UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549
                                   FORM 10-KSB

(MARK ONE)
    X                 ANNUAL REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
                                       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


                                [GRAPHIC OMITTED]

                        N-VIRO INTERNATIONAL CORPORATION
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

              DELAWARE                                   34-1741211
                          (STATE OR OTHER JURISDICTION OF
                      (I.R.S. EMPLOYER IDENTIFICATION NO.)
       INCORPORATION OR ORGANIZATION)

                        3450 W. CENTRAL AVENUE, SUITE 328
                     TOLEDO, OHIO                     43606
           (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)         (ZIP CODE)
        ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE:    (419) 535-6374

  SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT:    None

  SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  Common Stock, par
                              value $.01 per share

Check  whether the issuer is not required to file reports pursuant to Section 13
or  15(d)  of  the  Exchange  Act.      ___

Check  whether  the  issuer  (1)  has  filed all reports required to be filed by
Section  13  or  15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing requirements for at least the
past  90  days.  Yes   X  No  ____
                     ---

Check  if  there  is  no disclosure of delinquent filers pursuant to Item 405 of
Regulation  S-B  contained  herein,  and  will  not be contained, to the best of
registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated  by  reference  in Part III of this Form 10-KSB or any amendment to
this  Form  10-KSB.  [  ]

Indicate  by check mark whether the registrant is a shell company (as defined in
Rule  12b-2  of  the  Exchange  Act).

Yes  No   X
        ---

State  registrant's  revenues  for  its  most  recent fiscal year:    $3,620,000

The  aggregate  market  value  of the voting stock held by non-affiliates of the
registrant,  computed  by reference to the closing sales price of such shares on
the  Over  The  Counter  Bulletin  Board  as of March 16, 2007 was approximately
$6,976,000.

The  number  of shares of Common Stock of the registrant outstanding as of March
16,  2007  was  3,878,697.

The  number  of  shares  of  Preferred Stock of the registrant outstanding as of
March  16,  2007  was  -0-.

Transitional  Small  Business  Disclosure  Format  (Check  One):
Yes  No   X
        ---

                       DOCUMENTS INCORPORATED BY REFERENCE
          NONE.

<PAGE>

                                      INDEX

<TABLE>
<CAPTION>


                                                                   PAGE
                                                                   ----


<S>       <C>                                                      <C>
          PART I
          ------


Item 1.   Business                                                    2


Item 2.   Properties                                                 10


Item 3.   Legal Proceedings                                          11


Item 4.   Submission of Matters to a Vote of Security Holders        12



          PART II
          -------


Item 5.   Market for Registrant's Common Equity, Related             13
          Stockholder Matters and Small Business Issuer Purchases
          of Equity Securities


Item 6.   Management's Discussion and Analysis or                    14
          Plan of Operations


Item 7.   Financial Statements                                       26


Item 8.   Changes in and Disagreements with Accountants              27
          on Accounting and Financial Disclosure


Item 8A.  Controls and Procedures                                    27


Item 8B.  Other Information                                          27



          PART III
          --------


Item 9.   Directors and Executive Officers of the Registrant         27


Item 10.  Executive Compensation                                     27


Item 11.  Security Ownership of Certain Beneficial Owners            28
          and Management and Related Stockholder Matters


Item 12.  Certain Relationships and Related Transactions             28


Item 13.  Exhibits                                                   28


Item 14.  Principal Accountant Fees and Services                     30
</TABLE>

<PAGE>

                                     PART I

FORWARD-LOOKING  STATEMENTS

     This  10-KSB  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;
(vi)  our inability to exploit existing or secure additional sources of revenues
or  capital  to  fund  operations;  (vii) a failure to collect upon or otherwise
secure  the  benefits  of  existing  contractual commitments with third parties,
including  our  customers; and (viii) other factors and risks identified in this
Form  10-KSB,  including  under  the  caption "Risk Factors." This list provides
examples  of  factors that could affect the results described by forward-looking
statements  contained  in this Form 10-KSB; however, this list is not exhaustive
and many other factors could impact our 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-KSB 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-KSB 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-KSB.  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.

ITEM 1.          BUSINESS

GENERAL

     We  were  incorporated  in  Delaware  in  April,  1993, and became a public
company  in  October  1993.  We  own  and license the N-Viro Process, a patented
technology to treat and recycle wastewater sledges and other bio-organic wastes,
utilizing certain alkaline and mineral by-products produced by the cement, lime,
electric  utilities  and  other  industries.  See  "The  N-Viro Process," below.

     Our  business  strategy went from being a low cost provider of a process to
marketing  the  N-Viro  Process,  which produces an "exceptional quality" sludge
product,  as  defined  in the 40 CFR Part 503 Sludge Regulations under the Clean
Water Act of 1987 (the "Part 503 Regs"), with multiple commercial uses.  In this
strategy,  the primary focus is to identify allies, public and private, who will
build and operate an N-Viro facility.  To date, our revenues primarily have been
derived from licensing 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 have also
operated  N-Viro  facilities for third parties on a start-up basis and currently
operate  one N-Viro facility on a contract management basis.  At the end of 2006
we  acquired  and now manage a merchant facility which accepts wastewater sludge
from  several  sources  in  the  Orlando  area.

THE  N-VIRO  PROCESS

     The N-Viro Process is a patented process for the treatment and recycling of
bio-organic  wastes,  utilizing  certain  alkaline  by-products  produced by the
cement,  lime,  electric  utilities  and  other industries.  To date, the N-Viro
Process  has  been commercially utilized for the recycling of wastewater sledges
from  municipal  wastewater  treatment  facilities.  N-Viro  SoilTM  produced
according  to  the  N-Viro  Process  specifications  is an "exceptional quality"
sludge  product  under  the  Part  503  Regs.

     The  N-Viro  Process involves mixing the wastewater sludge with an alkaline
admixture  and  then  subjecting  the mixture to a controlled period of storage,
mechanical  turning and accelerated drying in which a blending of the sludge and
the  alkaline  admixture  occurs.  The N-Viro Process stabilizes and pasteurizes
the  wastewater  sludge,  reduces  odors  to  acceptable  levels, neutralizes or
immobilizes  various toxic components and generates N-Viro Soil, a product which
has  a  granular  appearance  similar  to soil and has multiple commercial uses.
These  uses include agricultural lime, soil enrichment, top soil blend, landfill
cover  and  filter,  and  land  reclamation.

     The  alkaline  admixture  used in the N-Viro Process consists of by-product
dusts  from  cement or lime kilns, certain fly ashes and other products of coal,
coke or petroleum combustion and by-product dusts from sulfuric acid "scrubbers"
used  in acid rain remediation systems and from fluidized bed coal-fired systems
used  in  electric  power  generation.  The  particular  admixture  that is used
usually  depends upon cost and availability in local markets.  In certain cases,
commercial  lime  may  also  be  added  to  the  admixture.

     We  are a distributor of alkaline admixture and are responsible for quality
control  of  the admixture.  We also work with established by-product marketers.
We generally charge a mark-up over our cost for alkaline admixture sold directly
by  us.

N-VIRO  SOIL

     N-Viro  Soil  is  sold  for  agricultural  use as a bio-organic and mineral
fertilizer  with  agricultural  liming  and  nutrient  values, as landfill cover
material,  as  a  topsoil blending ingredient and for land reclamation projects.
We  estimate  that  approximately  twenty percent of the N-Viro Soil produced is
utilized  at  landfills  for  cover  material,  small  amounts are sold for land
reclamation  and similar projects, and a substantial portion of the remainder is
sold  for  agricultural  use  or as a topsoil blend.  Although the use of N-Viro
Soil  is  not  subject  to  any federal regulations or restrictions, each N-Viro
facility  is  typically  required  to obtain a state and/or local permit for the
sale  of N-Viro Soil.  In addition, many states and/or local governments require
site-specific  permits  for  the  use  of  sludge  products  in  bulk  amounts.

N-VIRO  PROCESS  FACILITIES

     Our  principal  facility  is in Toledo, Ohio and is managed by us through a
Contract  Management  Agreement with the City of Toledo.  Revenue generated from
and related to the Toledo operation accounts for about 47% of our total revenue.
We  process  a  portion of Toledo's wastewater sludge and may sell the resulting
N-Viro  Soil  product.  In  2004,  the  City  exercised  its option to renew the
contract  for an additional five years through 2009.  Currently, the contract is
in  its  nineteenth  year  of  operation.  With  the  renewal,  our  price  was
renegotiated  and  we  consider  our  relationship with the City of Toledo to be
satisfactory.

     In  late December 2006, we acquired Headwaters Inc.'s ownership interest in
Florida  N-Viro  L.P.  (Florida  N-Viro),  which  owns  a  municipal  biosolids
processing  plant located in Volusia County, Florida. The plant had been jointly
owned  by  us  and  Pennsylvania-based  VFL  Technology  Corporation  (VFL)  - a
subsidiary  of  Headwaters - since 1995. The plant currently processes biosolids
for  Daytona  Beach  and  five  other  municipalities  within a 100 mile radius,
including the City of Altamonte Springs, the City of Englewood, Seminole County,
St.  Johns  County  and  Volusia  County.  Headwaters  Resources, Inc. (HRI), an
affiliate of VFL, will continue to be the sole source supplier of by-products to
Florida  N-Viro's  operating  facility,  unless  HRI  can  not  supply  the full
requirements  of  Florida  N-Viro  for  such  by-products.

     Including the facilities in Toledo, Ohio and Volusia County, Florida, there
are  currently more than 35 wastewater treatment facilities throughout the world
treating sludge using the N-Viro Process.  We estimate that these facilities are
treating and recycling sludge at an annualized rate of over 110,000 dry tons per
year.  In  addition,  there  are  several  licensees  not  currently  operating,
including  both international and domestic contractors or public generators, who
are  in  the process of developing or designing site-specific N-Viro facilities.

     Design and construction of a facility using the N-Viro Process is typically
undertaken  by  local  independent  engineering  and  construction  firms.
Construction  of  a  facility  can be completed in approximately six months, but
could  take  substantially  longer,  depending on the size and complexity of the
facility.  A  number  of  N-Viro  facilities,  typically  those  located  near
residential  areas, have installed odor control systems in order to minimize the
release  of  ammonia  odors  resulting from the N-Viro Process.  An odor control
system  can  significantly increase construction time and cost.  Construction of
N-Viro  facilities generally requires state and local permits and approvals and,
in  certain  instances,  may  require  an  environmental  impact  study.

     We  have  previously  licensed  four treatment facilities to use an earlier
sludge treatment process that is designed to produce a sludge product that meets
only  Class  B  pathogen  levels, and therefore does not produce an "exceptional
quality"  sludge  product under the Part 503 Regs.  Royalty payments from sludge
processed at the four facilities using such earlier technology currently account
for less than two percent of total royalty payments to us and we do not actively
market  the  use  of  this  process.

SALES  AND  MARKETING  OF  N-VIRO  PROCESS

     Since  1995,  we  have  marketed licenses for the use of the N-Viro Process
through our own sales and marketing force in the United States in all 50 states,
the  District  of  Columbia and internationally throughout the world.  The sales
representative  network is the key component of our domestic sales strategy.  We
use  11  manufacturer's  representatives,  who  receive  a commission on certain
revenue.

     In  certain  countries  outside  the  United  States, we license the N-Viro
Process  through  agents.  In  their  respective  territories, the Agents market
licenses  for  the  N-Viro Process, serve as distributors of alkaline admixture,
oversee quality control of the N-Viro Process and N-Viro Soil, enforce the terms
of  the  license  agreements  with  licensees  and market N-Viro Soil (or assist
licensees in marketing N-Viro Soil).  In general, the Agents have paid one-time,
up-front  fees to us for the rights to market or use the N-Viro Process in their
respective  territories.  Typically,  the agreements with the agents provide for
us  to receive a portion of the up-front license fees, ongoing royalty fees paid
by  the licensees, a portion of the proceeds from the distribution and resale of
alkaline  admixture,  and  the  sale  of  N-Viro  SoilTM.  Agents  have  total
responsibility  and  control  over  the  marketing  and  contracts  for  N-Viro
technology  subject  only  to  license  models  or  minimum  agreements with us.

               The  following  table  sets  forth our Agents and the territorial
rights  of  each  Agent:


<TABLE>
<CAPTION>

                      The Agents
                      ----------

Agent                                    Territory
--------------------------  ------------------------------------
<S>                         <C>

Bio-Recycle Pty. Ltd.       Australia, New Zealand and Singapore
CRM Technologies            Israel, Greece and Eastern Europe
EIEC                        Spain
Esson Technology, Inc.      China
Itico                       Egypt, North Africa, The Middle East
N-Viro Filipino             Philippines
N-Viro Systems Canada, Inc  Canada
South Africa N-Viro         All Africa except North Africa
</TABLE>


     EARNINGS  VARIATION  DUE  TO  BUSINESS  CYCLES  AND  SEASONAL  FACTORS. Our
operating  results can experience quarterly or annual variations due to business
cycles,  seasonality  and  other  factors.  Currently,  approximately 47% of our
revenue  is  from  management operations, 49% from other domestic operations, 2%
from  research  and  development grants and 2% 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  our business segments are influenced, along with other factors such as
interest  rates, by particular business cycles and seasonality. See Notes to the
Financial  Statements  contained  in  Item  7  hereof.

