-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MhRW644IHMqQIQxq8kSQmav1P47dH/r+YnPOu9r+UtVv54MoR/5ARudUtAqO6qNO BAACvQMKVMSDgwKEIMheyg== 0000904896-05-000037.txt : 20050516 0000904896-05-000037.hdr.sgml : 20050516 20050516095911 ACCESSION NUMBER: 0000904896-05-000037 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050516 DATE AS OF CHANGE: 20050516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: N-VIRO INTERNATIONAL CORP CENTRAL INDEX KEY: 0000904896 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 341741211 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21802 FILM NUMBER: 05831704 BUSINESS ADDRESS: STREET 1: 3450 W CENTRAL AVE STREET 2: STE 328 CITY: TOLEDO STATE: OH ZIP: 43606 BUSINESS PHONE: 4195356374 MAIL ADDRESS: STREET 1: 3450 WEST CENTRAL AVENUE SUITE 328 CITY: TOLEDO STATE: OH ZIP: 43606 10QSB 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 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 SMALL BUSINESS ISSUER 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 May 2, 2005, 3,508,559 shares of N-Viro International Corporation $ .01 par value common stock were outstanding. Transitional Small Business Disclosure Format (check one): Yes No X --- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
N-VIRO INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31 2005 2004 ----------- ----------- Revenues . . . . . . . . . . . . . . . . . . $1,136,446 $1,458,369 Cost of revenues . . . . . . . . . . . . . . 789,296 1,040,213 ----------- ----------- Gross Profit . . . . . . . . . . . . . . . . 347,150 418,156 Operating expenses: Selling, general and administrative. . . . . 349,162 509,451 ----------- ----------- 349,162 509,451 ----------- ----------- Operating loss . . . . . . . . . . . . . . . (2,012) (91,295) Nonoperating income (expense): Interest and dividend income . . . . . . . . 1,119 4,751 Interest expense . . . . . . . . . . . . . . (7,186) (26,147) Loss from equity investment in joint venture (55,703) (43,823) ----------- ----------- (61,770) (65,219) ----------- ----------- Loss before income taxes . . . . . . . . . . (63,782) (156,514) Federal and state income taxes . . . . . . . - - ----------- ----------- Net loss . . . . . . . . . . . . . . . . . . $ (63,782) $ (156,514) =========== ===========
See Notes to Consolidated Financial Statements
N-VIRO INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS Mar. 31, 2005 (Unaudited) December 31, 2004 -------------------------- ------------------- ASSETS - ---------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents: Unrestricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 247,147 $ 147,549 Restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,914 75,600 Receivables: Trade, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 743,732 578,070 Stock subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,500 42,500 Notes receivable - current . . . . . . . . . . . . . . . . . . . . . . . . . 54,892 112,802 Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . . 149,167 108,732 -------------------------- ------------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,408,352 1,065,253 Property and Equipment, Net. . . . . . . . . . . . . . . . . . . . . . . . . 340,715 360,952 Investment in and Advances to Florida N-Viro, L.P. . . . . . . . . . . . . . 130,772 186,475 Notes Receivable, net of current portion . . . . . . . . . . . . . . . . . . - 338 Intangible and Other Assets, Net . . . . . . . . . . . . . . . . . . . . . . 1,044,409 1,078,771 -------------------------- ------------------- $ 2,924,248 $ 2,691,789 ========================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------- CURRENT LIABILITIES Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . $ 92,919 $ 91,072 Line-of-credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 200,000 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,092,570 864,580 Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336,466 293,201 -------------------------- ------------------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 1,671,955 1,448,853 Long-term debt, less current maturities. . . . . . . . . . . . . . . . . . . 90,213 114,263 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $.01 par value; authorized 7,000,000 shares; issued 3,642,059 in 2005 and 3,569,693 in 2004. . . . . . . . . . . . . . . . . . . 36,421 35,697 Preferred stock, $.01 par value; authorized 2,000,000 shares; issued 1 share - - Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 14,887,811 14,791,346 Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,077,262) (13,013,480) -------------------------- ------------------- 1,846,970 1,813,563 Less treasury stock, at cost, 123,500 shares . . . . . . . . . . . . . . . . 684,890 684,890 -------------------------- ------------------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 1,162,080 1,128,673 -------------------------- ------------------- $ 2,924,248 $ 2,691,789 ========================== ===================
See Notes to Consolidated Financial Statements
N-VIRO INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31 2005 2004 --------- ---------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . $140,292 $(262,544) CASH FLOWS FROM INVESTING ACTIVITIES Collections on notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,768 8,000 Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (2,004) Expenditures for intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,829) (12,765) Reductions to restricted cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . (50,314) (75,000) --------- ---------- Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,375) (81,769) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of stock - options, warrants and private placement. . . . . . . . . . . . . . . . . . . 42,500 543,180 Borrowings under long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 74,386 Private placement expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,616) (10,751) Principal payments on long-term obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . (22,203) (70,646) Net payments on line-of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,000) (198,223) --------- ---------- Net cash provided (used) by financing activities . . . . . . . . . . . . . . . . . . . . . . . . (32,319) 337,946 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . 99,598 (6,367) CASH AND CASH EQUIVALENTS - BEGINNING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,549 123,547 --------- ---------- CASH AND CASH EQUIVALENTS - ENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $247,147 $ 117,180 ========= ========== Supplemental disclosure of cash flows information: Cash paid during the three months ended for interest . . . . . . . . . . . . . . . . . . . . $ 17,174 $ 20,039 ========= ========== During the three months ended March 31, 2005, the Company issued unregistered common stock with a fair market value of $4,864 to current directors for past services rendered.
