increased costs of labor and/or
consulting services; and (vi) a failure to collect upon or otherwise secure the
benefits of existing contractual commitments with third parties, including
customers of the Company.
-12-
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 25, 2000, the Company filed a Complaint for Patent
Infringement in the United States District Court, Northern District of
Ohio, Eastern Division, and Jury Demand against the City of Warren,
Ohio. The Company believed that the City of Warren had willfully and
intentionally infringed on patents the Company owns and was seeking
both equitable remedies in the form of an injunction and legal remedies
in the form of damages. On April 17, 2000, the City of Warren responded
by filing an Answer and Counterclaims against the Company. In July,
2000, the parties entered into arbitration to settle the dispute. On
September 14, 2000, the Company and the City of Warren settled for the
sum of $100,000, to be paid to the Company in resolution of the
dispute. The Settlement Agreement is included as Exhibit 99.
In July, 2000 the Company terminated the license of N-Viro Worldwide,
and on July 24, 2000 filed a Complaint in the United States District
Court, Northern District of Ohio, Western Division, against R3
Management Limited and Mr. Robin Millard. Mr. Millard is the President
and owner of both N-Viro Worldwide and R3 Management Limited. In its
Complaint, the Company has asserted that Mr. Millard and R3 Management
Limited have willfully and intentionally committed breach of contract,
breach of fiduciary duty and misappropriated trade secrets, and is
seeking both equitable remedies in the form of an injunction and legal
remedies in the form of damages. Mr. Millard and R3 Management filed
two Motions to Dismiss, which the Company is defending vigorously by
filing an Opposition to Defendant's Motion to Dismiss in U.S. District
Court, in October, 2000.
On August 2, 2000, RDP Technologies, Inc. ("RDP") filed a Complaint
against the Company in the State of Delaware alleging intentional
interference with prospective business relationships. On September 22,
2000, the Company filed a Motion to Dismiss. Subsequently, RDP has
filed an Amended Complaint, and in October, 2000 the Company filed an
additional Motion to Dismiss for this Amended Complaint. The Company
believes that the claims made by RDP in its Complaint and Amended
Complaint are without merit and the Company is and will continue to
vigorously defend itself in this matter.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
99 Warren Settlement Agreement
(b) Reports on Form 8-K:
None.
-13-
<PAGE> 14
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.
<TABLE>
N-VIRO INTERNATIONAL CORPORATION
<S> <C>
Date: November 13, 2000 /s/ J. Patrick Nicholson
----------------------------- -------------------------
J. Patrick Nicholson
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 /s/ James K. McHugh
----------------------------- --------------------
James K. McHugh
Chief Financial Officer
(Principal Financial & Accounting Officer)
</TABLE>
-14-