     RISKS OF DOING BUSINESS IN OTHER COUNTRIES.  We conduct business in markets
outside  the United States, and expect to continue to do so.  In addition to the
risk  of  currency  fluctuations,  the risks associated with conducting business
outside  the  United States include: social, political and economic instability;
slower  payment of invoices; underdeveloped infrastructure; underdeveloped legal
systems;  and  nationalization.  We  have  not  entered  into  any currency swap
agreements  which  may reduce these risks.  We may enter into such agreements in
the  future  if  it  is  deemed  necessary to do so.  We cannot predict the full
impact of this economic instability, but it could have a material adverse effect
on  revenues  and  profits.

RESEARCH  AND  DEVELOPMENT

     Research  and  development on N-Viro Soil had been, through 2005, performed
primarily  by  BioCheck  Laboratories, a former wholly-owned subsidiary of ours,
and  Dr.  Terry J. Logan.  Dr. Logan, a long-time director who resigned from our
board  in November 2006, continues to direct our research and patent development
work  under  a  consulting agreement that became effective July 1, 2004.  During
2006,  our  research  and  development  expenses  were  approximately  $82,600.

     In addition, in 2006 we received a grant of $90,000 for process and product
research.  This  was  the  last  year  of  this  grant  contract. We continue to
investigate  methods  to  shorten  drying  time,  improve  the  BioDry  process,
substitute various other materials for use as alkaline admixture and improve the
quality  and  attractiveness  of  N-Viro Soil to a variety of end-users. Several
developments  are  the  subject  of  issued patents, including the use of carbon
dioxide in the N-Viro Process as a means to (i) reduce by-product carbon dioxide
emissions  from  industrial  processes  by immobilizing carbon dioxide in N-Viro
Soil and (ii) improve the quality and value of N-Viro Soil. In addition, we have
developed  a  dryer  system  which  reduces  processing time while continuing to
permit  the survival of beneficial microflora. Our BioBlendTM, which uses N-Viro
Soil  as  a  reagent to accelerate and deodorize yard waste composting, is being
utilized  to  produce  topsoil  at  the  Englewood,  Ohio N-Viro facility and at
several  other  licensed  facilities.

     We  applied  for  two  patents  that  were  approved in 2004 for the use of
mineral  by-products  to  enhance  heating,  drying  and disinfection of organic
wastes  under  non-alkaline conditions.  N-Viro is actively marketing its manure
treatment technology, primarily to the large dairies and poultry operations, and
continues  to  develop  and  market the N-Viro Fuel technology.  The new federal
energy  act will provide incentives for the use of renewable biomass fuels, such
as  N-Viro  Fuel.

     Some  early  N-Viro  patents were developed jointly with the former Medical
College  of  Ohio,  now  under  the  name  of the Medical University of Ohio (in
Toledo,  OH),  or  the  MUO.  Because  of  the joint development of early N-Viro
patents  with  the  MUO,  we  agreed  that the rights of MUO to any intellectual
property  that  is  being  developed,  patentable  or  patented,  would generate
royalties  payable  by us to MUO. We and MUO have also agreed that future claims
to  the  N-Viro  Soil  process is one-quarter of one percent (1/4%) of technical
revenues.  MUO rights to BioBlend and other N-Viro technologies range from 2% to
4%  of  technical  revenues  derived  from  these newer technologies. Cumulative
royalties  expensed  to MUO through December 31, 2006 are approximately $65,000.

CURRENT  DEVELOPMENTS

     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.

INDUSTRY  OVERVIEW

     Disposal.  Landfilling,  incineration  and ocean dumping have traditionally
provided  inexpensive,  reliable  methods of sludge disposal.  Ocean dumping was
banned  in  the  United  States  in  December  1992.  Under  the  Part 503 Regs,
landfilling  and  incineration remain permissible sludge management alternatives
but  have  become  subject  to  more  stringent  regulatory standards.  The vast
majority  of  states  have  some site restrictions or other management practices
governing  the disposal of sludge in landfills.  Amendments to the Clean Air Act
governing  incineration  and  disposal  of residual ash also impose stricter air
emission  standards  for  incineration  in general, and the Part 503 Regs impose
additional  specific  pollutant  limits for sludge to be incinerated and for the
resulting  air  emissions.

     Surface  disposal of sludge involves the placement of sludge on the land at
a  dedicated  site  for  disposal  purposes.  The  Part 503 Regs subject surface
disposal  to  increased regulation by requiring, among other things, run-off and
leachate  collection  systems, methane monitoring systems and monitoring of, and
limits  on,  pollutant levels.  In addition, sludge placed in a surface disposal
site  is  required  to  meet  certain  standards with respect to pathogen levels
relating  to coliform or salmonella bacteria counts ("Class B" pathogen levels),
levels  of  various  pollutants,  including  metals,  and  elimination  of
attractiveness  to  pests,  such  as  insects  and  rodents.

     Land  Application  for Beneficial Use.  Land application for beneficial use
involves  the  application  of sludge or sludge-based products, for non-disposal
purposes,  including  agricultural, silvicultural and horticultural uses and for
land  reclamation.  Under  the  Part 503 Regs, sludge products that meet certain
stringent  standards  with  respect  to  pathogen  levels  relating to coliform,
salmonella,  enteric  viruses and viable helminth ova counts ("Class A" pathogen
levels),  levels  of  various  pollutants,  including metals, and elimination of
attractiveness  to pests, such as insects and rodents, are considered by the EPA
to  be  "exceptional  quality" sludge products.  The Class A pathogen levels are
significantly  more  stringent  than  the  Class B pathogen levels; for example,
permitted  Class B fecal coliform levels are 2,000 times higher than their Class
A  counterparts.

     "Exceptional  quality" sludge products are treated by the EPA as fertilizer
material,  thereby  exempting  these products from federal restrictions on their
agricultural use or land application.  N-Viro Soil that is produced according to
N-Viro Process specifications meets the pollutant concentration limits and other
standards  set  forth  in  the  Part 503 Regs and, therefore, is an "exceptional
quality"  sludge  product  that  exceeds  the  EPA's  standards for unrestricted
agricultural  use  and  land  application.  Lower  quality  sludge,  including
sludge-based  products  that  meet Class B pathogen levels and certain pollutant
control  and  pest  attraction requirements, may also be applied to the land for
beneficial  use  but  are  subject  to  greater  record  keeping  and  reporting
requirements  and  restrictions  governing,  among  other  items,  the  type and
location  of  application,  the  volume  of application and limits on cumulative
levels  of  metals.  Sludge  applied  to the land for agricultural use must meet
Class  B  pathogen  levels  and,  if  applied  in  bulk,  require an EPA permit.

COMPETITION

     We  are in direct and indirect competition with other businesses, including
disposal  and  other  wastewater  sludge treatment businesses, some of which are
larger  and  more  firmly  established  and  may  have  greater  marketing  and
development  budgets  and  capital resources than us.  There can be no assurance
that  we will be able to maintain a competitive position in the sludge treatment
industry.

     We  compete against companies in a highly competitive market and have fewer
resources  than  most  of  those  companies.  Our  business  competes within and
outside  the  United  States  principally on the basis of the following factors:



<TABLE>
<CAPTION>

<S>                 <C>                 <C>                 <C>

SEGMENT

Management          Other Domestic                           Research &
Operations          Operations           Foreign Operations  Development

COMPETITIVE FACTORS
                                                             Innovative
Price                Price               Price               Technologies

                                         Product quality and
Reliability          Reputation          specifications      Technical support
Product quality and  Product quality
Specifications       and specifications  Custom design       Reputation

Responsiveness to                        Equipment financing Product quality
Customer             Technical support   assistance          and specifications

Technical support    Custom design       Technical support   Custom design

                     Equipment financing                     Equipment financing
Reputation           assistance          Reputation          assistance
</TABLE>

     Competitive  pressures,  including those described above, and other factors
could  cause  us  to  lose  market share or could result in decreases in prices,
either  of  which could have a material adverse effect on our financial position
and  results  of  operations.

     An  EPA  survey  estimated  that  sludge  generators  in  the United States
utilized landfilling, incineration, surface disposal and ocean dumping as sludge
management  alternatives  for  approximately  two-thirds  of  wastewater  sludge
generated.  Although  ocean  dumping  has  been  banned, other methods of sludge
disposal  remain  permissible  sludge management alternatives under the Part 503
Regs,  and  in  many  instances  will  be less expensive than treatment methods,
including  the  N-Viro  Process.

     Sludge  treatment  alternatives other than disposal include processes, such
as  aerobic  and  anaerobic  digestion  and  lime  stabilization, that typically
produce  lower  quality  sludge  products,  and  other  processes,  such  as
pelletization,  composting, high heat lime sterilization and high heat en-vessel
lime  pasteurization,  that produce "exceptional quality" sludge products.  Some
of these processes have established a significant market presence, and we cannot
predict  whether  any of such competing treatment processes will be more or less
successful  than  the  N-Viro  Process.

ENVIRONMENTAL  REGULATION

     Various  environmental protection laws have been enacted and amended during
recent  decades  in  response  to  public  concern  over  the  environment.  Our
operations and those of its licensees are subject to these evolving laws and the
implementing regulations.  The United States environmental laws which we believe
are,  or  may  be,  applicable to the N-Viro Process and the land application of
N-Viro  Soil include Resource Conservation and Recovery Act, or RCRA, as amended
by  the Hazardous and Solid Waste Amendments of 1984, or HSWA, the Federal Water
Pollution  Control  Act  of  1972,  or the Clean Water Act, the Clean Air Act of
1970,  as  amended,  or  the  Clean  Air  Act,  the  Comprehensive Environmental
Response,  Compensation,  and Liability Act, or CERCLA, the Pollution Prevention
Act  of  1990  and  the  Federal  Insecticide, Fungicide and Rodenticide Act, or
FIFRA.  These  laws  regulate the management and disposal of wastes, control the
discharge  of  pollutants  into the air and water, provide for the investigation
and  remediation  of contaminated land and groundwater resources and establish a
pollution  prevention  program.  Many  of  these  laws  have  international
counterparts,  particularly  in  Europe  and  elsewhere  in  North  America.  In
addition, various states have implemented environmental protection laws that are
similar  to  the  applicable  federal laws and, in addition, states may require,
among  other  things,  permits to construct N-Viro facilities and to sell and/or
use N-Viro Soil. There can be no assurance that any such permits will be issued.

     The  Part  503  Regulations.  Historically,  sludge management has involved
either  disposal,  principally  by  landfilling, incineration, ocean dumping and
surface disposal, or land application for beneficial use.  Sewage sludge and the
use  and  disposal  thereof is regulated under the Clean Water Act.  On February
19,  1993,  the  EPA  published  the  Part  503  Regs  under the Clean Water Act
implementing  the EPA's "exceptional quality" sludge program.  These regulations
establish  sludge  use and disposal standards applicable to approximately 35,000
publicly  and  privately owned wastewater treatment plants in the United States,
including  approximately  13,000  to  15,000  publicly owned treatment works, or
POTWs.  Under  the  Part  503  Regs, sludge products that meet certain stringent
standards are considered to be "exceptional quality" sludge products and are not
subject  to  any  federal  restrictions on agricultural use or land application.
N-Viro  Soil  produced  according  to  N-Viro  Process  specifications  is  an
"exceptional  quality" sludge product.  Lower quality sludge and sludge products
are  subject  to federal restrictions governing, among other items, the type and
location  of  application,  the  volume  of  application  and  the  cumulative
application  levels  for  certain pollutants.  Agricultural application of these
lower  quality sludge in bulk amounts also requires an EPA permit.  Agricultural
and  land  applications of all sludge and sludge products, including N-Viro Soil
and  other "exceptional quality" sludge products, are typically subject to state
and  local  regulation  and,  in  most  cases,  require  a  permit.

     In order to ensure compliance with the Part 503 Regs, we review the results
of  regular  testing of sludge required by the EPA to be conducted by wastewater
treatment  plants, and itself tests N-Viro Soil produced at N-Viro facilities on
a regular basis.  In general, we do not license or permit the ongoing use of the
N-Viro  Process  to  treat  any  sludge  that  may  not  be  processed  into  an
"exceptional  quality"  sludge  product.  In five N-Viro facilities, however, we
have permitted the use of the N-Viro Process to produce a product that is not an
"exceptional  quality"  sludge  product  due to the high pollutant levels of the
resulting product.  This product is not considered to be N-Viro Soil and is used
solely  for  landfill  cover  at  adjacent  landfills.  In  addition,  we  have
previously  licensed  for  use  at  five  treatment facilities an earlier sludge
treatment  process  that is designed to produce a sludge product that meets only
Class B pathogen levels, and therefore does not produce an "exceptional quality"
sludge  product.