See Notes to Consolidated Financial Statements 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 normal recurring accruals) necessary to present fairly such information for the period and at the dates indicated. The results of operations for the three months ended March 31, 2005 may not be indicative of the results of operations for the year ended December 31, 2005. Since the accompanying consolidated financial statements have been prepared in accordance with Item 310 of Regulation S-B, 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 financial statements and notes thereto appearing in the Company's Form 10-KSB for the period ending December 31, 2004. The financial statements are consolidated as of March 31, 2005 and December 31, 2004 for the Company. There were no intercompany transactions. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following are certain significant estimates and assumptions made in preparation of the financial statements: Non-domestic license and territory fees - The Company does not recognize revenue on any non-domestic (excluding Canada) license or territory fee contracts until the cash is received, assuming all other tests of revenue recognition are met. Allowance for Doubtful Accounts - The Company estimates losses for uncollectible accounts based on the aging of the accounts receivable and the evaluation of the likelihood of success in collecting the receivable. Property and Equipment/Long-Lived Assets - Property and equipment is reviewed for impairment pursuant to the provisions of Statement of Financial Accounting Standards (or SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The carrying amount of an asset (group) is considered impaired if it exceeds the sum of the Company's estimate of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset (group), excluding interest charges. Property, machinery and equipment are stated at cost less accumulated depreciation. Management believes the carrying amount is not impaired based upon estimated future cash flows. Equity Method Investment - The Company accounts for its investments in joint ventures under the equity method. The Company periodically evaluates the recoverability of its equity investments in accordance with Accounting Principals Board Opinion (or APB) No. 18, "The Equity Method of Accounting for Investments in Common Stock." If circumstances were to arise where a loss would be considered other than temporary, the Company would record a write-down of excess investment cost. Management has determined that no write-down was required at March 31, 2005. Intangible Assets - Intangible assets deemed to have indefinite lives are tested for impairment by comparing the fair value with its carrying value. Significant estimates used in the determination of fair value include estimates of future cash flows. As required under current accounting standards, the Company tests for impairment when events and circumstances indicate that the assets might be impaired and the carrying value of those assets may not be recoverable. The Company is also amortizing the capitalized cost of obtaining its credit facility, for the additional collateral required and evidenced by a warrant to purchase 50,000 shares of the Company's common stock. The Company estimated this cost at February 26, 2003 to be $30,000, and is amortizing this over 4 years by the straight-line method. Fair Value of Financial Instruments - The fair values of cash, accounts receivable, accounts payable and other short-term obligations approximate their carrying values because of the short maturity of these financial instruments. The carrying values of the Company's long-term obligations approximate their fair value. In accordance with SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," rates available at balance sheet dates to the Company are used to estimate the fair value of existing debt. Income Taxes - The Company assumes the deductibility of certain costs in income tax filings and estimates the recovery of deferred income tax assets. Preferred Stock - The Company has authorized two million (2,000,000) shares of preferred stock, of which one share of Series A Redeemable Preferred Stock (the "Preferred Stock") has been issued. The Preferred Stock is non-transferable, has a term of ten years from August 27, 2003 and is subject to redemption by the Company for a nominal sum. The Preferred Stock has no voting rights, but has the special right, voting separately as a single class, to nominate and elect one member of the Board of Directors of the Corporation at the annual meeting of the stockholders of the Corporation at which such member is to be elected. The Preferred Stock is not convertible or exchangeable for any other securities or property of the Company and has no liquidation preference. The Preferred Stock is redeemable upon the occurrence of certain events, including the reduction in the initial holder's holdings of the Company's common stock to less than 17.5% of the outstanding shares of common stock as reflected on reports filed with the Securities and Exchange Commission under Section 16 of the Securities and Exchange Act of 1934, as amended, through transfers or sales of the Company's common stock by the initial holder, his family members or entities controlled by him. Stock Options - The Company accounts for stock-based compensation issued to its employees and directors in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized for the stock option plans, as all options granted under the plans have an exercise price equal to the market value of the underlying common stock on the date of the grant, except for the options granted in May, 2004 to Michael Nicholson, which is explained further in "Related Party Transactions". The fair value of options granted was determined using the Black-Scholes option pricing model. SFAS No. 123, "Accounting for Stock-Based Compensation", was revised in December 2004, which revision changes the accounting for transactions in which an entity obtains employee services in a share-based payment transaction. For Small Business issuers, the Statement is effective as of the beginning of the first interim period or annual reporting period that begins after December 15, 2005. The adoption of this standard had no effect on our financial condition or results of operations for the three months ended March 31, 2005, but it expected to affect our financial condition and results of operations starting with the first quarter of 2006. The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board (or FASB) Statement No. 123, "Accounting for Stock-based Compensation" to stock-based employee compensation:
Three Months Ended March 31 ---------------------------- 2005 2004 --------- ---------- Net loss, as reported. . . . . . . . . . . $(63,782) $(156,514) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects. . . . . . . (26,774) (18,621) --------- ---------- Pro forma net loss . . . . . . . . . . . . $(90,556) $(175,135) ========= ========== Loss per share: Basic and diluted - as reported. . . . . . $ (0.02) $ (0.06) ========= ========== Basic and diluted - pro-forma. . . . . . . $ (0.03) $ (0.06) ========= ==========
NOTE 2. RELATED PARTY TRANSACTIONS During the first quarter of 2005, the Company issued 958 and 1,358 shares of unregistered common stock to Phillip Levin and Daniel Haslinger, respectively, both members of the Board of Directors, in exchange for management consulting work performed outside their duties as directors from January to April 2004, for $3,000 and $4,000, respectively, or a total of $7,000. During the first quarter of 2005, 10,000 restricted shares of unregistered common stock of the Company were subscribed to by Carl Richard, a director, in a private placement. These shares were issued in May 2005 at $1.25 per share, with associated warrants to purchase additional shares at $1.85 per share. NOTE 3. LONG-TERM DEBT In February 2003 the Company closed on an $845,000 credit facility with Monroe Bank + Trust, or the Bank. This senior debt credit facility was comprised of a $295,000 four year term note at 7.5% and a line of credit up to $550,000 at Prime (5.25% at March 31, 2005) plus 1.5% and secured by a first lien on all assets of the Company. The Company used the funds to refinance prior debt and to provide working capital. The Company was in violation of financial covenants governing the credit facility at December 31, 2003, but the Bank waived this violation but required additional consideration in exchange for this waiver. In January 2004, the Company purchased a certificate of deposit in the amount of $75,000 from the Bank, and transferred custodianship of all treasury stock of the Company to the Bank. At the first anniversary of the initial credit facility, the Bank decreased the maximum amount available to borrow on the line to $400,000, but also reduced the financial covenants to make it easier for the Company to maintain the facility. The Company has currently renewed the line of credit through October 2005, and is not in violation of any financial covenants. In February 2005, the Bank amended the facility and released certain additional collateral but required the Company to provide an additional $50,000 certificate of deposit. At March 31, 2005, the Company had $250,000 of borrowing capacity under the credit facility. NOTE 4. CONTINGENCIES The Company leases its executive and administrative office in Toledo, Ohio, under a lease that was renewed in January 2003 and amended in November 2004. The Company believes its relationship with its lessor is satisfactory. The total minimum rental commitment for the years ending December 31, 2005 and 2006 is approximately $37,200 each year. The total rental expense included in the statements of operations for the three months ended March 31, 2005 and 2004 is approximately $9,600 and $14,000, respectively. The Company also leases various equipment on a month-to-month basis. On July 1, 2004, the Company completed negotiations and engaged its former Chief Executive Officer and a member of the Board of Directors, Terry J. Logan, as an outside consultant. The consulting agreement extends through June 2006 and requires Dr. Logan to provide a minimum of 104 business days annually, to be paid at a rate of $700 per day and 1,000 stock options per month. In August 2003, the Company entered into a Settlement Agreement with Mr. J. Patrick Nicholson and negotiated a new consulting agreement. The consulting agreement will expire in August 2008, and Mr. Nicholson is required to provide future services to be eligible for compensation. Mr. Nicholson is also entitled to payments of $48,000 per year for non-competition and $6,000 per year for office space reimbursement, in addition to life and health insurance coverage similar to the provision contained in his 1999 employment and consulting agreements. In June 2003, the Company entered into an Employment Agreement (the "Agreement") with Michael G. Nicholson, the Chief Development Officer and a member of the Board. The employment agreement will expire in June 2007, and future compensation amounts are to be determined annually by the Board. The