     Although  N-Viro  Soil exceeds the current federal standards imposed by the
EPA  for  unrestricted  agricultural  use  and land application, state and local
authorities  are  authorized  under the Clean Water Act to impose more stringent
requirements than those promulgated by the EPA.  Most states require permits for
land application of sludge and sludge based products and several states, such as
Rhode  Island,  Massachusetts  and  New  Jersey, currently have regulations that
impose more stringent numerical concentration limits for certain pollutants than
the  federal  rules.

     The  Resource  Conservation and Recovery Act.  RCRA regulates all phases of
hazardous  waste  generation,  management  and  disposal.  Waste  is  subject to
regulation  as  a hazardous waste under RCRA if it is a solid waste specifically
listed  as  a  hazardous  waste  by  the  EPA  or  exhibits  a defined hazardous
characteristic.  Although  domestic  sewage  and mixtures of domestic sewage and
other  wastes  that  pass  through  a  sewer  system  to a POTW are specifically
exempted  from  the  definition  of  solid  waste, once treated by the POTW, the
sewage  sludge  is considered a solid waste.  However, such sewage sludge is not
considered  a  hazardous  waste  unless  it exhibits a hazardous characteristic.
While  it  is  possible  that  sewage  sludge  could  exhibit  the  toxicity
characteristic,  we  believe that regular tests for hazardous constituent levels
provide  assurance  that  the  sewage sludge used in the N-Viro Process does not
exhibit the toxicity characteristic.  The alkaline admixtures used in the N-Viro
Process  are  specifically exempted from RCRA regulation by the so-called Bevill
Amendments  to  RCRA.  Although  the  benefit  of  the exemption provided by the
Bevill Amendments can be lost if the alkaline admixture is derived from or mixed
with a hazardous waste, we have adopted and implemented policies and operational
controls,  including  review  of  operating  permits  held by alkaline admixture
suppliers  and  periodic testing of such admixtures, to ensure that the alkaline
admixtures  used  in  the N-Viro Process by us and our licensees are not derived
from  or  mixed  with  hazardous  wastes.

     Although  neither  the alkaline admixture nor wastewater sludge used in the
N-Viro  Process  are  regulated as hazardous waste under RCRA, states may impose
restrictions that are more stringent than federal regulations.  Accordingly, the
raw  materials  used  in  the  N-Viro  Process may be regulated under some state
hazardous  waste  laws  as  "special wastes," in which case specific storage and
record  keeping  requirements  may  apply.

     The  Clean  Air  Act.  The  Clean Air Act empowers the EPA to establish and
enforce ambient air quality standards and limits of emissions of pollutants from
specific facilities.  The Clean Air Act Amendments of 1990, or the Clean Air Act
Amendments,  impose  stringent  requirements  upon  owners  and  operators  of
facilities  that  discharge  emissions  into  the  air.

     Existing  N-Viro  facilities generally have installed "baghouse" technology
for  alkaline  admixture  storage  and  handling  operations in order to collect
airborne dust.  At present, we do not believe that any N-Viro facilities will be
required to undertake any further measures in order to comply with the Clean Air
Act or the existing Clean Air Act Amendments.  Ammonia odors of varying strength
typically  result from sludge treatment processes, including the N-Viro Process.
A  number  of  N-Viro  facilities  have  installed ammonia "scrubbers" to reduce
ammonia  odors  produced  to  varying  degrees  by  the  N-Viro  Process.  The
installation  of ammonia "scrubbers" is not required by the Clean Air Act or the
existing Clean Air Act Amendments.  However, we or our licensees may be required
under  the  Occupational  Safety  and  Health  Act  and  state  laws  regulating
nuisances,  odors  and air toxic emissions to install odor control technology to
limit  ammonia  emissions  and  odors  produced  during  the  N-Viro  Process,
particularly at N-Viro facilities located near populated residential areas.  The
amount  of  ammonia  gas  produced  is  dependent  upon the type of sludge being
treated  and  the  amount  and  type  of  alkaline  admixture  being  used.

     The Comprehensive Environmental Response, Compensation and Liability Act of
1980.  CERCLA  imposes  strict,  joint  and  several  liability  upon owners and
operators  of  facilities  where a release of hazardous substances has occurred,
upon  parties  who generated hazardous substances into the environment that were
released at such facilities and upon parties who arranged for the transportation
of  hazardous  substances  to  such  facilities.

     We believe that the N-Viro Process poses little risk of releasing hazardous
substances  into  the environment that presently could result in liability under
CERCLA.  Although  the  sewage  sludge and alkaline waste products could contain
hazardous  substances  (as  defined  under  CERCLA),  we have developed plans to
manage  the  risk  of CERCLA liability, including training of operators, regular
testing  of  the  sludge  and  the  alkaline  admixture to be used in the N-Viro
Process  and  reviewing incineration and other permits held by the entities from
whom  alkaline  admixtures  are  obtained.

     Other Environmental Laws.  The Pollution Prevention Act of 1990 establishes
pollution  prevention as a national objective, naming it a primary goal wherever
feasible.  The  act  states  that where pollution cannot be prevented, materials
should  be  recycled  in  an  environmentally  safe manner.  We believe that the
N-Viro  Process  contributes to pollution prevention by providing an alternative
to  disposal.

     The  alkaline  admixtures  used in the N-Viro Process may be required to be
registered  as  pesticides  under  FIFRA because of their effect on pathogens in
sludge.  The  EPA  does  not  currently regulate commercial lime or any alkaline
by-products  under  FIFRA  and  has not attempted to assert such jurisdiction to
date.  In the event the alkaline by-products are required to be registered under
FIFRA,  we  would  likely  be  required  to  submit  certain data as part of the
registration  process  and  might  be  subject  to  further  federal regulation.

     State  Regulations.  State regulations typically require an N-Viro facility
to  obtain  a  permit  for the sale of N-Viro Soil for agricultural use, and may
require a site-specific permit by the user of N-Viro Soil.  In addition, in some
jurisdictions,  state  and/or local authorities have imposed permit requirements
for,  or  have  prohibited,  the  land application or agricultural use of sludge
products,  including  "exceptional  quality"  sludge  products.  There can be no
assurance  that  any such permits will be issued or that any further attempts to
require permits for, or to prohibit, the land application or agricultural use of
sludge  products  will  not  be  successful.

     In addition, many states enforce landfilling restrictions for non-hazardous
sludge.  These  regulations  typically  require  a  permit to sell or use sludge
products  as  landfill  cover  material.  There  can be no assurance that N-Viro
facilities  or  landfill  operators  will  be  able  to obtain required permits.

     Environmental  impact  studies  may  be  required  in  connection  with the
development  of  future  N-Viro  facilities.  Such  studies  are  generally time
consuming  and  may  create  delays  in  the construction process.  In addition,
unfavorable  conclusions reached in connection with such a study could result in
termination  of,  or  expensive  alterations  to,  the  N-Viro  facility  being
developed.

EMPLOYEES

     As  of  December 31, 2006, we had 15 employees.  Four of our employees were
engaged  in  sales  and  marketing; three were in finance and administration and
eight were in operations.  We consider our relationship with our employees to be
satisfactory.

     We are a party to a collective bargaining agreement (the "Labor Agreement")
covering  four  employees  of  National  N-Viro  Tech,  Inc.,  our  wholly-owned
subsidiary.  The  employees  that are covered by the Labor Agreement work at the
Toledo,  Ohio N-Viro facility, which is operated by us for the City of Toledo on
a  contract  management basis.  These employees are members of the International
Brotherhood  of  Teamsters, Chauffeurs, Warehouseman and Helpers Local Union No.
20,  and  we consider our relationship with the organization to be satisfactory.
In  2005,  the  Labor  Agreement  was  extended  through  October  31,  2009.

PATENTS  AND  PROPRIETARY  RIGHTS

     We  have  several  patents  and  licenses  relating  to  the  treatment and
processing  of  biosolids.  While  there is no single patent that is material to
our  business,  we  believe  that  our  aggregate  patents  are important to our
prospects  for future success.  However, we cannot be certain that future patent
applications will be issued as patents or that any issued patents will give us a
competitive  advantage.  It  is  also  possible  that  our  patents  could  be
successfully  challenged  or  circumvented  by competition or other parties.  In
addition,  we cannot assure that our treatment processes do not infringe patents
or  other  proprietary  rights  of  other  parties.

     In  addition,  we  make use of our trade secrets or "know-how" developed in
the  course  of  our  experience in the marketing of our services. To the extent
that  we  rely  upon  trade  secrets, unpatented know-how and the development of
improvements  in  establishing  and  maintaining  a competitive advantage in the
market  for  our  services,  we  can provide no assurances that such proprietary
technology  will  remain  a  trade  secret  or  that  others  will  not  develop
substantially  equivalent or superior technologies to compete with our services.

SECURITIES AND EXCHANGE COMMISSION

     As  a  public company, we are required to file periodic reports, as well as
other  information,  with  the  Securities  and Exchange Commission (SEC) within
established  deadlines.  Any  document  we  file  with  the SEC may be viewed or
copied  at  the  SEC's  Public Reference Room at 100 F Street, N.E., Washington,
D.C.  20549.  Additional  information regarding the Public Reference Room can be
obtained  by  calling  the  SEC  at  (800)  SEC-0330.  Our  SEC filings are also
available  to  the  public  through  the  SEC's  web  site  located  at
http://www.sec.gov.

     We  maintain  a  corporate  Web  site  at  http://www.nviro.com,  on  which
investors  may access free of charge our annual report on Form 10-KSB, quarterly
reports  on Form 10-QSB and amendments to those reports as soon as is reasonably
practicable  after  furnishing such material with the SEC.  In addition, we will
voluntarily  provide  electronic  or  paper copies of our filings free of charge
upon  request  at  (419)  535-6374.


ITEM  2.          PROPERTIES

     Our executive and administrative offices are located in Toledo, Ohio, under
a  lease  that  was  renewed  in  January 2003 and amended in November 2004.  We
believe  our relationship with our lessor is satisfactory.  Our lease expired on
February  28,  2007, and we have not renewed it at this time.  The total minimum
rental commitment for the year ending December 31, 2007 is approximately $6,200.
The  total  rental  expense included in the statements of operations for each of
the  years  ended  December 31, 2006 and 2005 is approximately $37,500.  We also
lease  various  equipment  on  a  month-to-month  basis.

     On  December  28,  2006,  we  purchased the remaining ownership interest in
Florida  N-Viro  and  now  operate  its facility in Volusia County, Florida.  We
maintain  an  office  in Daytona Beach under a lease with the County of Volusia,
Florida  renewed  in  April,  2005  for  five  years.  The  total minimum rental
commitment for the years ending December 31, 2007 and 2008 is $48,000 each year.
The  total  rental  expense included in the statements of operations for each of
the  years ended December 31, 2006 and 2005 is zero, as this property commitment
was  acquired  pursuant  to  the  Share  Purchase  Agreement with VFL Technology
Corporation,  signed  December 28, 2006, but effective on December 31, 2006.  We
also lease various equipment on a month-to-month basis at our Florida operation.

     To  date,  we  have  licensed  the  N-Viro Process to municipalities in the
eastern  United  States  principally  for  use  in  municipally-owned wastewater
treatment  plants.  As  of  December  31,  2006,  there were more than 35 N-Viro
facilities  operating  throughout  the  world.  All  of  the  existing  N-Viro
facilities  are  owned  and operated by third parties, with the exception of two
municipally-owned  N-Viro  facilities - the Toledo, Ohio facility which has been
operated  by  us  on  a  contract  management  basis since January 1990, and the
Volusia  County, Florida facility which had been operated by Florida N-Viro on a
contract  management  basis  since  approximately  1998.


ITEM  3.          LEGAL  PROCEEDINGS.

     In  June 2005, J. Patrick Nicholson filed a Demand for Arbitration, seeking
damages  of  $50,000 from the Company, based on a claimed breach of a Consulting
Agreement  dated  August  28,  2003  between the Company and Mr. Nicholson.  Mr.
Nicholson  also  sought rescission of his Consulting Agreement and reinstatement
of  a  prior agreement between him and the Company, which was in effect prior to
the  order  by  the Delaware Chancery Court terminating a stockholder derivative
suit.  This  arbitration  proceeding  was  previously  reported in a Form 10-QSB
filed  by the Company August 15, 2005.  On July 13, 2005, the Company's Board of
Directors  voted to terminate for cause the Consulting Agreement with J. Patrick
Nicholson,  based  on  numerous specific instances of violations of the terms of
the  Consulting  Agreement by him.  The Consulting Agreement, filed as Exhibit B
to  the  Form 8-K filed August 29, 2003, contained a term ending no earlier than
five  years  from  the  date  of  the contract.  Mr. Nicholson was being paid an
aggregate  of over $92,000 per year under the Consulting Agreement, exclusive of
any  other  payouts  earnable.  In November 2005, Mr. Nicholson filed an amended
complaint pertaining to his Demand for Arbitration, which added as an additional
claim  wrongful  termination.  Mr.  Nicholson is a reporting beneficial owner of
approximately  5.6% of the Company's outstanding common stock, as of the date of
his  last  Form  SC  13D/A  filed  January  4,  2007.  The Company is vigorously
contesting  Mr.  Nicholson's claims in this proceeding.  A hearing on the matter
was  held  in  January  2007,  and  is  expected  to  conclude  in  April  2007.

     On  January 27, 2006, J. Patrick Nicholson applied to the Delaware Chancery
Court for an order to compel us to allow him access to inspect our corporate and
business books and records and our stockholder list, pursuant to a request under
Section  220  of  the  Delaware  General Corporation Law.  No monetary relief is
sought in this action.  We contend that the documents sought by Mr. Nicholson in
this  action  far  exceed  those  to which he is entitled under Section 220, and
principally  relate  to  his  claims in the arbitration described above.  We are
vigorously  defending  this  action  and  have  filed a response in the Delaware
Chancery  Court,  but  no  discovery  has been conducted, and no relief has been
granted  as  of  the  date  of  this  Form  10-KSB.

     On  July  11,  2006,  J.  Patrick Nicholson and N-Viro Energy Systems, Inc.
filed  a  Complaint with Jury Demand in the United States District Court for the
Northern  District of Ohio, against the Company, Ophir Holdings, Inc., Strategic
Asset  Management,  Inc.,  Robert  A.  Cooke,  the  Cooke  Family  Trust and the
following  members  of  our  Board  of  Directors:  Daniel J. Haslinger, Phillip
Levin,  R.  Francis  DiPrete  and  Terry  J.  Logan.  The  Complaint  is seeking
undeterminable  damages  and  other relief from the named defendants, based on a
claimed  breach  of  fiduciary  duty, common law fraud and violations of Section
10(b)(5)  of  the Securities Exchange Act of 1934.  We filed a motion to dismiss
the  lawsuit  on August 25, 2006.  Before Mr. Nicholson responded to our motion,
Mr.  Nicholson's  attorneys filed a motion to withdraw as counsel from the case,
and  new  counsel appeared.  Mr. Nicholson has requested an opportunity to amend
his complaint, and has been given until April 2, 2007 to do that.   We then have
until May 1, 2007 to renew our motion to dismiss.  All discovery has been stayed
pending  the  anticipated  motion  to  dismiss.

     In  addition  to  the foregoing, 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  4.          SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

     On  November  26,  2006,  we  held our Annual Meeting of Stockholders.  The
matters  on  which  the  stockholders  voted,  in  person  or  by  proxy,  were:

     -          the  election  of  three  Class  II  directors  to  our board of
directors;  and
     -          the  ratification of UHY LLP as our independent outside auditors
for  the  fiscal  year  ending  December  31,  2006.

ELECTION OF BOARD OF DIRECTORS:

<TABLE>
<CAPTION>


DIRECTOR           VOTES FOR  VOTES WITHHELD
-----------------  ---------  --------------
<S>                <C>        <C>

Timothy Kasmoch    2,340,329       1,047,972
-----------------  ---------  --------------
James Hartung      2,298,862       1,089,439
-----------------  ---------  --------------
Michael Nicholson  1,586,518       1,801,783
-----------------  ---------  --------------
</TABLE>


Michael  Nicholson  did  not  receive  a  vote  for  by a majority of the shares
outstanding  and  was  not  re-elected to the Board of Directors.  In accordance
with  our  Bylaws and Delaware law, he remained a director until his resignation
on  December  7,  2006, at which time Thomas L. Kovacik was appointed to replace
Mr.  Nicholson.



RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS:

<TABLE>
<CAPTION>


VOTES FOR  VOTES AGAINST  VOTES ABSTAIN
---------  -------------  -------------
<S>        <C>            <C>

2,928,910        361,391         98,000
---------  -------------  -------------
</TABLE>


<PAGE>

                                     PART II

ITEM  5.          MARKET  FOR  REGISTRANT'S  COMMON  EQUITY, RELATED STOCKHOLDER
MATTERS  AND
     SMALL  BUSINESS  ISSUER  PURCHASES  OF  EQUITY  SECURITIES

MARKET INFORMATION

     Our  shares  of Common Stock are quoted on the OTC Bulletin Board under the
symbol  "NVIC.OB".  The prices quoted below reflect inter-dealer prices, without
retail  mark-up,  mark-down  or  commission  and  may  not  represent  actual
transactions.  The  price  range  per share of the Common Stock since January 1,
2005,  was  as  follows:


<TABLE>
<CAPTION>


Quarter      High    Low
-----------  -----  -----
<S>          <C>    <C>
First 2005   $2.80  $1.70
Second 2005  $2.02  $1.27
Third 2005   $2.88  $1.50
Fourth 2005  $1.90  $1.20
First 2006   $1.75  $1.12
Second 2006  $1.40  $0.64
Third 2006   $1.51  $0.60
Fourth 2006  $2.21  $1.20
</TABLE>



Our  stock  price  closed  at  $2.55  per  share  on  March  16,  2007.

HOLDERS

     As  of  March 16, 2007, the number of holders of record of our Common Stock
was  approximately  180.

DIVIDENDS

     We  have never paid dividends with respect to our Common Stock.  Payment of
dividends  is  within the discretion of our Board of Directors and would depend,
among other factors, on our earnings, capital requirements and our operating and
financial  condition.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

<TABLE>
<CAPTION>

                                                                                           Number of securities
                                          Number of securities                           remaining available for
                                              to be issued        Weighted-average        future issuance under
                                            upon exercise of      exercise price of        equity compensation
                                          outstanding options,  outstanding options,   plans (excluding securities
Plan category                             warrants and rights    warrants and rights     reflected in column (a))
---------------------------------------   --------------------  ---------------------  ----------------------------
<S>                                       <C>                   <C>                    <C>

Equity compensation plans
    approved by security holders . . . .             1,031,875  $                2.12                       250,625

Equity compensation plans
    not approved by security holders (1)               963,351  $                1.89                           -0-
---------------------------------------   --------------------  ---------------------  ----------------------------
Total. . . . . . . . . . . . . . . . . .             1,995,226  $                2.01                       250,625
</TABLE>
--------------------------------------------------------------------------------

(1)  Represents  593,351  warrants  to  purchase  our  Common  Stock,  issued to
subscribers as part of a private placement of shares of Common Stock during 2004
and  2005,  all  issued  at $1.85 per share. Also represents 120,000 warrants to
purchase  our  Common Stock, issued to Strategic Asset Management, Inc., in 2005
as  part  of  an  agreement  to provide consulting services, issued at $1.84 per
share.  And  finally,  also  250,000  represents warrants to purchase our Common
Stock,  issued  to  certain  members  of  the Board of Directors and, an outside
consultant  pursuant  to  an  investor  relations agreement, in December 2006 in
payment  for  services  rendered,  issued  at  $2.00  per  share.


UNREGISTERED  SALES  OF  SECURITIES

     On  March  1,  June  1,  September 1 and December 1, 2006, we issued 12,500
shares  (a  total  of  50,000  shares) of unregistered common stock to our Chief
Executive  Officer  and  member  of  our Board of Directors, Timothy R. Kasmoch,
pursuant  to  the  terms  of his employment agreement dated February, 2006.  See
Note  6  of  the  Financial  Statements contained in Item 7 of this Form 10-KSB,
under  the  caption  "Commitments  and  Contingencies".

     Effective  on  December  22,  2006,  we  entered into an investor relations
agreement  between us and Institutional Analyst, Inc. (IA) of Chicago, Illinois.
In  consideration  for IA's services under the agreement, we paid IA $10,000 and
issued  a  warrant  to  purchase 100,000 shares of our common stock at $2.00 per
share.  The  warrant is exercisable by IA immediately and has an expiration date
of December 22, 2007. In addition, the agreement provides that IA is entitled to
piggyback  registration  rights with respect to all of the shares underlying the
warrant  on  any  future  registration  statements  filed  by  us,  other than a
registration  statement  filed  on  Form  S-4  or S-8. A copy of the Warrant was
attached  to  the  Form  8-K  filed  January  31,  2007,  as  Exhibit  99.1.

     On  December  30,  2006,  we  approved  a 2-year extension of the financial
public  relations  agreement with Strategic Asset Management, Inc. ("SAMI").  We
originally  entered  into  the  agreement  on  September  15,  2005,  and it was
scheduled  to expire on September 15, 2007.  In consideration for this extension
of  time,  we  issued to SAMI 100,000 shares of our common stock.  A copy of the
original  agreement  was  filed  as  an  exhibit  to the Form 8-K filed by us on
October  12,  2005.

     On  December  30, 2006, we issued warrants to purchase shares of our common
stock  to four members of our Board of Directors as follows:  R. Francis DiPrete
(75,000 shares), Joseph Scheib (32,000 shares), Carl Richard (32,000 shares) and
James  Hartung (11,000 shares).  Each warrant has an exercise price of $2.00 per
share,  is  exercisable  immediately  and has an expiration date of December 30,
2009.  A  form  of the warrant issued to each director (except for the number of
shares which are specified above) was attached to the Form 8-K filed January 31,
2007,  as  Exhibit  99.2.

     All  of  the  foregoing  issuances  were issued pursuant to exemptions from
registration under Section 4(2) of the Securities and Exchange Act of 1933.  The
Company  did  not receive any cash proceeds from any of the foregoing issuances.


ITEM  6.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OR  PLAN  OF  OPERATIONS


OVERVIEW

     The  following  is  a discussion of our results of operations and financial
position for the periods described below, and should be read in conjunction with
"Selected  Financial  Data"  and the Financial Statements and Supplementary Data
appearing  elsewhere  in  this  Form  10-KSB.  The  discussion  includes various
forward-looking  statements  about  our  markets,  products,  services  and  our
results.  These  statements  are  based  on certain assumptions that we consider
reasonable.  Our  actual  results  may  differ  materially  from these indicated
forward-looking  statements.

     The  following  table sets forth, as a percentage of total revenues for the
periods  presented,  revenues  related  to  each  of  (i)  technology fees, (ii)
facility  management,  (iii)  products  and  services:


<TABLE>
<CAPTION>
                     For the Year Ended December 31,
                        2006    2005
                       ------  ------
<S>                    <C>     <C>
Technology fees         13.5%   10.4%
Facility management     30.8%   25.9%
Products and services   55.7%   63.7%
                       ------  ------
Totals                 100.0%  100.0%
                       ======  ======
</TABLE>


     Technology  fee  revenues  consist  of:  royalty  revenue,  which represent
ongoing  amounts received from licensees for continued use of the N-Viro Process
and  are  typically based on volumes of sludge processed;  license and territory
fees,  which  represent  non-recurring  payments for the right to use the N-Viro
Process  in  a  specified  geographic  area  or at a particular N-Viro facility;
research  & development revenue, which represent payments from federal and state
agencies  awarded  to  us  to  fund ongoing site-specific research utilizing the
N-Viro  technology.

     Facility management revenues are recognized under contracts where we manage
the  N-Viro  Process  ourselves  to  treat  sludge,  pursuant  to  a fixed price
contract.

     Product and service revenues consist of:  alkaline admixture revenue, which
represent ongoing payments from licensees arising from the sale and distribution
of  alkaline  admixture  by us and our Agents to N-Viro facilities;  service fee
revenue  for  the management of alkaline admixture, which represent fees charged
by  us  to  manage  and  sell  the alkaline admixture on behalf of a third party
customer;  N-Viro Soil sales, which represent either revenue received from sales
of  N-Viro  Soil sold by N-Viro facilities, or through sales of N-Viro Soil sold
directly by us;  commissions earned on sales of equipment to an N-Viro facility;
rental  of  equipment  to a licensee or agent;  equipment sales, which represent
the  price  charged  for  equipment  held  for  subsequent  sale.

     Our  policy  is to record the revenues payable to us pursuant to agency and
license  agreements  when  we  have fulfilled our obligations under the relevant
contract,  except  when it pertains to a foreign license agreement.  In the case
of  foreign licenses, revenue is recorded when cash is received and when we have
fulfilled  our  obligations  under  the  relevant  foreign  agreement.

RESULTS  OF  OPERATIONS

     The  following  tables  set  forth,  for the periods presented, (i) certain
items  in  the  Combined  Statement of Operations, (ii) the percentage change of
each such item from period to period and (iii) each such item as a percentage of
total  revenues  in  each  period  presented.