agreement was disclosed in a filing on June 10, 2003 on Form 8-K. In the third quarter of 2004, the Company and Mr. Nicholson renegotiated primarily the stock option portion of the Agreement, and amended the Agreement. Because these options were priced lower than the fair market value as of that date, the Company is required to take a charge to earnings totaling approximately $68,400 ratably through June, 2007, the ending date of his employment agreement On September 27, 2004, the Company executed both a memorandum of employment and storage site agreement with a member of the Board of Directors, Daniel J. Haslinger, effective August 16, 2004. Mr. Haslinger was subsequently appointed Chief Executive Officer effective January 1, 2005. Under these agreements, Mr. Haslinger is paid $1,500 per month as an employee, and, a company co-owned by him is paid $5,000 per month for the rental of land owned by him. Both of these agreements are terminable "at-will". The Company operates in an environment with many financial risks, including, but not limited to, major customer concentrations, customer contract termination provisions, competing technologies, infringement and/or misappropriation of intellectual property rights, the highly competitive and, at times, seasonal nature of the industry and worldwide economic conditions. Various federal, state and governmental agencies are considering, and some have adopted, laws and regulations regarding environmental protection which could adversely affect the business activities of the Company. The Company cannot predict what effect, if any, current and future regulations may have on the operations of the Company. NOTE 5. NEW ACCOUNTING STANDARDS In March 2005, FASB Interpretation No. 47 (or FIN 47), "Accounting for Conditional Asset Retirement Obligations-an interpretation of FASB Statement No. 143", was issued. The primary objective of FIN 47 is to provide guidance with respect to the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset when the timing and (or) method of settlement of the obligation are conditional on a future event. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The Company does not expect the application of the provisions of FIN 47 to have a material impact on its financial position, results of operations or cash flows. NOTE 6. SEGMENT INFORMATION EARNINGS VARIATION DUE TO BUSINESS CYCLES AND SEASONAL FACTORS. The Company's operating results can experience quarterly or annual variations due to business cycles, seasonality and other factors. The market price for its common stock may decrease if its operating results do not meet the expectations of the market. For the first quarter of 2005, approximately 30% of the Company's revenue is from management operations, 67% from other domestic operations, 2% from research and development grants and the remaining 1% from foreign operations. 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 (such as the current conditions in the Asia Pacific region and Latin America) and interest rates, as well as other factors. In addition, operating results of some of the Company's business segments are influenced by particular business cycles and seasonality, as well as other factors such as interest rates. COMPETITION. The Company does business in a highly competitive market and has fewer resources than most of its competitors. Businesses in this market compete 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 the Company to lose market share or could result in decreases in prices, either of which could have a material adverse effect on its financial position and results of operations. RISKS OF DOING BUSINESS IN OTHER COUNTRIES. The Company conducts business in markets outside the United States, and expects 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. Current economic and political conditions in the Asia Pacific and Middle East regions have affected the Company outlook for potential revenue there. The Company cannot predict the full impact of this economic instability, but it could have a material adverse effect on revenues and profits. 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. The Company's reportable segments are as follows: Management Operations - The Company provides employee and management services to operate the Toledo Wastewater Treatment Facility. Other Domestic Operations - Sales of territory or site licenses and royalty fees to use N-Viro technology in the United States. Foreign Operations - Sale of territory or site licenses and royalty fees to use N-Viro technology in foreign operations. Research and Development - The Company contracts with Federal and State agencies to perform or assist in research and development on the Company's technology. The accounting policies of the segments are the same as the Company's significant accounting policies. Fixed assets generating specific revenue are identified with their respective segments and 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 not identified with any segments, but rather the Company's administrative functions. All of the net nonoperating income (expense) 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 Operations and Research and Development segments. The Management Operations segment represents both a significant amount of business generated as well as a specific location and unique type of revenue. The domestic and foreign operations segments differ in terms of environmental 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 several years and are not expected to change in the near term. The Research and Development segment accounts for approximately 2% of the total year-to-date revenue of the Company, and is unlike any other revenue in that it is generated as a result of a specific project to conduct initial or additional ongoing research into the Company's emerging technologies. 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 periods ended March 31, 2005 and 2004 (dollars in thousands):
Management Domestic Foreign Research & Operations Operations Operations Development Total ---------------------------------- ----------- ----------- ------------ ------ Three Months Ended March 31, 2005 ---------------------------------------------------------------------------------- Revenues. . . . . . $ 342 $ 758 $ 13 $ 23 $1,136 Cost of revenues. . 222 548 - 19 789 Segment profits . . 120 210 13 4 347 Identifiable assets 272 59 - - 331 Depreciation. . . . 15 4 - - 19 Three Months Ended March 31, 2004 ---------------------------------------------------------------------------------- Revenues. . . . . . $ 500 $ 922 $ 13 $ 23 $1,458 Cost of revenues. . 356 665 - 19 1,040 Segment profits . . 144 257 13 4 418 Identifiable assets 338 82 - - 420 Depreciation. . . . 16 5 - - 21
A reconciliation of total segment revenues, cost of revenues, and segment profits to consolidated revenues, cost of revenues, and segment information to the consolidated financial statements for the periods ended March 31, 2005 and 2004 is as follows (dollars in thousands):
Three Months Ended March 31 ---------------------------- 2005 2004 ------- ------- Segment profits: Segment profits for reportable segments. . . . $ 347 $ 418 Corporate selling, general and administrative expenses and research + development costs. (349) (509) Other income (expense) . . . . . . . . . . . . (62) (65) ------- ------- Consolidated loss before taxes . . . . . . . . $ (64) $ (156) ======= ======= Identifiable assets: Identifiable assets for reportable segments. . $ 331 $ 420 Corporate property and equipment . . . . . . . 10 26 Current assets not allocated to segments . . . 1,408 1,855 Intangible and other assets not allocated to segments . . . . . . . . . . . . . . . . . 1,175 1,479 Consolidated assets. . . . . . . . . . . . . . $2,924 $3,780 ======= ======= Depreciation and amortization: Depreciation for reportable segments . . . . . $ 19 $ 21 Corporate depreciation and amortization. . . . 37 39 ------- ------- Consolidated depreciation and amortization . . $ 56 $ 60 ======= =======
NOTE 7. INVESTMENT IN FLORIDA N-VIRO, L. P. Florida N-Viro, L.P. was formed in January 1996 pursuant to a joint venture agreement between the Company and VFL Technology Corporation (VFL). The Company owns a 47.5% interest in the joint venture and accounts for its investment under the equity method. The Company has recognized its share of the joint venture's losses to the extent of its investment. Any additional losses passed through from the joint venture are recorded as an increase to the allowance against the Note Receivable. Condensed financial information of the partnership for the quarters ended March 31, 2005 and 2004 is as follows:
For the Quarter Ended March 31 ------------------------------ 2005 2004 ---------- --------- Net sales. . . . . . . . . . . . $ 299,682 $596,147 Gross profit (loss). . . . . . . (62,602) (6,148) Loss from continuing operations. (117,268) (92,259) Net loss . . . . . . . . . . . . (117,268) (92,259)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION FORWARD-LOOKING STATEMENTS This 10-QSB contains statements that are forward-looking. We caution 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. There are numerous factors that could cause actual results to be different than those anticipated or predicted by us, including: (i) a deterioration in economic conditions in general; (ii) a decrease in demand for our products or services in particular; (iii) our 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 our products or services; (v) increases in our 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 our customers. This list provides examples of factors that could affect the results described by forward-looking statements contained in this Form 10-QSB; however, this list is not exhaustive and many other factors could impact the Company's business and it is impossible to predict with any accuracy which factors could result in negative impacts. Although we believe that the forward-looking statements contained in this Form 10-QSB are reasonable, we cannot provide you with any guarantee that the anticipated results will not be adverse and that the anticipated results will be achieved. All forward-looking statements in this Form 10-QSB are expressly qualified in their entirety by the cautionary statements contained in this section and you are cautioned not to place undue reliance on the forward-looking statements contained in this Form 10-QSB. In addition to the risks listed above, other risks may arise in the future, and we disclaim any obligation to update information contained in any forward-looking statement. OVERVIEW We incorporated in April, 1993, and became a public company on October 12, 1993. Our business strategy is to market the N-Viro Process, which produces a sludge product with multiple commercial uses having an "exceptional quality" as defined in the Section 503 Sludge Regulations under the Clean Water Act of 1987. To date, our revenues have been derived primarily 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. We also operate N-Viro facilities for third parties on a start-up basis and currently operate one N-Viro facility on a contract management