<TABLE>
<CAPTION>

                                       Year Ended        Period to Period     Year Ended
                                       December 31,       Percentage         December 31,
                                         2006                Change              2005
                                       ----------         -------------      -----------
<S>                                    <C>                 <C>               <C>

(Dollars in thousands)
-------------------------------------
COMBINED STATEMENT OF
    OPERATIONS DATA:

Revenues. . . . . . . . . . . . . . .  $3,620            (13.5%)             $ 4,185

Cost of revenues. . . . . . . . . . .   2,401            (18.5%)               2,948
                                       ------                                --------

Gross profit. . . . . . . . . . . . .   1,219             (1.4%)               1,237

Operating expenses. . . . . . . . . .   2,885             105.4                1,405
                                       ------                                --------

                                       (1,666)                *                 (168)

Other income (expense). . . . . . . .     (24)                *                 (105)
                                       ------                                --------

Loss before income tax expense. . . .  (1,690)                *                 (273)

Federal and state income tax expense.       0                 *                    0
                                       ------                                --------

Net loss. . . . . . . . . . . . . . . $(1,690)                *               $ (273)
                                       =======                                  =====

</TABLE>


<TABLE>
<CAPTION>


PERCENTAGE OF REVENUES:
<S>                                    <C>                                    <C>
Revenues. . . . . . . . . . . . . . .  100.0%                                  100.0%

Cost of revenues. . . . . . . . . . .   66.3                                    70.4
                                       ------                                --------

Gross profit. . . . . . . . . . . . .   33.7                                    29.6

Operating expenses. . . . . . . . . .   79.7                                    33.6
                                       ------                                --------

                                       (46.0)                                   (4.0)

Other income (expense). . . . . . . .  ( 0.7)                                    2.5
                                       ------                                --------

Loss before income tax expense. . . .  (46.7)                                   (6.5)

Federal and state income tax expense.    0.0                                     0.0
                                       ------                                --------

Net loss. . . . . . . . . . . . . . .  (46.7%)                                 (6.5%)
                                       =======                                  =====

</TABLE>

*     Period  to  period percentage change comparisons have only been calculated
for  positive  numbers.


<PAGE>

COMPARISON  OF  YEAR  ENDED  DECEMBER 31, 2006 WITH YEAR ENDED DECEMBER 31, 2005

     Revenues  decreased  $564,000,  or approximately 13%, to $3,620,000 for the
year  ended  December  31,  2006 from $4,184,000 for the year ended December 31,
2005.  The  decrease  in  revenue  was  due  to  a  net decrease in revenue from
existing  on-line  facilities,  primarily  due  to  the  following  factors:

     a)  Sales  of  alkaline  admixture  decreased $249,000 from the same period
ended  in  2005;

     b)  Revenue  from the service fees for the management of alkaline admixture
decreased  $434,000  from  the  same  period  ended  in  2005;

     c)  Our processing revenue, including facility management revenue, showed a
net  increase  of  $199,000  over  the  same  period  ended  in  2005;  and

     d)  Miscellaneous  revenues decreased $81,000 from the same period ended in
2005;

     The  decrease in both the sales and management service fees of the alkaline
admixture  was  from  a net volume loss of tonnage at facilities no longer using
the  N-Viro  process  as  their  primary  disposal  technology.  A facility that
represented  approximately  21%  of  our  2004  gross  revenue stopped using our
process in 2005 and has not resumed production at this time.  This represented a
total  of  approximately  $458,000  of  revenues in 2005, from both the sale and
management  of  the  alkaline  admixture  revenue.

     The  increase  in  processing  revenue  of  $199,000  was primarily from an
increase  in  N-Viro  Soil  sales,  representing  over $116,000 of the increase.
Processing  volume  of  facility  management  revenue  was up slightly at 3%, or
$33,000  gross  revenue,  and  the  last  part  of the increase was the one-time
realization  of  $66,000  for  past  royalties  from  an  international licensee
received  in  2006.  From  2005  to  2006, the net cost per ton for the sale and
distribution  cost  of the N-Viro Soil product decreased from $1.82 to $0.17 per
ton  shipped,  or a $1.65 per ton decrease.  However, we distributed 12,400 less
tons  of  product  in  2006  than  2005, or approximately 19% of the 2005 total.

     Our gross profit decreased $17,000, or 1%, to $1,219,000 for the year ended
December  31, 2006 from $1,237,000 for the year ended December 31, 2005, but the
gross  profit  margin  increased  to  34%  from  30%  for the same periods.  The
increase  in  gross  profit  margin  is  primarily  due  to  the  increase  in
profitability  of  the  facility  management  fee  operation  of  $133,000,  as
payroll-related costs of approximately $65,000 associated with this operation in
2005  are  accounted  for  in  operating  expenses in 2006.  Had this accounting
change not happened for 2006 the gross profit margin would have increased to 32%
from 30%.  Also contributing to the gross profit margin increase is the increase
in  net  royalty  revenue  of  $51,000,  all  of which had no associated cost of
revenue.

     Our operating expenses increased $1,480,000, or 105%, to $2,885,000 for the
year  ended  December  31,  2006 from $1,405,000 for the year ended December 31,
2005.  The  increase  was  primarily  due  to  a  net  increase of approximately
$758,000  in  employee payroll and expenses, $309,000 in director-related costs,
$89,000 for legal fees, $94,000 in increases to the bad debt reserve and $58,000
in  consulting fees and expenses.  Included in the increase for employee payroll
was  $492,000  for  the  value  of  stock  options granted in late 2006 to three
officers  and  $49,000 for stock options granted in previous years - both events
now  required to be expensed under new accounting rules starting in 2006.  Also,
$55,000  was  expensed  for  the  value of unregistered stock issued to our CEO,
Timothy  Kasmoch,  pursuant  to  his  employment  agreement  of  February  2006.

Included in the increase for director-related costs was $92,000 for the value of
stock  options  granted  as  compensation  for  board  meetings during 2006, and
$225,000  for  the  value  of warrants issued in late 2006 to four directors for
services  rendered.  All totaled, approximately $858,000 of expense was recorded
for stock options and warrants in 2006 to directors and officers.  In consulting
expenses, $161,000 was recorded as the value of unregistered stock given in 2005
to  Strategic  Asset  Management, Inc., pursuant to the September 2005 financial
public  relations  agreement.  See  Item  5, "Unregistered Sales of Securities".

Of  our total operating expenses in 2006 of $2,885,000, approximately $1,074,000
were  non-cash  expenses for stock options, warrants and stock issued during the
year.  Our  increase  of  $1,480,000 in operating costs contained an increase of
$1,030,000  in  these  non-cash  expenses.

     Our  nonoperating  income  (expense)  decreased  by  $81,000  to expense of
$25,000  for  the  year ended December 31, 2006 from expense of $105,000 for the
year ended December 31, 2005.  The decrease in nonoperating income was primarily
due to a decrease in the loss of $186,000 in the equity of a joint venture, to a
loss  of $-0- in 2006 from a loss of $186,000 in 2005.  Offsetting this decrease
in  nonoperating  income  was  that  in  2005 we recorded a one-time gain on the
forgiveness of debt due our former general law firm of $108,000, but had no such
transaction  in  2006,  for a net decrease in the gain on legal debt forgiven of
$108,000.

     We  recorded  a  net  loss  of  approximately $1,690,000 for the year ended
December  31, 2006 compared to a net loss of approximately $273,000 for the year
ended  December  31,  2005, an increase in the loss of approximately $1,417,000.

     We  recorded  a  loss  of  approximately  $186,000  on our share of Florida
N-Viro,  L.P.  in  2005.  As  of  December 31, 2004, our investment in the joint
venture  reflected  zero  value on our balance sheet due to previous losses, and
further  losses  in  2005  were  added  to  the  allowance  to  reserve the Note
Receivable  due from Florida N-Viro, until this also reached a zero value on our
balance  sheet in November 2005.  In 2006, we were not able to recognize further
losses  by  Florida  N-Viro,  as  more  fully describe in "Liquidity and Capital
Resources"  below.

INFLATION

     We  believe  that  inflation  has  not had a material impact to date on our
operations.

LIQUIDITY  AND  CAPITAL  RESOURCES

     We  had a working capital deficit of approximately $350,000 at December 31,
2006  compared  to  a  deficit  of  $41,000  at December 31, 2005, a decrease of
approximately  $309,000.  Current  assets  at  December 31, 2006 include cash of
$219,000,  a  decrease  of approximately $134,000 from December 31, 2005, and of
which  approximately  $131,500  is restricted under our Bank credit agreement to
secure the credit facility.  The decrease in working capital was principally due
to  the  operating  loss in 2006, offset by the issuance and expensing of stock,
stock  options  and  warrants issued during the year.  The operating losses were
funded  primarily  from  increased draws to the line of credit and extending out
payments  on  trade  payables.

     In  2006  our cash flow provided by operations was approximately $39,000, a
decrease of approximately $247,000 from 2005.  This decrease was principally due
to  the  positive change in working capital of approximately $310,000, increased
by  $521,000  in the amount of stock, warrants and stock options issued for fees
and  services  from  2005  and  further  increased by $338,000 in other non-cash
charges  to  earnings, decreased by $1,417,000 for the increase in the net loss.

     We  presently  have a $695,000 credit facility with Monroe Bank + Trust, or
the Bank.  This senior debt credit facility is comprised of a $295,000 four year
term  note  at  7.5%  and  a  line  of  credit up to $400,000 at Prime (8.25% at
December  31,  2006) plus 1.5% and secured by a first lien on all of our assets.
Two  certificates  of  deposit  totaling  $125,000  from  the Bank are held as a
condition  of  maintaining  the facility.  We have currently renewed the line of
credit  through  October  2007,  and  are  not  in  violation  of  any financial
covenants.  At  December  31,  2006,  we  had  $195,000  of  borrowing  capacity
available  under  the  credit  facility.  The amount owed on the term note as of
December  31,  2006  was  approximately  $21,000 and we paid it in full in March
2007.

     In  the  third  and  fourth  quarters of 2006, our wholly-owned subsidiary,
Bio-Mineral  Transportation LLC, borrowed a total of $259,309 from Monroe Bank +
Trust,  to purchase trucks and trailers that were placed into service during the
period.  A  total  of  five term notes were issued, three of them at 8% for five
years,  two  of  them  at  9% for two years, and each secured by equipment.  The
total  amount  owed  on  the  notes  as  of  December 31, 2006 was approximately
$240,000  and  all  are  expected  to  be  paid  in  full  by  July  2011.

     Throughout  most of 2006, we jointly owned with Headwaters, Inc., through a
limited  partnership  named  Florida N-Viro, L.P., or Florida N-Viro, a facility
located  in  Volusia County, Florida.  During 2006, our 47.5% ownership interest
in  Florida N-Viro recorded a non-cash net loss to us of approximately $139,000,
and cash flow from operations of Florida N-Viro was negative.  We were unable to
record  any  net  loss on our investment in Florida N-Viro due to limitations of
the  basis  of  our  investment.

     In  early  2006, the dormant Ft. Meade facility, which was owned by Florida
N-Viro,  was  sold  to an independent third party, and the proceeds were used to
fund  operations.  On  December  28,  2006, we purchased the remaining ownership
interest  in  Florida  N-Viro  for  $500,000  and  financed  $400,000  of  it by
delivering  a  note to the seller, VFL Technology Corporation. The note is at 8%
for  10  years,  to  be paid in annual installments of $59,611.80, subject to an
offset  for  royalties  due  us  under  a patent license agreement from the same
party.  Through  February  2007, cash flow from operations of Florida N-Viro has
been  positive,  and  we  believe  that  Florida N-Viro will be able to generate
enough  funds  to  finance  operations  through  2007.

     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.  In  response to an increase in the
amount  of past due accounts, we increased the reserve for bad debts by $115,000
during  2006,  to  a  reserve  of  $170,000.

     For  2007,  we  expect continued improvements in operating results for 2007
primarily due to lowered administrative costs together with existing sources and
expected  new  sources  of revenue, strategic relationships and cash from equity
issuances.  Additionally,  market  developments  and  ongoing  discussions  with
companies in the fuel and wastewater industries could provide enhanced liquidity
and  have  a  positive  impact  on  2007  operations.

OFF-BALANCE  SHEET  ARRANGEMENTS

     At  December 31, 2006, 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  it  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.


<PAGE>

CONTRACTUAL OBLIGATIONS

     The following table summarizes our contractual cash obligations at December
31, 2006, and the effect these obligations are expected to have on liquidity and
cash  flow  in  future  periods:


<TABLE>
<CAPTION>

                                                                         Payments Due By Period
                                                 Total     Less than 1 year   1 - 3 years   4 - 5 years   after 5 years
                                               ----------  -----------------  ------------  ------------  --------------
<S>                                 <C>        <C>         <C>                <C>           <C>           <C>
Purchase obligations . . . . . . .        (1)  $  111,600  $          75,200  $          -  $          -  $            -
Long-term debt obligations . . . .        (2)     661,110            106,673       250,225       106,770         197,442
Operating leases . . . . . . . . .        (3)     265,636             92,411       173,225             -               -
Capital lease obligations                               -                  -             -             -               -
Other long-term debt obligations                        -                  -             -             -               -
                                               ----------  -----------------  ------------  ------------  --------------
Total contractual cash obligations             $1,038,346  $         274,284  $    459,850  $    106,770  $      197,442
                                               ==========  =================  ============  ============  ==============
<FN>

(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.
</TABLE>


CRITICAL  ACCOUNTING  POLICIES,  ESTIMATES  AND  ASSUMPTIONS

     In  preparing financial statements in conformity with accounting principles
generally  accepted  in  the  United  States,  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  the significant estimates and assumptions made in preparation of
the  financial  statements:

     Non-domestic  license  and territory fees -  We do not recognize revenue on
any  non-domestic license or territory fee contracts until the cash is received,
assuming  all  other  tests  of revenue recognition are met.  Canada is excluded
from  this  definition  of  non-domestic.