basis. RESULTS OF OPERATIONS Total revenues were $1,136,000 for the quarter ended March 31, 2005 compared to $1,458,000 for the same period of 2004. The net decrease in revenue is due primarily to a decrease in facility management fees and one-time license revenue. Our cost of revenues decreased to $789,000 in 2005 from $1,040,000 for the same period in 2004, but the gross profit percentage increased to 31% from 29% for the quarters ended March 31, 2005 and 2004, respectively. This increase in gross profit percentage is primarily due to the decrease in costs of processing at privatized facilities, reducing the cost of transporting our products and reductions in our payroll and related costs. Operating expenses decreased for the comparative period, while our share of the loss of a joint venture, our interest in Florida N-Viro, L.P., decreased for the same period of 2005. These changes collectively resulted in a net loss of approximately $64,000 for the quarter ended March 31, 2005 compared to a net loss of $157,000 for the same period in 2004. COMPARISON OF THREE MONTHS ENDED MARCH 31, 2005 WITH THREE MONTHS ENDED MARCH 31, 2004 Our overall revenue decreased $322,000, or 22%, to $1,136,000 for the quarter ended March 31, 2005 from $1,458,000 for the quarter ended March 31, 2004. The net decrease in revenue was due primarily to the following: a) Sales of alkaline admixture decreased $24,000 from the same period ended in 2004; b) Revenue from the service fees for the management of alkaline admixture decreased $61,000 from the same period ended in 2004; c) Our processing revenue, including facility management revenue, showed a net decrease of $175,000 over the same period ended in 2004; d) Licensing of the N-Viro Process, which had $-0- license sales in the first quarter of 2005, showed a net decrease of $72,000 over the same period in 2004; e) Miscellaneous revenues increased $10,000 from the same period ended in 2004; and f) Research and development revenue did not change from the same period ended in 2004. Our gross profit decreased $71,000, or 17%, to $347,000 for the three months ended March 31, 2005 from $418,000 for the three months ended March 31, 2004, but the gross profit margin increased to 31% from 29% for the same periods. The increase in gross profit margin is primarily due to the decrease in costs of processing at privatized facilities, reducing the cost of transporting our products and reductions in our payroll and related costs. Our operating expenses decreased $160,000, or 31%, to $349,000 for the three months ended March 31, 2005 from $509,000 for the three months ended March 31, 2004. The decrease was primarily due to a decrease of approximately $78,000 in directors' fees paid in unregistered stock, $50,000 in employee payroll and related expenses, $34,000 in employee travel expenses and $42,000 in insurance and office/administrative costs, partially offset by an increase of approximately $37,000 in consulting fees and expenses and $14,000 in legal fees. As a result of the foregoing factors, we recorded an operating loss of $2,000 for the three months ended March 31, 2005 compared to an operating loss of $91,000 for the three months ended March 31, 2004, a decrease in the loss of approximately $89,000. Our net nonoperating income (expense) increased by $3,000 to net nonoperating expense of $62,000 for the three months ended March 31, 2005 from net nonoperating expense of $65,000 for the three months ended March 31, 2004. The increase in nonoperating expense was primarily due to a decrease in interest expense of $19,000 from 2004, partially offset by an increase in the loss of approximately $12,000 in the equity of a joint venture, from a loss of $44,000 in 2004 to a loss of $56,000 in 2005. We recorded net loss of approximately $64,000 for the three months ended March 31, 2005 compared to a net loss of $157,000 for the same period ended in 2004, a decrease in the loss of approximately $93,000. For the three months ended March 31, 2005 and 2004, we have not fully recognized the tax benefit of the losses incurred in prior periods. Accordingly, our effective tax rate for each period was zero. LIQUIDITY AND CAPITAL RESOURCES We had a working capital deficit of approximately $264,000 at March 31, 2005, compared to a working capital deficit of $384,000 at December 31, 2004, resulting in an increase in working capital of $120,000. Current assets at March 31, 2005 included cash and investments of approximately $373,000 (including restricted cash of approximately $126,000), which is an increase of $150,000 from December 31, 2004. The increase in working capital was principally due to the private placement of unregistered common stock with three stock subscribers totaling $87,500. Compared to March 31, 2004, in the first three months of 2005 our cash flow provided by operations was approximately $140,000, an increase of approximately $403,000 from the same period in 2004. This increase was principally due to a decrease in the net loss of approximately $93,000 and a decrease in cash received from the issuance of stock for services of approximately $247,000, increased by the change in working capital of approximately $746,000. Our $845,000 credit facility with Monroe Bank + Trust, or the Bank is comprised of a $295,000 four year term note at 7.5% and a line of credit up to $550,000 at Prime plus 1.5% and secured by a first lien on all our assets . In January 2004, we purchased a certificate of deposit in the amount of $75,000 from the Bank, and transferred custodianship of all of our treasury stock to the Bank. In February 2004, the Bank decreased the maximum amount available to borrow on the line to $400,000, but also reduced the financial covenants to make it easier for us to maintain the facility. We currently have renewed the line of credit through October 2005, and are not in violation of any financial covenants. In February 2005, the Bank amended the facility and released certain additional collateral but required us to provide an additional $50,000 certificate of deposit. At March 31, 2005, we had $250,000 of borrowing capacity under the Credit Facility. The normal collection period for accounts receivable is approximately 30-60 days for the majority of customers. This is a result of the nature of the license contracts, type of customer and the amount of time required to obtain the information to prepare the billing. We did not change our reserve for bad debts during the first three months of 2005. During the first three months of 2005, our investment in a 47.5% owned partnership, Florida N-Viro, L.P., recorded a net loss to us of approximately $56,000. Cash flow from operations of Florida N-Viro, L.P. was negative, partially due to the planned closing of one of its operating facilities, but we believe Florida N-Viro, L.P. will have sufficient cash flow to fund its operations for the rest of 2005. We are currently in discussions with several companies in the cement and fuel industries for the development and commercialization of the patented N-Viro fuel technology. There can be no assurance that these discussions will be successful. We continue to focus on the development of regional biosolids processing facilities. Currently we are in negotiations with several privatization firms to permit and develop independent, regional facilities. We expect continued improvements in operating results for 2005 primarily due to realized and expected new sources of revenue. Additionally, market developments and ongoing discussions with companies in the fuel and wastewater industries could provide enhanced liquidity and positively impact 2005 operations. We believe that current market trends and increased and more focused emphasis on our business development efforts provide a basis for an optimistic outlook for 2005 and beyond. The national public attack on Class B levels of sludge treatment is rapidly moving the market to Class A technologies, of which the Company's patented N-Viro processes are very cost competitive, and well established in the market place. There are currently over 40 facilities worldwide using the N-Viro Process, most of which have been using the N-Viro process for over 10 years. Five new facilities are expected to come on-line in the next twelve to eighteen months. The development and patenting of new technologies for animal manure treatment, bio-fuel and nematode control have the potential to expand our revenue base over the next five years and beyond. We believe we have sufficient liquidity to continue operations over the next twelve months. OFF-BALANCE SHEET ARRANGEMENTS At March 31, 2005, we did not have any material commercial commitments, including guarantees or standby repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities often referred to as structured finance or special purpose entities or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. From time to time, during the normal course of business, we may make certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These include: (i) indemnities to vendors and service providers pertaining to claims based on our negligence or willful misconduct and (ii) indemnities involving the accuracy of representations and warranties in certain contracts. Pursuant to Delaware law, we may indemnify certain officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. We also have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts that we may pay for indemnification purposes. We believe the applicable insurance coverage is generally adequate to cover any estimated potential liability for which we may provide indemnification. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments we could be obligated to make. We have not recorded any liability for these indemnities, commitments and other guarantees in the accompanying Consolidated Balance Sheets. CONTRACTUAL OBLIGATIONS The following table summarizes our contractual cash obligations at March 31, 2005, and the effect these obligations are expected to have on liquidity and cash flow in future periods:
Payments Due By Period --------------------------------------------------------------------------- Total Less than 1 year 1 - 3 years 4 - 5 years after 5 years -------- ----------------- ------------ ------------ -------------- Purchase obligations . . . . . . . (1) $691,500 $ 150,800 $ 252,200 $ 156,000 $ 132,500 Long-term debt obligations . . . . (2) 183,132 92,919 90,213 - - Operating leases . . . . . . . . . (3) 98,895 48,042 50,853 - - Capital lease obligations - - - - - Other long-term debt obligations - - - - - -------- ----------------- ------------ ------------ -------------- Total contractual cash obligations $973,527 $ 291,761 $ 393,266 $ 156,000 $ 132,500 ======== ================= ============ ============ ============== (1) Purchase obligations include agreements to purchase services that are enforceable and legally binding on the Company and that specify all significant terms and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. (2) Amounts represent the expected cash payments of our long-term obligations. (3) Amounts represent the expected cash payments of our operating lease obligations.
ITEM 3. CONTROLS AND PROCEDURES DISCLOSURE CONTROLS AND PROCEDURES As of March 31, 2005, under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. We concluded that our disclosure controls and procedures were effective as of March 31, 2005, such that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. INTERNAL CONTROLS There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS A final order has been issued in the stockholder derivative action, or the Lawsuit filed by Strategic Asset Management, Inc., or SAMI, in the Court of Chancery of the State of Delaware for New Castle County, or the Court. On April 21, 2005, the Court issued an order, or the Order, that the Settlement Agreement and Release, or the Agreement, between us, certain directors and SAMI, filed June 30, 2004 in response to the Lawsuit, a copy of which was attached to the Form 10-QSB filed August 16, 2004, has been confirmed and approved, with one change to the Agreement. The Court awarded the sum of $150,000 for fees and expenses. The Order was attached to the Form 8-K filed April 29, 2005. We were notified on April 22, 2005 that SAMI, the Plaintiff, and Mark Behringer, Intervening Plaintiff, jointly filed a Notice of Motion of Dismissal Pursuant to Rule 41(a) on April 22, 2005, dismissing the derivative action by SAMI. The Notice of Motion of Dismissal Pursuant to Rule 41(a) was attached to the Form 8-K filed April 29, 2005. This concludes the Lawsuit. From time to time we are involved in legal actions arising in the ordinary course of business. With respect to these matters, we believe we have adequate legal defenses and/or provided adequate accruals for related costs such that the ultimate outcome will not have a material adverse effect on our future financial position or results of operations. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the first quarter of 2005, we issued 958 and 1,358 shares of unregistered common stock to Phillip Levin and Daniel Haslinger, respectively, both members of the Board of Directors, in exchange for management consulting work performed outside their duties as directors from January to April 2004, for $3,000 and $4,000, respectively, or a total of $7,000. During the first quarter of 2005, Carl Richard, a director, subscribed for 10,000 shares of our restricted unregistered common stock in a private placement. These shares were issued in May 2005 at $1.25 per share, with associated warrants to purchase additional shares at $1.85 per share. We are currently completing a private placement of up to $835,188 in unregistered shares of our common stock. We hope to sell up to 668,151 shares of common stock at a price per share of $1.25. As announced in a Form 8-K on June 18, 2004, this price was lowered from $2.25 per share, the total amount of the private placement increased from $750,000 and the price of the associated warrants decreased to $1.85 from $2.85. During February and early March, 2004, we issued 193,417 shares for total proceeds of $435,188. To reflect the re-pricing, in June, 2004 we issued an additional 154,734 shares for no additional proceeds. During December, 2004, we issued an additional 125,200 shares for total proceeds of $156,500. During the first quarter of 2005, a director and two non-affiliated stockholders signed subscription agreements for an additional 70,000 shares, which we recorded as a receivable of $87,500 at March 31, 2005. We issued all 70,000 shares in the second quarter of 2005. All of the foregoing issuances were exempt from registration pursuant to Section 4(2) of the Securities and Exchange Act of 1933, and no underwriters or placement agents were involved. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION (a) Our Board of Directors has postponed the Annual Meeting of our stockholders originally scheduled for Thursday, May 19, 2005, until June 30, 2005. The location of our Annual Meeting has not changed and will be in the Garden Room of the Toledo Club, 235 14th Street, Toledo, Ohio at 10:00 a.m. We filed a Notice of Postponement on May 11, 2005 with the SEC in a Schedule 14A, Definitive Additional Materials, and was sent to all stockholders on May 13, 2005. We will file a revised definitive proxy statement on an Amended Schedule 14A, which will be sent to all stockholders subsequent to the filing of this Form 10-QSB. (b) None ITEM 6. EXHIBITS (a) Exhibits: See Exhibit Index below. (b) Reports on Form 8-K: None. 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: May 16, 2005 /s/Daniel J. Haslinger -------------- ------------------------ Daniel J. Haslinger Chief Executive Officer and President (Principal Executive Officer) Date: May 16, 2005 /s/ James K. McHugh -------------- ---------------------- James K. McHugh Chief Financial Officer, Secretary and Treasurer (Principal Financial & Accounting Officer) EXHIBIT INDEX ============= EXHIBIT NO. DOCUMENT - ----------- -------- 3.1 Amended and Restated Certificate of Incorporation, dated June 17, 1998 (incorporated by reference to Exhibit 3.2 to Form 10-K filed April 14, 2004). 3.2 Amendment to the Certificate of Incorporation of the Company, dated November 13, 2003 (incorporated by reference to Exhibit 3.4 to Form 10-K filed April 14, 2004). 3.3 Amended and Restated By-Laws of the Company, dated May 13, 2005. 4.1 Certificate of Designation of Series A Redeemable Preferred Stock, dated August 27, 2003 (incorporated by reference to Exhibit 3.3 to Form 10-K filed April 14, 2004). 4.2 The N-Viro International Corporation 2004 Stock Option Plan (incorporated by reference to Form S-8 filed December 20, 2004).* 4.3 The Amended and Restated N-Viro International Corporation Stock Option Plan (incorporated by reference to Form S-8 filed May 9, 2000).* 10.1 Employment Agreement, dated June 14, 1999, between N-Viro International Corporation and Terry J. Logan (incorporated by reference to Exhibit 1 to the Form 8-K filed June 30, 1999).* 10.2 Amended and Restated Employment Agreement, dated June 6, 2003, between N-Viro International Corporation and Michael G. Nicholson (incorporated by reference to Exhibit 99.1 to the Form 8-K filed June 9, 2003).* 10.3 Business Loan Agreement dated February 26, 2003, between N-Viro International Corporation and Monroe Bank + Trust; letter of credit enhancement dated February 25, 2003 between N-Viro International Corporation and Messrs. J. Patrick Nicholson, Michael G. Nicholson, Robert P. Nicholson and Timothy J. Nicholson (all incorporated by reference to Exhibits 99.1 through 99.3 to the Form 8-K filed March 3, 2003). 10.4 Settlement Agreement and Release dated August 29, 2003 between N-Viro International Corporation and Strategic Asset Management, Inc.; Consulting Agreement dated August 28, 2003 between N-Viro International Corporation and J. Patrick Nicholson (all incorporated by reference to Item 5 of the Form 8-K filed August 29, 2003). 10.5 Security Units Purchase Agreement dated January 30, 2004 between N-Viro International Corporation and Ophir Holdings, Inc. (incorporated by reference to Exhibit 99.1 to the Form 8-K filed February 5, 2004). 10.6 Memorandum of Employment Agreement and Storage Site Agreement, respectively, both dated September 27, 2004, between N-Viro International Corporation and, Daniel J. Haslinger and Micro Macro Integrated Technologies, Inc., respectively (incorporated by reference to Exhibit 10.1 of Form 8-K dated October 1, 2004).* 31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. 31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. 32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Indicates a management contract or compensatory plan or arrangement. EX-3.3 2 doc2.txt Exhibit 3.3 ----------- AMENDED AND RESTATED BY-LAWS OF N-VIRO INTERNATIONAL CORPORATION ARTICLE I Stockholders ------------ SECTION 1. Annual Meeting. The annual meeting of the stockholders of the --------------- Corporation shall be held on such date, at such time and at such place within or without the State of Delaware as may be designated by the Board of Directors, for the purpose of electing Directors and for the transaction of such other business as may be properly brought before the meeting. SECTION 2. Special Meetings. Except as otherwise provided in the ----------------- Certificate of Incorporation, a special meeting of the stockholders of the Corporation may be called at any time by the Board of Directors or the President. Any special meeting of the stockholders shall be held on such date, at such time and at such place within or without the State of Delaware as the Board of Directors or the officer calling the meeting may designate. At a special meeting of the stockholders, no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting unless all of the stockholders are present in person or by proxy, in which case any and all business may be transacted at the meeting even though the meeting is held without notice. SECTION 3. Notice of Meetings. Except as otherwise provided in these -------------------- By-Laws or by law, a written notice of each meeting of the stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of the Corporation entitled to vote at such meeting at his address as it appears on the records of the Corporation. The notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. SECTION 4. Quorum. At any meeting of the stockholders, the holders of a ------ majority in number of the total outstanding shares of stock of the Corporation entitled to vote at such meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes, unless the representation of a larger number of shares shall be required by law, by the Certificate of Incorporation or by these By-Laws, in which case the representation of the number of shares so required shall constitute a quorum; provided that at any meeting of the stockholders at which the holders of any class of stock of the Corporation shall be entitled to vote separately as a class, the holders of a majority in number of the total outstanding shares of such class, present in person or represented by proxy, shall constitute a quorum for purposes of such class vote unless the representation of a larger number of shares of such class shall be required by law, by the Certificate of Incorporation or by these By-Laws. SECTION 5. Adjourned Meetings. Whether or not a quorum shall be present in ----------------- person or represented at any meeting of the stockholders, the holders of a majority in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting may adjourn from time to time; provided, however, that if the holders of any class of stock of the Corporation are entitled to vote separately as a class upon any matter at such meeting, any adjournment of the meeting in respect of action by such