     Allowance  for  Doubtful  Accounts  -  We estimate losses for uncollectible
accounts  based  on  the aging of the accounts receivable and the evaluation and
the  likelihood  of  success  in  collecting the receivable.  The balance of the
allowance  at  December 31, 2006 and 2005 is $170,000 and $55,000, respectively.

     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 our 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.  We believe the
carrying  amount  is  not  impaired  based  upon  estimated  future  cash flows.

     Equity Method Investment - We account for our investments in joint ventures
under  the  equity  method,  and periodically evaluate the recoverability of our
equity  investments  in  accordance with Accounting Principals Board Opinion, or
APB,  Opinion No. 18, "The Equity Method of Accounting for Investments in Common
Stock."  As  of  November  2005, we had fully recognized our share of the equity
investment  in  our joint venture to the extent of our investment, including any
Notes  Receivable.  After  that  date,  we have not recorded any additional loss
even  though the joint venture continued to sustain losses, because of a lack of
basis  in this investment.  We have no other investments accounted for under the
equity  method  at  December  31,  2006  and  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, we test
for  impairment  when events and circumstances indicate that the assets might be
impaired  and  the  carrying  value  of those assets may not be recoverable.  At
December 31, 2006, we determined that certain territory and trademark agreements
had  carrying  values in excess of their fair values, and recorded an additional
$209,700 in amortization expense to reduce their carrying value to zero.  We are
also  amortizing  the capitalized cost of obtaining our credit facility, for the
additional  collateral  required  and  evidenced by a warrant to purchase 50,000
shares  of  our common stock.  We estimated this cost at February 26, 2003 to be
$30,000,  and  are  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 -  We assume the deductibility of certain costs in income tax
filings  and  estimate  the  recovery  of  deferred  income  tax  assets.

     Stock  Options  -  Through  December 31, 2005, we accounted for stock-based
compensation  issued  to  our  employees  and  directors  in accordance with APB
Opinion  No.  25,  "Accounting  for Stock Issued to Employees."  Accordingly, no
compensation cost was recognized through that period 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 G. Nicholson, which is explained
further  in  Note 7, "Commitments and Contingencies".  The fair value of options
granted  was  determined  using  the  Black-Scholes  option  pricing  model.  In
December  2004,  SFAS  No.  123R,  "Accounting for Stock-Based Compensation" was
issued  and  changed  the accounting for transactions in which an entity obtains
employee  services  in  a  share-based  payment transaction.  For Small Business
issuers  such as us, 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 is reflected in the current year by the expensing
of  existing  stock  options  granted  in 2004 that vest through 2006 to current
optionees,  and  options  granted in the current period to directors for a board
meeting.

     New  Accounting  Standards  -  The Financial Accounting Standards Board, or
FASB,  has issued the following new accounting and interpretations, which may be
applicable  in  the  future  to  us:

     In  February  2006,  the  FASB issued SFAS No. 155, "Accounting for Certain
Hybrid  Financial  Instruments-an amendment of FASB Statements No. 133 and 140",
which amends FASB Statements No. 133, "Accounting for Derivative Instruments and
Hedging  Activities",  and  No.  140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", and clarifies valuation of
certain  financial  instruments  and  derivatives  to  a  fair-value  method  of
valuation.  The Statement is effective for all financial instruments acquired or
issued  after  the  beginning of an entity's first fiscal year that begins after
September  15, 2006.  We do not expect the application of the provisions of SFAS
No.  155  to  have  a  material  impact  on  our  financial position, results of
operations  or  cash  flows.

     In  March  2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial  Assets-an  amendment  of  FASB  Statement No. 140", which amends FASB
Statement  No.  140, "Accounting for Transfers and Servicing of Financial Assets
and  Extinguishments  of  Liabilities",  with  respect  to  the  accounting  for
separately  recognized  servicing  assets  and  servicing  liabilities.  This
statement  requires  that  all  separately recognized mortgage-related servicing
assets  and  servicing  liabilities  be  initially  measured  at  fair value, if
practicable.  The  Statement  is  effective  as  of the beginning of a company's
first  fiscal  year  that begins after September 15, 2006.  We do not expect the
application  of  the provisions of SFAS No. 156 to have a material impact on our
financial  position,  results  of  operations  or  cash  flows.

     In  June  2006,  the Financial Accounting Standards Board issued Accounting
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes  - an
Interpretation  of  FASB  Statement No. 109", which clarifies the accounting for
uncertainty  in  income taxes recognized in an enterprise's financial statements
in  accordance  with  FASB Statement No. 109, Accounting for Income Taxes.  This
Interpretation  prescribes a recognition threshold and measurement attribute for
the  financial  statement recognition and measurement of a tax position taken or
expected  to  be  taken  in  a  tax  return.  This  Interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim  periods,  disclosure,  and transition.  The Interpretation is effective
for  fiscal  years  beginning  after  December  15,  2006.  We do not expect the
application of the provisions of Interpretation No. 48 to have a material impact
on  our  financial  position,  results  of  operations  or  cash  flows.

     In  September  2006,  the  Financial  Accounting  Standards  Board  issued
Statement  of  Accounting  Standards  No.  157, "Fair Value Measurements", which
provides  enhanced  guidance  for  using  fair  value  to  measure  assets  and
liabilities,  and  also responds to investors' requests for expanded information
about  the  extent  to  which  companies  measure assets and liabilities at fair
value,  the information used to measure fair value, and the effect of fair value
measurements  on  earnings.  The  Statement  applies  whenever  other  standards
require (or permit) assets or liabilities to be measured at fair value, but does
not  expand  the  use  of fair value in any new circumstances.  The Statement is
effective  for  fiscal  years  beginning  after  November  15, 2007, and interim
periods  within  those  fiscal  years.  We  do not expect the application of the
provisions  of  Standard  No.  157  to  have  a material impact on our financial
position,  results  of  operations  or  cash  flows.

     In  September  2006,  the  Financial  Accounting  Standards  Board  issued
Statement  of  Accounting  Standards No. 158, "Employers' Accounting for Defined
Benefit  Pension  and  Other  Postretirement Plans", and is an amendment to FASB
Statements  No. 87, 88, 106 and 132R. This Statement requires employers to fully
recognize  the  obligations  associated  with  single-employer  defined  benefit
pension,  retiree  health care and other postretirement plans in their financial
statements.  The standard will make it easier for investors, employees, retirees
and  others  to  understand  and assess an employer's financial position and its
ability  to fulfill the obligations under its benefit plans, and applies to plan
sponsors  that  are  public  and  private  companies  and  nongovernmental
not-for-profit  organizations. A requirement to recognize the funded status of a
benefit  plan  and the disclosure requirements is effective as of the end of the
fiscal  year  ending  after December 15, 2006, for entities with publicly traded
equity securities, and at the end of the fiscal year ending after June 15, 2007,
for  all  other  entities.  A  requirement  to  measure  plan assets and benefit
obligations  as  of  the  date  of  the  employer's fiscal year-end statement of
financial position is effective for fiscal years ending after December 15, 2008.
We do not expect the application of the provisions of Standard No. 158 to have a
material  impact on our financial position, results of operations or cash flows.

     In February 2007, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities - including an amendment of FASB Statement No. 115".  This
Statement  permits  entities to choose to measure many financial instruments and
certain  other  items  at  fair  value.  The  objective  is to improve financial
reporting  by  providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without  having  to  apply  complex hedge accounting provisions.  This Statement
applies to all entities, including not-for-profit organizations, and most of the
provisions  apply  only  to  entities  that  elect  the fair value option.  This
Statement is effective as of the beginning of an entity's first fiscal year that
begins after November 15, 2007.  Early adoption is permitted as of the beginning
of a fiscal year that begins on or before November 15, 2007, provided the entity
also  elects  to  apply  the  provisions  of FASB Statement No. 157, "Fair Value
Measurements."  No  entity  is permitted to apply this Statement retrospectively
to  fiscal  years  preceding  the effective date unless the entity chooses early
adoption.  The  choice  to  adopt  early  should  be made after issuance of this
Statement  but  within 120 days of the beginning of the fiscal year of adoption,
provided  the entity has not yet issued financial statements, including required
notes  to  those financial statements, for any interim period of the fiscal year
of  adoption.  We  do  not expect to adopt the provisions of Standard No. 159 at
this  time.

     Actual  results  could differ materially from the estimates and assumptions
that  we  use  in  the  preparation  of  our  financial  statements.

RISK  FACTORS

WE HAVE A HISTORY OF LOSSES AND THERE CAN BE NO ASSURANCES REGARDING IF AND WHEN
WE  WILL  AGAIN  GENERATE  POSITIVE  EARNINGS.

     During  2005  and  2006,  we  experienced  losses  and we have not yet been
consistently profitable on an annual basis.  We believe this is primarily due to
maintaining  existing  sources  of  revenue,  anticipated  new  revenues  not
materializing at a rate budgeted, and, much higher than planned expenditures for
stock-related  fees and compensation, legal costs surrounding litigation and the
direct  time of management, staff and our Board in dealing with this litigation.
Therefore,  our  overall  gross profit has been reduced and our selling, general
and administrative costs have been increased, both contributing significantly to
the overall losses that we have incurred.  If these trends continue, such losses
may  continue  to  occur,  unless  we  are able to continue to make cost cutting
measures, including improvements to the gross profit of the business.  There can
be  no  assurance  if  and  when  we  will  return  to  profitability.

COMPLIANCE  WITH ENVIRONMENTAL LAWS AND REGULATIONS MAY REDUCE, DELAY OR PREVENT
OUR  REALIZATION  OF  LICENSE  REVENUES.

     Our  licensees  and  their  operations  are  subject to increasingly strict
environmental laws and regulations, including laws and regulations governing the
emission,  discharge,  disposal  and  transportation  of  certain substances and
related  odor.  Wastewater  treatment  plants  and  other  plants  at  which our
biosolids  products or processes may be implemented are usually required to have
permits,  registrations and/or approvals from state and/or local governments for
the  operation  of  such  facilities.  Some of our licensee's facilities require
air,  wastewater,  storm  water,  biosolids  processing,  use or siting permits,
registrations  or  approvals.  These  licensees  may  not be able to maintain or
renew  their  current  permits  or  registrations  or  to  obtain new permits or
registrations.  The  process  of obtaining a required permit or registration can
be lengthy and expensive.  They may not be able to meet applicable regulatory or
permit  requirements,  and therefore may be subject to related legal or judicial
proceedings  that  could  have a materially adverse effect on our income derived
from  these  licensees.

     Any  of  the  permits,  registrations  or approvals noted above, or related
applications  may be subject to denial, revocation or modification, or challenge
by  a  third  party,  under  various  circumstances.  In  addition,  if  new
environmental  legislation or regulations are enacted or existing legislation or
regulations  are  amended  or  are  enforced differently, these licensees may be
required  to  obtain  additional,  or  modify  existing,  operating  permits,
registrations  or  approvals.

     Maintaining,  modifying  or  renewing  current  permits or registrations or
obtaining  new  permits  or registrations after new environmental legislation or
regulations  are  enacted  or existing legislation or regulations are amended or
enforced  differently may be subject to public opposition or challenge.  Much of
this  public opposition and challenge, as well as related complaints, relates to
odor  issues,  even  when our licensees are in compliance with odor requirements
and  even  though  the  licensees  have  worked hard to minimize odor from their
operations.  Public misperceptions about the business and any related odor could
influence  the governmental process for issuing such permits or registrations or
for  responding  to  any  such public opposition or challenge.  Community groups
could  pressure  local municipalities or state governments to implement laws and
regulations  which  could increase our licensees' costs of their operations that
in  turn  could have a material and adverse effect on our business and financial
condition.

OUR  ABILITY  TO GROW OUR REVENUES AND OPERATIONS MAY BE LIMITED BY COMPETITION.

     We  provide  a variety of technology and services relating to the treatment
of  wastewater  residuals.  We are in direct and indirect competition with other
businesses  that  provide  some  or  all of the same services including regional
residuals  management  companies  and  national  and  international  water  and
wastewater  operations/privatization  companies, technology suppliers, municipal
solid  waste  companies  and  farming operations.  Many of these competitors are
larger  and  have  significantly  greater  capital  resources.

     We derive a substantial portion of our revenue from services provided under
municipal  contracts,  and many of these are subject to competitive bidding.  We
also  intend  to  bid on additional municipal contracts, however, and may not be
the  successful  bidder.  In  addition, some of our contracts will expire in the
future  and  those  contracts  may  not  be  renewed  or  may be renewed on less
attractive  terms.  If  we  are not able to replace revenues from contracts lost
through competitive bidding or from the renegotiation of existing contracts with
other  revenues  within  a reasonable time period, the lost revenue could have a
material  and adverse effect on our business, financial condition and results of
operation.

OUR  CUSTOMER CONTRACTS MAY BE TERMINATED PRIOR TO THE EXPIRATION OF THEIR TERM.