class upon such matter shall be determined by the holders of a majority of the shares of such class present in person or represented by proxy and entitled to vote at such meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders, or the holder of any class of stock entitled to vote separately as a class, as the case may be, may transact any business which might have been transacted by them at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. SECTION 6. Organization. The President or, in his absence, a Vice President ------------ shall call all meetings of the stockholders to order, and shall act as Chairman of such meetings. In the absence of the President and all of the Vice Presidents, the holders of a majority in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting shall elect a Chairman. The Secretary of the Corporation shall act as Secretary of all meetings of the stockholders; but in the absence of the Secretary, the Chairman may appoint, any person to act as Secretary of the meeting. It shall be the duty of the Secretary to prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held, for the ten (10) days next preceding the meeting, to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, and shall be produced and kept at the time and place of the meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. SECTION 7. Voting. Except as otherwise provided in the Certificate of ------ Incorporation or by law, each stockholder shall be entitled to one vote for each share of the capital stock of the Corporation registered in the name of such stockholder upon the books of the Corporation. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. When directed by the presiding officer or upon the demand of any stockholder, the vote upon any matter before a meeting of stockholders shall be by ballot. Except as otherwise provided by law or by the Certificate of Incorporation, Directors shall be elected by a majority of the votes cast at a meeting of stockholders by the stockholders entitled to vote in the election and, whenever any other corporate action is to be taken by the stockholders, it shall be authorized by a majority of the votes cast at a meeting of stockholders by the stockholders entitled to vote thereon. Shares of the capital stock of the Corporation belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. SECTION 8. Inspectors. When required by law or directed by the presiding ---------- officer or upon the demand of any stockholder entitled to vote, but not otherwise, the polls shall be opened and closed, the proxies and ballots shall be received and taken in charge, and all questions touching the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided at any meeting of the stockholders by two or more Inspectors who may be appointed by the Board of Directors before the meeting, or if not so appointed, shall be appointed by the presiding officer at the meeting. If any person so appointed fails to appear or act, the vacancy may be filled by appointment in like manner. SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise ------------------------------------ ------- provided in the Certificate of Incorporation, any action required to be taken or which may be taken at any annual or special meeting of the stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize to take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of any such corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II Board of Directors ------------------ SECTION 1. Number and Term of Office. The business and affairs of the ----------------------------- Corporation shall be managed by or under the direction of a Board of Directors, none of whom need to be stockholders of the Corporation. The number of Directors constituting the Board of Directors shall be fixed from time to time by resolution passed by a majority of the Board of Directors. The Directors shall be classified with respect to the time for which they shall severally hold office into two (2) classes as nearly equal in number as possible. Except as hereinafter otherwise provided for the filling of vacancies, the Class I Directors shall hold office for an initial term expiring at the 2004 annual meeting of stockholders and the Class II Directors shall hold office for an initial term expiring at the 2005 annual meeting of stockholders, with the members of each class of Directors to hold office until their respective successors have been duly elected and qualified or until their earlier resignation, removal, retirement or death. Thereafter at each annual meeting of stockholders, the successors to the class of Directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the second year following the year of their election and until their respective successors have been duly elected and qualified or until their earlier resignation, removal, retirement or death. SECTION 2. Removal. Vacancies and Additional Directors. The stockholders -------------------------------------------- may, at any special meeting the notice of which shall state that it is called for that purpose, remove, with or without cause, any Director and fill the vacancy; provided that whenever any Director shall have been elected by the holders of any class of stock of the Corporation voting separately as a class under the provisions of the Certificate of Incorporation, such Director may be removed and the vacancy filled only by the holders of that class of stock voting separately as a class. Vacancies caused by any such removal and not filled by the stockholders at the meeting at which such removal shall have been made, or any vacancy caused by the death or resignation of any Director or for any other reason, and any newly created directorship resulting from any increase in the authorized number of Directors, may be filled by the affirmative vote of a majority of the Directors then in office, although less than a quorum, and any Director so elected to fill any such vacancy or newly created directorship shall hold office until his successor is elected and qualified or until his earlier resignation or removal. The Directors chosen to fill vacancies shall hold office for a term expiring at the end of the next annual meeting of stockholders at which the term of the class to which they have been elected expires. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. When one or more Directors shall resign effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office as herein provided in connection with the filling of other vacancies. SECTION 3. Place of Meeting. The Board of Directors may hold its meetings ---------------- in such place or places in the State of Delaware or outside the State of Delaware as the Board from time to time shall determine. SECTION 4. Regular Meetings. Regular meetings of the Board of Directors ----------------- shall be held at such times and places as the Board from time to time by resolution shall determine. No notice shall be required for any regular meeting of the Board of Directors; but a copy of every resolution fixing or changing the time or place of regular meetings shall be mailed to every Director at least five (5) days before the first meeting held in pursuance thereof. SECTION 5. Special Meetings. Special meetings of the Board of Directors ----------------- shall be held whenever called by direction of the President, or by any two of the Directors then in office. Notice of the day, hour and place of holding of each special meeting shall be given by mailing the same at least two (2) days before the meeting or by causing the same to be transmitted by telegraph, cable or wireless at least one day before the meeting to each Director. Unless otherwise indicated in the notice thereof, any and all business other than an amendment of these By-Laws may be transacted at any special meeting, and an amendment of these By-Laws may be acted upon if the notice of the meeting shall have stated that the amendment of these By-Laws is one of the purposes of the meeting. At any meeting at which every Director shall be present, even though without any notice, any business may be transacted, including the amendment of these By-Laws. SECTION 6. Quorum. Subject to the provisions of Section 2 of this ARTICLE ------ II, a majority of the members of the Board of Directors in office (but in no case less than one-third (1/3) of the total number of Directors nor less than two (2) Directors) shall constitute a quorum for the transaction of business and the vote of the majority of the Directors present at any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors. If at any meeting of the Board there is less than a quorum present, a majority of those present may adjourn the meeting from time to time. SECTION 7. Organization. The Chairman of the Board shall preside at all ------------ meetings of the Board of Directors. In the absence of the Chairman of the Board, an acting Chairman shall be elected from the Directors present. The Secretary of the Corporation shall act as Secretary of all meetings of the Directors; but in the absence of the Secretary, the Chairman of the Board or acting Chairman may appoint any person to act as Secretary of the meeting. SECTION 8. Committees. The Board of Directors may, by resolution passed by ---------- a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided by resolution passed by a majority of the whole Board, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and the affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending these By-Laws; and unless such resolution, these By-Laws, Or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. SECTION 9. Conference Telephone Meetings. Unless otherwise restricted by ------------------------------ the Certificate of Incorporation or by these By-Laws, the members of the Board of Directors or any committee designated by the Board, may participate in a meeting of the Board of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. SECTION 10. Consent of Directors or Committee in lieu of Meeting. Unless ------------------------------------------------------ otherwise restricted by the Certificate of Incorporation or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee, as the case may be. ARTICLE III Officers -------- SECTION 1. Officers. The officers of the Corporation shall be a President, -------- one or more Vice Presidents, a Secretary and a Treasurer, and such additional officers, if any, as shall be elected by the Board of Directors pursuant to the provisions of Section 6 of this ARTICLE III. The President, one or more Vice Presidents, the Secretary and the Treasurer shall be elected by the Board of Directors at its first meeting after each annual meeting