     A  substantial  portion  of  our  revenue is derived from services provided
under  contracts  and  agreements  with  existing  licensees.  Some  of  these
contracts,  especially  those  contracts  with large municipalities, provide for
termination  of  the contract by the customer after giving relative short notice
(in  some  cases  as  little as ten days).  In addition, some of these contracts
contain  liquidated  damages clauses, which may or may not be enforceable in the
event  of early termination of the contracts.  If one or more of these contracts
are  terminated  prior  to  the  expiration  of its term, and we are not able to
replace  revenues  from  the  terminated  contract or receive liquidated damages
pursuant  to  the  terms of the contract, the lost revenue could have a material
and  adverse  effect  on  our  business,  financial  condition  and  results  of
operations.

A SIGNIFICANT AMOUNT OF OUR BUSINESS COMES FROM A LIMITED NUMBER OF CUSTOMERS
AND OUR REVENUE AND PROFITS COULD DECREASE SIGNIFICANTLY IF WE LOST ONE OR MORE
OF THEM AS CUSTOMERS.

     Our  business  depends  on  provision  of  services  to a limited number of
customers.  One  or  more  of  these customers may stop contracting for services
from us or may substantially reduce the amount of services we provide them.  Any
cancellation, deferral or significant reduction in the services we provide these
principal customers or a significant number of smaller customers could seriously
harm  our  business  and  financial condition.  For the years ended December 31,
2006  and  2005,  our  single  largest  customer  accounted for approximately 47
percent  and  37  percent,  respectively,  of  our  revenues  and  our top three
customers  accounted  for approximately 68 percent and 62 percent, respectively,
of  our  revenues.

WE  ARE  AFFECTED  BY  UNUSUALLY  ADVERSE  WEATHER  CONDITIONS.

     Our  business  is  adversely  affected  by  unusual  weather conditions and
unseasonably  heavy  rainfall  which  can temporarily reduce the availability of
land  application  sites  in  close  proximity  to our operations.  In addition,
revenues  and  operational  results  are  adversely  affected  during  months of
inclement  weather  which  limits  the  level  of  land  application that can be
performed.  Long  periods  of  adverse  weather  could  have a material negative
effect  on  our  business  and  financial  condition.

FUEL  COST  VARIATION COULD ADVERSELY AFFECT OUR OPERATING RESULTS AND EXPENSES.

     The  price  and  supply  of  fuel  is unpredictable and fluctuates based on
events  outside  our  control, including demand for oil and gas, actions by OPEC
and  other  oil  and gas producers, and war in oil producing countries.  Because
fuel  is  needed  for  the  trucks  that  transport the processing materials and
supplies  for  our  customers,  price escalations or reductions in the supply of
fuel could increase operating expenses and have a negative impact on the results
of  operations.  We  are  not  always  able  to  pass through all or part of the
increased  fuel  costs  due to the terms of certain customers' contracts and the
inability  to  negotiate  such  pass  through  costs  in  a  timely  manner.

WE  ARE HIGHLY DEPENDENT ON THE SERVICES OF OUR MANAGEMENT TEAM, THE LOSS OF ANY
OF  WHOM  MAY  HAVE  A  MATERIAL  ADVERSE  EFFECT  ON OUR BUSINESS AND FINANCIAL
CONDITION.

     We are highly dependent on the services of our management team, the loss of
any  of  whom  may  have a material adverse effect on our business and financial
condition.

     We  have  entered  into  employment  agreements with certain members of our
management  team,  which  contain non-compete and other provisions.  The laws of
each  state  differ concerning the enforceability of non-competition agreements.
We  cannot  predict  with  certainty  whether  or  not  a  court  will enforce a
non-compete covenant in any given situation based on the facts and circumstances
at that time.  If one of our key executive officers were to leave our employ and
the  courts  refused to enforce the non-compete covenant, we might be subject to
increased  competition,  which  could  have a material and adverse effect on our
business  and  financial  condition.

OUR  INTELLECTUAL  PROPERTY  MAY  BE  MISAPPROPRIATED  OR  SUBJECT  TO CLAIMS OF
INFRINGEMENT.

     We  attempt  to  protect  our  intellectual  property  rights  through  a
combination  of  patent,  trademark, and trade secret laws, as well as licensing
agreements.  Our  failure  to  obtain  or  maintain  adequate  protection of our
intellectual property rights for any reason could have a material adverse effect
on  our  business  and  financial  condition.

     Our competitors, many of whom have substantially greater resources and have
made  substantial investments in competing technologies, may have applied for or
obtained,  or may in the future apply for and obtain, patents that will prevent,
limit  or  otherwise  interfere with our ability to offer services.  We have not
conducted  an  independent  review  of  patents  issued  to  third  parties.

     We  also  rely  on  unpatented proprietary technology.  It is possible that
others  will  independently  develop the same or similar technology or otherwise
obtain  access  to  our unpatented technology.  If we are unable to maintain the
proprietary  nature  of  our  technologies,  we  could  be  materially adversely
affected.


<PAGE>

ITEM  7.          FINANCIAL  STATEMENTS




                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

<S>                                                      <C>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  F-1

FINANCIAL STATEMENTS
  CONSOLIDATED BALANCE SHEETS                            F-2 - F-3
  CONSOLIDATED STATEMENTS OF OPERATIONS                  F-4
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        F-5
  CONSOLIDATED STATEMENTS OF CASH FLOWS                  F-6
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS             F-7 - F-28

</TABLE>


<PAGE>



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
N-Viro International Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  N-Viro
International Corporation (a Delaware entity), as of December 31, 2006 and 2005,
and the related consolidated statements of operations, stockholders' equity, and
cash  flows for the two year period ended December 31, 2006.  These consolidated
financial  statements  are  the responsibility of the Company's management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements  based  on  our  audits.

We  conducted  our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial  statements  are  free  of  material  misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal  control  over financial reporting. Our audit included consideration of
internal  control  over  financial  reporting  as  a  basis  for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing  an  opinion  on  the effectiveness of the company's internal control
over  financial  reporting.  Accordingly,  we express no such opinion.  An audit
also  includes  examining,  on a test basis, evidence supporting the amounts and
disclosures  in  the consolidated financial statements, assessing the accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating  the  overall  financial  statement presentation. We believe that our
audits  provide  a  reasonable  basis  for  our  opinion.

In  our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of N-Viro International
Corporation  as of December 31, 2006 and 2005, and the results of its operations
and  its  cash  flows  for  the  two  year  period  ended  December 31, 2006, in
conformity with accounting principles generally accepted in the United States of
America.




 /s/  UHY LLP
-------------
UHY LLP
Southfield, Michigan

April 2, 2007


<PAGE>



<TABLE>
<CAPTION>

                        N-VIRO INTERNATIONAL CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2006 and 2005
                           --------------------------


                                      2006        2005
                                   ----------  ----------
<S>                                <C>         <C>
ASSETS
---------------------------------

CURRENT ASSETS
Cash and cash equivalents:
Unrestricted                       $  162,633  $  224,447
Restricted                            131,498     128,133
Trade Receivables, net                667,617     600,180
Prepaid expenses and other assets     250,590     204,360
                                   ----------  ----------
Total current assets                1,212,338   1,157,120

PROPERTY AND EQUIPMENT, NET           931,820     382,085

INTANGIBLE AND OTHER ASSETS, NET      801,972   1,037,693
                                   ----------  ----------


                                   $2,946,130  $2,576,898
                                   ==========  ==========
</TABLE>







   The accompanying notes are an integral part of these financial statements.

<PAGE>


<TABLE>
<CAPTION>

                              N-VIRO INTERNATIONAL CORPORATION

                                 CONSOLIDATED BALANCE SHEETS

                                 December 31, 2006 and 2005
                                 --------------------------





                                                                    2006           2005
                                                                -------------  -------------
<S>                                                             <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------

CURRENT LIABILITIES
Current maturities of long-term debt                            $    106,673   $     80,860
Line-of-credit                                                       205,000         80,000
Accounts payable                                                   1,048,094        833,447
Accrued liabilities                                                  202,295        204,109
                                                                -------------  -------------
Total current liabilities                                          1,562,062      1,198,416

LONG-TERM DEBT, LESS CURRENT MATURITIES                              554,437         21,209
                                                                -------------  -------------

Total liabilities                                                  2,116,499      1,219,625

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized - 7,000,000 shares
Issued - 3,864,059 shares in 2006 and 3,814,059 shares in 2005        38,641         38,141
Preferred stock, $.01 par value
Authorized - 2,000,000 shares
Issued - -0- shares in 2006 and 2005                                       -              -
Additional paid-in capital                                        16,453,119     15,290,831
Accumulated deficit                                              (14,977,239)   (13,286,809)
                                                                -------------  -------------
                                                                   1,514,521      2,042,163

Less treasury stock, at cost, 123,500 shares                         684,890        684,890
                                                                -------------  -------------
Total stockholders' equity                                           829,631      1,357,273
                                                                -------------  -------------

                                                                $  2,946,130   $  2,576,898
                                                                =============  =============
</TABLE>





   The accompanying notes are an integral part of these financial statements.



<PAGE>


<TABLE>
<CAPTION>

                             N-VIRO INTERNATIONAL CORPORATION

                           CONSOLIDATED STATEMENTS OF OPERATIONS

                          Years Ended December 31, 2006 and 2005
                          --------------------------------------



                                                                     2006         2005
                                                                 ------------  -----------
<S>                                                              <C>           <C>
REVENUES                                                         $ 3,620,342   $4,184,424

COST OF REVENUES                                                   2,401,105    2,947,861
                                                                 ------------  -----------

GROSS PROFIT                                                       1,219,237    1,236,563

OPERATING EXPENSES
Selling, general and administrative                                2,885,046    1,418,684
Litigation settlement expense (income)                                     -      (14,000)
                                                                 ------------  -----------
                                                                   2,885,046    1,404,684
                                                                 ------------  -----------

                                                                  (1,665,809)    (168,121)

OTHER INCOME (EXPENSE)
Interest income                                                        9,440        6,440
Interest expense                                                     (17,992)     (26,950)
Loss on sale of assets                                               (16,069)      (6,335)
Loss from equity investment in joint venture                               -     (186,475)
Gain on legal debt forgiven                                                -      108,112
                                                                 ------------  -----------
                                                                     (24,621)    (105,208)
                                                                 ------------  -----------

LOSS BEFORE INCOME TAXES                                          (1,690,430)    (273,329)

Federal and state income taxes                                             -            -
                                                                 ------------  -----------

NET LOSS                                                         $(1,690,430)  $ (273,329)
                                                                 ============  ===========


Basic and diluted loss per share                                 $     (0.46)  $    (0.08)
                                                                 ============  ===========

Weighted average common shares outstanding - basic and diluted     3,713,470    3,542,088
                                                                 ============  ===========
</TABLE>



<PAGE>





   The accompanying notes are an integral part of these financial statements.

<PAGE>


<TABLE>
<CAPTION>

                                         N-VIRO INTERNATIONAL CORPORATION

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                      Years Ended December 31, 2006 and 2005


                                                             Additional
                                       shares of    Common     Paid-in     Accumulated    Treasury
                                      Common Stock   Stock     Capital       Deficit       Stock        Total
                                      ------------  -------  -----------  -------------  ----------  ------------
<S>                                   <C>           <C>      <C>          <C>            <C>         <C>
BALANCE JANUARY 1, 2005                  3,569,693  $35,697  $14,791,346  $(13,013,480)  $(684,890)  $ 1,128,673

Net loss                                         -        -            -      (273,329)          -      (273,329)
Issuance of common stock for options         2,000       20        2,980             -           -         3,000
Issuance of common stock                   242,366    2,424      476,377             -           -       478,801
Other                                            -        -       20,128             -           -        20,128
                                      ------------  -------  -----------  -------------  ----------  ------------

BALANCE DECEMBER 31, 2005                3,814,059   38,141   15,290,831   (13,286,809)   (684,890)    1,357,273

Net loss                                         -        -            -    (1,690,430)          -    (1,690,430)
Issuance of stock options                        -        -      632,251             -           -       632,251
Issuance of stock warrants                       -        -      329,112             -           -       329,112
Issuance of common stock                    50,000      500      200,925             -           -       201,425
                                      ------------  -------  -----------  -------------  ----------  ------------

BALANCE DECEMBER 31, 2006                3,864,059  $38,641  $16,453,119  $(14,977,239)  $(684,890)  $   829,631
                                      ============  =======  ===========  =============  ==========  ============
</TABLE>








   The accompanying notes are an integral part of these financial statements.