of the stockholders. The failure to hold such election shall not of itself terminate the term of office of any officer. All officers shall hold office at the pleasure of the Board of Directors. Any officers may resign at any time upon written notice to the Corporation. Officers may, but need not, be Directors. Any number of offices may be held by the same person. All officers, agents and employees shall be subject to removal, with or without cause, at any time by the Board of Directors. The removal of an officer without cause shall be without prejudice to his contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. All agents and employees other than officers elected by the Board of Directors shall also be subject to removal, with or without cause, at any time by the officers appointing them. Any vacancy caused by the death of any officer, his resignation, his removal, or otherwise, may be filled by the Board of Directors, and any officer so elected shall hold office at the pleasure of the Board of Directors. In addition to the powers and duties of the officers of the Corporation as set forth in these By-Laws, the officers shall have such authority and shall perform such duties as from time to time may be determined by the Board of Directors. SECTION 2. Powers and Duties of the President. The President shall be the ---------------------------------- chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall have general charge and control of all its business and affairs and shall have all powers and shall perform all duties incident to the office of President. He shall preside at all meetings of the stockholders and at all meetings of the Board of Directors and shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors. SECTION 3. Powers and Duties of the Vice Presidents. Each Vice President ----------------------------------------- shall have all powers and shall perform all duties incident to the office of Vice President and shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors or by the President. SECTION 4. Powers and Duties of the Secretary. The Secretary shall keep the --------------------------------- minutes of all meetings of the Board of Directors and the minutes of all meetings of the stockholders in books provided for that purpose; he shall attend to the giving or serving of all notices of the Corporation; he shall have custody of the corporate seal of the Corporation and shall affix the same to such documents and other papers as the Board of Directors or the President shall authorize and direct; he shall have charge of the stock certificate books, transfer books and stock ledgers and such other books and papers as the Board of Directors or the President shall direct, all of which shall at all reasonable times be open to the examination of any Director, upon application, at the office of the Corporation during business hours; and he shall have all powers and shall perform all duties incident to the office of Secretary and shall have such other powers and shall perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors or the President. SECTION 5. Powers and Duties of the Treasurer. The Treasurer shall have ----------------------------------- custody of, and when proper shall pay out, disburse or otherwise dispose of, all funds and securities of the Corporation which may have come into his hands; he may endorse on behalf of the Corporation for collection checks, notes and other obligations and shall deposit the same to the credit of the Corporation in such bank or banks or depositary or depositaries as the Board of Directors may designate; he shall sign all receipts and vouchers for payments made to the Corporation; he shall enter or cause to be entered regularly in the books of the Corporation kept for the purpose full and accurate accounts of all moneys received or paid or otherwise disposed of by him and whenever required by the Board of Directors or the President shall render statements of such accounts; he shall, at all reasonable times, exhibit his books and accounts to any Director of the Corporation, upon application, at the office of the Corporation during business hours; and he shall have all powers and shall perform all duties incident of the office of Treasurer and shall also have such other powers and shall perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors or the President. SECTION 6. Additional Officers. The Board of Directors may from time to -------------------- time elect such other officers (who may but need not be Directors), including a Controller, Assistant Treasurers, Assistant Secretaries and Assistant Controllers, as the Board may deem advisable and such officers shall have such authority and shall perform such duties as may from time to time be assigned to them by the Board of Directors or the President. The Board of Directors may from time to time by resolution delegate to any Assistant Treasurer or Assistant Treasurers any of the powers or duties herein assigned to the Treasurer; and may similarly delegate to any Assistant Secretary or Assistant Secretaries any of the powers or duties herein assigned to the Secretary. SECTION 7. Giving of Bond by Officers. All officers of the Corporation, if -------------------------- required to do so by the Board of Directors, shall furnish bonds to the Corporation for the faithful performance of their duties, in such penalties and with such conditions and security as the Board shall require. SECTION 8. Voting Upon Stocks. Unless otherwise ordered by the Board of -------------------- Directors, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or in the name of the Corporation to execute proxies to vote, at any meeting of stockholders of any corporation in which the Corporation may hold stock, and at any such meeting shall possess and may exercise, in person or by proxy, any and all rights, powers and privileges incident to the ownership of such stock. The Board of Directors may from time to time, by resolution, confer like powers upon any other person or persons. SECTION 9. Compensation of Officers. The officers of the Corporation shall ------------------------ be entitled to receive such compensation for their services as shall from time to time be determined by the Board of Directors. ARTICLE IV Indemnification of Directors and Officers ----------------------------------------- SECTION 1. Nature of Indemnity. The Corporation shall indemnify any person ------------------- who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was or has agreed to become a Director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a Director or officer of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, and may indemnify any person who was or is a party or is threatened to be made a party to such an action, suit or proceeding by reason of the fact that he is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; except that in the case of an action or suit by or in the right of the Corporation to procure a judgment in its favor (i) such indemnification shall be limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit, and (ii) no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. Successful Defense. To the extent that a Director, officer, ------------------- employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in SECTION 1 of this ARTICLE IV or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 3. Determination that Indemnification is Proper. Any ------------------------------------------------ indemnification of a Director or officer of the Corporation under SECTION 1 of this ARTICLE IV (unless ordered by a court) shall be made by the Corporation unless a determination is made that indemnification of the Director or officer is not proper in the circumstances because he has not met the applicable standard of conduct set forth in SECTION 1. Any indemnification of an employee or agent of the Corporation under SECTION 1 (unless ordered by a court) may be made by the Corporation upon a determination that indemnification of the employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in SECTION 1. Any such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. SECTION 4. Advance Payment of Expenses. Unless the Board of Directors ------------------------------ otherwise determines in a specific case, expenses incurred by a Director or officer in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the Director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this ARTICLE IV. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may authorize the Corporation's legal counsel to represent such Director, officer, employee or agent in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding. SECTION 5. Survival; Preservation of Other Rights. The foregoing ------------------------------------------ indemnification provisions shall be deemed to be a contract between the Corporation and each Director, officer, employee and agent who serves in any such capacity at any time while these provisions as well as the relevant provisions of the Delaware General Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a contract right may not be modified retroactively without the consent of such Director, officer, employee or agent. The indemnification provided by this ARTICLE IV shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation may enter into an agreement with any of its Directors, officers, employees or agents providing for indemnification and advancement of expenses, including attorneys' fees, that may change, enhance, qualify or limit any right to indemnification or advancement of expense created by this ARTICLE IV. SECTION 6. Severability. If this ARTICLE IV or any portion hereof shall be ------------ invalidated on any ground by any court of competent jurisdiction, then the Corporation- shall nevertheless indemnify each Director or officer and may indemnify each employee or agent of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this ARTICLE IV that shall not have been invalidated and to the fullest extent permitted by applicable law. SECTION 7. Subrogation. In the event of payment of indemnification to a ----------- person described in SECTION 1 of this ARTICLE IV, the Corporation shall be subrogated to the extent of such payment to any right of recovery such person may have and such person, as a condition of receiving indemnification from the Corporation, shall execute all documents and do all things that the Corporation may deem necessary or desirable to perfect such right of recovery, including the execution of such documents necessary to enable the Corporation effectively to enforce any such recovery. SECTION 8. No Duplication of Payments. The Corporation shall not be liable -------------------------- under this ARTICLE IV to make any payment in connection with any claim made against a person described in SECTION 1 of this ARTICLE IV to the extent such person has otherwise received payment (under any insurance policy, By-Law or otherwise) of the amounts otherwise indemnifiable hereunder. ARTICLE V Stock-Seal-Fiscal Year ---------------------- SECTION 1. Certificates for Shares of Stock. The certificates for shares of -------------------------------- stock of the Corporation shall be in such form, not inconsistent with the Certificate of Incorporation, as shall be approved by the Board of Directors. All certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary of the Treasurer or an Assistant Treasurer, and shall not be valid unless so signed. In case any officer or officers who shall have signed any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates had not ceased to be such officer or officers of the Corporation. All certificates for shares of stock shall be consecutively numbered as the same are issued. The name of the person owning the shares represented thereby with the number of such shares and the date of issue thereof shall be entered on the books of the Corporation. Except as hereinafter provided, all certificates surrendered to the Corporation for transfer shall be cancelled, and no new certificates shall be issued until former certificates for the same number of shares have been surrendered and cancelled. SECTION 2. Lost. Stolen or Destroyed Certificates. Whenever a person owning -------------------------------------- a certificate for shares of stock of the Corporation alleges that it has been lost, stolen or destroyed, he shall file in the office of the Corporation an affidavit setting forth, to the best of his knowledge and belief, the time, place and circumstances of the loss, theft or destruction, and, if required by the Board of Directors, a bond of indemnity or other indemnification sufficient in the opinion of the Board of Directors to indemnify the Corporation and its agents against any claim that may be made against it or them on account of the alleged loss, theft or destruction of any such certificate or the issuance of a new certificate in replacement therefore. Thereupon the Corporation may cause to be issued to such person a new certificate in replacement for the certificate alleged to have been lost, stolen or destroyed. Upon the stub of every new certificate so issued shall be noted the fact of such issue and the number, date and the name of the registered owner of the lost, stolen or destroyed certificate in lieu of which the new certificate is issued. SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall be ------------------ transferred on the books of the Corporation by the holder thereof, in person or by his attorney duly authorized in writing, upon surrender and cancellation of certificates for the number of shares of stock to be transferred, except as provided in SECTION 2 of this ARTICLE V. SECTION 4. Regulations. The Board of Directors shall have power and ----------- authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. SECTION 5. Record Date. In order that the Corporation may determine the ------------ stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, as the case may be, the Board of Directors may fix, in advance, a record date, which shall not be (i) more than sixty (60) nor less than ten (10) days before the date of such meeting, or (ii) in the case of corporate action to be taken by consent in writing without a meeting, prior to, or more than ten (10) days after, the date upon which the resolution fixing the record date is adopted by the Board of Directors, or (iii) more than sixty (60) days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is delivered to the Corporation; and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. Dividends. Subject to the provisions of the Certificate of --------- Incorporation, the Board of Directors shall have power to declare and pay dividends upon shares of stock of the Corporation, but only out of funds available for the payment of dividends as provided by law. Subject to the provisions of the Certificate of Incorporation, any dividends declared upon the stock of the Corporation shall be payable on such date or dates as the Board of Directors shall determine. If the date fixed for the payment of any dividend shall in any year fall upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday. SECTION 7. Corporate Seal. The Board of Directors may provide a suitable ------------- seal, containing the name of the Corporation, which seal shall be kept in the custody of the Secretary. A duplicate of the seal may be kept and be used by any officer of the Corporation designated by the Board of Directors or the President. SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be such ------------ fiscal year as the Board of Directors from time to time by resolution shall determine. ARTICLE VI Miscellaneous Provisions ------------------------ SECTION 1. Checks, Notes, Etc.. All checks, drafts, bills of exchange, --------------------- acceptances, notes or other obligations or orders for the payment of money shall be signed and, if so required by the Board of Directors, countersigned by such officers of the Corporation and/or other persons as the Board of Directors from time to time shall designate. Checks, drafts, bills of exchange, acceptances, notes, obligations and orders for the payment of money made payable to the Corporation may be endorsed for deposit to the credit of the Corporation with a duly authorized depository by the Treasurer and/or such other officers or persons as the Board of Directors from time to time may designate. SECTION 2. Loans. No loans and no renewals of any loans shall be contracted ----- on behalf of the Corporation except as authorized by the Board of Directors. When authorized to do so, any officer or agent of the Corporation may effect loans and advances for the Corporation from any bank, trust company or other institution or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the Corporation. When authorized so to do, any officer or agent of the Corporation may pledge, hypothecate or transfer, as security for the payment of any and all loans, advances, indebtedness and liabilities of the Corporation, any and all stocks, securities and other personal property at any time held by the Corporation, and to that end may endorse, assign and deliver the same. Such authority may be general or confined to specific instances. SECTION 3. Contracts. Except as otherwise provided in these By-Laws or by --------- law or as otherwise directed by the Board of Directors, the President or any Vice President shall be authorized to execute and deliver, in the name and on behalf of the Corporation, all agreements, bonds, contracts, deeds, mortgages, and other instruments, either for the Corporation's own account or in a fiduciary or other capacity, and the seal of the Corporation, if appropriate, shall be affixed thereto by any of such officers or the Secretary or an Assistant Secretary. The Board of Directors, the President or any Vice President designated by the Board of Directors may authorize any other officer, employee or agent to execute and deliver, in the name and on behalf of the Corporation, agreements, bonds, contracts, deeds, mortgages, and other instruments, either for the Corporation's own account or in a fiduciary or other capacity, and, if appropriate, to affix the seal of the Corporation thereto. The grant of such authority by the Board of any such officer may be general or confined to specific instances. SECTION 4. Waivers of Notice. Whenever any notice whatever is required to ---------- ------ be given by law, by the Certificate of Incorporation or by these By-Laws to any person or persons, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. SECTION 5. Offices Outside of Delaware. Except as otherwise required by the --------------------------- laws of the State of Delaware, the Corporation may have an office or offices and keep its books, documents and papers outside of the State of Delaware at such place or places as from time to time may be determined by the Board of Directors or the President. ARTICLE VII Amendments ---------- These By-Laws and any amendment thereof may be altered, amended or repealed, or new By-Laws may be adopted, by the Board of Directors at any regular or special meeting by the affirmative vote of a majority of all of the members of the Board, provided in the case of any special meeting at which all of the members of the Board are not present, that the notice of such meeting shall have stated that the amendment of these By-Laws was one of the purposes of the meeting; but these By-Laws and any amendment thereof may be altered, amended or repealed or new By-Laws may be adopted by the holders of a majority of the total outstanding stock of the Corporation entitled to vote at any annual meeting or at any special meeting, provided, in the case of any special meeting, that notice of such proposed alteration, amendment, repeal or adoption is included in the notice of the meeting. EX-31.1 3 doc3.txt Exhibit 31.1 ------------ N-Viro International Corporation Certifications I, Daniel J. Haslinger, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of N-Viro International Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 16, 2005 /s/ Daniel J. Haslinger -------------------------- President and Chief Executive Officer EX-31.2 4 doc4.txt Exhibit 31.2 ------------ N-Viro International Corporation Certifications I, James K. McHugh, Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of N-Viro International Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 16, 2005 /s/ James K. McHugh ---------------------- Chief Financial Officer EX-32.1 5 doc5.txt Exhibit32.1 ----------- CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Daniel J. Haslinger, the Chief Executive Officer of N-Viro International Corporation, certify that (i) the Form 10-QSB fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of N-Viro International Corporation. /s/Daniel J. Haslinger - ------------------------ Daniel J. Haslinger, Chief Executive Officer May 16, 2005 EX-32.2 6 doc6.txt - 19 - Exhibit 32.2 ------------ CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, James K. McHugh, the Chief Financial Officer of N-Viro International Corporation, certify that (i) the Form 10-QSB fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of N-Viro International Corporation. /s/ James K. McHugh - ---------------------- James K. McHugh, Chief Financial Officer May 16, 2005 -----END PRIVACY-ENHANCED MESSAGE-----