<PAGE>



<TABLE>
<CAPTION>

                             N-VIRO INTERNATIONAL CORPORATION

                          CONSOLIDATED STATEMENTS OF CASH FLOWS

                          Years Ended December 31, 2006 and 2005
                          --------------------------------------


                                                                     2006         2005
                                                                 ------------  ----------
<S>                                                              <C>           <C>
Cash Flows From Operating Activities
Net loss                                                         $(1,690,430)  $(273,329)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
  Depreciation and amortization                                      450,176     223,553
  Provision for bad debts                                            115,000      21,000
  Issuance of stock for debt and services                             55,125     391,300
  Issuance of stock options and warrants for services                857,663           -
  Loss on the sale of fixed assets                                    16,069       6,336
  Loss from investment in Florida N-Viro                                   -     186,475
Changes in Operating Assets and Liabilities
  Decrease (increase) in trade receivables                          (182,437)     28,046
  Decrease (increase) in prepaid expenses and other assets           169,286    (198,060)
  Increase (decrease) in accounts payable and accrued liabilities    202,832     (99,003)
                                                                 ------------  ----------
Net cash provided by (used in) operating activities                   (6,716)    286,318

Cash Flows From Investing Activities
Increases from restricted cash and cash equivalents                   (3,365)    (52,533)
Purchases of property and equipment                                 (682,820)   (105,348)
Expenditures for intangible assets                                   (62,755)          -
Proceeds from sale of property and equipment                           9,800       1,139
Collections on notes receivable                                            -      43,768
                                                                 ------------  ----------
Net cash used in investing activities                               (739,140)   (112,974)

Cash Flows From Financing Activities
Net borrowings (repayments) on line-of-credit                        125,000    (120,000)
Borrowings under long-term obligations                               759,309           -
Principal payments on long-term obligations                         (200,267)   (103,266)
Issuance of common stock                                                   -     130,000
Expenditures for private placement of stock                                -      (3,180)
                                                                 ------------  ----------
Net cash provided by (used in) financing activities                  684,042     (96,446)
                                                                 ------------  ----------

Net Increase (Decrease) in Cash and Cash Equivalents                 (61,814)     76,898

Cash and Cash Equivalents - Beginning                                224,447     147,549
                                                                 ------------  ----------

Cash and Cash Equivalents - Ending                               $   162,633   $ 224,447
                                                                 ============  ==========

Supplemental disclosure of cash flows information:
Cash paid during the year for interest                           $    23,783   $  38,240
                                                                 ============  ==========
</TABLE>




   The accompanying notes are an integral part of these financial statements.

<PAGE>


                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

NOTE 1.     OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  following  is  a  summary  of  certain  accounting policies followed in the
preparation  of  these  financial statements.  The policies conform to generally
accepted  accounting  principles  and  have  been  consistently  applied  in the
preparation  of  the  financial  statements:

A.     Nature  of Business - The Company owns and licenses the N-Viro Process, a
patented  technology  to  treat  and  recycle  wastewater  sledges  and  other
bio-organic  wastes,  utilizing  certain  alkaline  by-products  produced by the
cement,  lime, electric utilities and other industries.  Revenue and the related
accounts  receivable  are  due  from  companies  acting as independent agents or
licensees,  principally  municipalities.  Credit  is  generally  granted  on  an
unsecured  basis.  Periodic  credit  evaluations  of customers are conducted and
appropriate  allowances  are  established.

B.     Use  of Estimates - The preparation of financial statements in conformity
with  accounting  principles  generally accepted in the United States of America
requires  management  to make estimates and assumptions that affect the reported
amounts  of  assets  and  liabilities  and  disclosure  of contingent assets and
liabilities  as of the date of the financial statements and the reported amounts
of  revenues  and  expenses  during  the reporting period.  Actual results could
differ  from  those  estimates.

C.  Principles  of Consolidation - The consolidated financial statements include
the  accounts  of the Company and its wholly-owned subsidiaries. All significant
intercompany  accounts  and  transactions have been eliminated in consolidation.
Although  the  acquisition of the remaining ownership interest in Florida N-Viro
occurred  on  December 28, 2006, the effective date occurs at midnight, December
31,  2006.  The  consolidated  balance  sheet  at December 31, 2006 includes the
acquisition  of  Florida  N-Viro  as  of  the  effective  date.

D.  The  Company accounts for its investment in a joint venture under the equity
method.  The  Company  periodically  evaluates  the recoverability of its equity
investments  in accordance with 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  December  31,  2005.

E.     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  Statement  of Financial Accounting Standards
("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.

F.     Cash  and  Cash  Equivalents  -  The  Company  has cash on deposit in one
financial  institution  which,  at  times,  may  be  in excess of FDIC insurance
limits.

     For  purposes  of  the  statements of cash flows, the Company considers all
certificates  of  deposit  with initial maturities of 90 days or less to be cash
equivalents.

     Restricted  cash  consists of two certificates of deposit and corresponding
accrued  interest  which  are  held  as  collateral  against  the  Company's
line-of-credit  as  of  December  31,  2006.

G.     Accounts  receivable  - The Company extends unsecured credit to customers
under  normal  trade agreements, which require payment within 30 days.  Accounts
greater than 90 days past due amounted to $72,774 and $56,467 of net receivables
for  the  years  ended  December 31, 2006 and 2005, respectively.  The Company's
policy  is  not  to  accrue  and  record  interest  income  on  past  due  trade
receivables.  The  Company  does  bill  the customer finance charges on past due
accounts  and  records  the  interest  income  when  collected.

<PAGE>

                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

NOTE  1.     OPERATIONS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

     Management estimates an allowance for doubtful accounts, which was $170,000
and  $55,000  as  of  December 31, 2006 and 2005, respectively.  The estimate is
based  upon  management's review of delinquent accounts and an assessment of the
Company's  historical  evidence  of  collections.

H.     Property  and Equipment - Property, machinery and equipment are stated at
cost less accumulated depreciation.  Depreciation has been computed primarily by
the  straight-line  method  over  the  estimated  useful  lives  of  the assets.
Generally,  useful  lives are five to fifteen years.  Leasehold improvements are
capitalized  and  amortized  over  the  lesser  of  the life of the lease or the
estimated  useful  life of the asset.  Depreciation expense amounted to $107,215
and  $79,636  in  2006 and 2005, respectively.  Management has reviewed property
and  equipment  for  impairment  when events and circumstances indicate that the
assets  might  be  impaired  and  the carrying values of those assets may not be
recoverable.  Management believes the carrying amount is not impaired based upon
estimated  future  cash  flows.

I.  Intangible  Assets  - Patent costs and territory rights are recorded at cost
and then amortized by the straight-line method over their estimated useful lives
(periods  ranging  from  four  to seventeen years; weighted-average amortization
periods  for patents/related intangibles and territory rights were 15.2 and 14.7
years  at  December  31,  2005  and  2004,  respectively).  Amortization expense
amounted  to  $342,961  and  $143,917  in 2006 and 2005, respectively; estimated
amortization  expense, based on intangible assets at December 31, 2006, for each
of  the ensuing five years is as follows: 2007 - $86,000; 2008 - $81,000; 2009 -
$74,000;  2010  -  $70,000;  2011  - $67,000. Management has reviewed intangible
assets  for  impairment  when  events and circumstances indicate that the assets
might  be  impaired  and  the  carrying  values  of  those  assets  may  not  be
recoverable.  At  December 31, 2006, management believed the carrying amount was
impaired on intangible assets with a cost basis of $428,989 and a carrying value
of  $209,078,  based  upon  estimated  future  cash flows. The intangible assets
impaired  were  territory  fees and trademark agreements capitalized and written
off  over  periods  ranging from 11 to 15 years, covering agreements in domestic
and  foreign  territories.  The  revenue  derived or expected to be derived from
those  agreements has decreased significantly in the current year. Subsequently,
the  Company  wrote  down  those  intangible assets to a zero carrying value and
recorded  a  charge  to  amortization  expense,  which  is included in operating
expenses,  for  $209,078. In accordance with SFAS No. 142, the Company tests for
impairment  annually.

     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.  Amortization expense amounted to $7,500 in
2006  and  2005;  estimated  amortization  expense  for the last year in 2007 is
$795.

     The Company has capitalized the cost of acquiring certain customer licenses
and contracts as part of the acquisition of Florida N-Viro on December 31, 2006.
No  amortization  was  taken in 2006, but the Company estimates its amortization
expense,  based  on  intangible  assets  at  December  31, 2006 owned by Florida
N-Viro, for each of the ensuing five years is as follows:  2007 - $27,000;  2008
-  $14,000:  2009  -  $7,000;  2010  -  $6,000;  2011  -  $2,000.

J.     Revenue  Recognition  -  Facility  management  revenue, sludge processing
revenue  and  royalty  fees  are recognized under contracts where the Company or
licensees  utilize  the  N-Viro  Process  to  treat sludge, either pursuant to a
fixed-price  contract  or  based  on  volumes  of  sludge processed.  Revenue is
recognized  as  services  are  performed.

          Alkaline  admixture  sales,  alkaline  admixture  management  service
revenue,  equipment  sales and N-Viro Soil revenue are recognized upon shipment.

          License  and  territory  fees  are  generated  by selling the right to
market or use the N-Viro Process in a specified territory.  The Company's policy
is  to  record  revenue  for  the  license agreements when all material services
relating to the revenue have been substantially performed, conditions related to
the  contract  have  been met and no material contingencies exist.  Research and
development  revenue  is  recognized  as  work  is  performed  and billed to the
contracting  entity  in  accordance  with  the  contract.

<PAGE>


NOTE  1.     OPERATIONS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

          The  Company  records the amount of shipping and handling costs billed
to  customers  as revenue.  The cost incurred for shipping and handling has been
included  in  the  cost  of  sales.

K.     Loss  Per  Common  Share - Loss per common share has been computed on the
basis  of  the  weighted-average number of common shares outstanding during each
period  presented.  For  the years ended December 31, 2006 and 2005, the effects
of the stock options granted are excluded from the diluted per share calculation
because  they  would  be  antidilutive.

L.      Stock Options - For 2006, the Company followed the disclosure provisions
of  SFAS  Statements  No.  123R  and  No. 148 which prescribe a fair-value based
method  of  measurement  that results in the disclosure of computed compensation
costs for essentially all awards of stock-based compensation to employees.  SFAS
Statement No. 123R became effective for the Company at January 1, 2006.  Through
December  31,  2005,  as  then  permitted  under accounting principles generally
accepted  in the United States of America, the Company's accounting with respect
to  the  recognition  and measurement of stock-based employee compensation costs
was  in  accordance  with  APB  Opinion  No.  25,  which generally required that
compensation  costs be recognized for the difference, if any, between the quoted
market  price  of the stock at grant date and the amount an employee must pay to
acquire the stock.  No compensation cost was recognized under APB No. 25 for the
year  ended  December  31,  2005.


<TABLE>
<CAPTION>


                                                 2006         2005
                                             ------------  ----------
<S>                                          <C>           <C>
Loss from continuing operations:

Net loss as reported                         $(1,690,430)  $(273,329)

Deduct: Total stock-based employee
  compensation expense determined under
  fair value based method for all awards, net
  of related tax effects                               -     179,045
                                             ------------  ----------
Pro-forma net loss                            (1,690,430)   (452,374)

Loss from continuing operations per
  share (basic and diluted):

   As reported                               $     (0.46)  $   (0.08)
   Pro-forma                                 $     (0.46)  $   (0.13)
</TABLE>


In determining the pro forma amounts above, the value of each grant is estimated
at  the  grant date using the fair value method prescribed in Statement No. 123,
with  the following weighted-average assumptions for grants in 2005:  no assumed
dividend  rates; risk-free interest rates of 4.4% on expected lives of either 10
years  or  5  years; and, expected price volatility averaging 132% on the 5 year
options  and  174%  on  the  10  year  options.

M.  New  Accounting Standards - In December 2004, SFAS No. 123R, "Accounting for
Stock-Based  Compensation", was revised in December 2004.  This 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
affected  our financial condition and results of operations for the current year
as  follows:  as reflected by the expensing of existing stock options granted in
2004  that vest through 2006 to current optionees for $29,740; additional grants
to  employee-officers  at the end of 2006 for $491,600;  2006 options granted to
directors  for  board  meetings for $89,690.  The Company is uncertain as to any
future grants in the current year to employees or others that may be approved by
the  Board.

<PAGE>


                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

NOTE  1.     OPERATIONS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

     In  February  2006,  the  FASB issued SFAS No. 155, "Accounting for Certain
Hybrid  Financial  Instruments-an amendment of FASB Statements No. 133 and 140",
which amends FASB Statements No. 133, "Accounting for Derivative Instruments and
Hedging  Activities",  and  No.  140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", and clarifies valuation of
certain  financial  instruments  and  derivatives  to  a  fair-value  method  of
valuation.  The Statement is effective for all financial instruments acquired or
issued  after  the  beginning of an entity's first fiscal year that begins after
September  15,  2006.  The  Company  does  not  expect  the  application  of the
provisions  of SFAS No. 155 to have a material impact on its financial position,
results  of  operations  or  cash  flows

     In  March  2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial  Assets-an  amendment  of  FASB  Statement No. 140", which amends FASB
Statement  No.  140, "Accounting for Transfers and Servicing of Financial Assets
and  Extinguishments  of  Liabilities",  with  respect  to  the  accounting  for
separately  recognized  servicing  assets  and  servicing  liabilities.  This
statement  requires  that  all  separately recognized mortgage-related servicing
assets  and  servicing  liabilities  be  initially  measured  at  fair value, if
practicable.  The  Statement  is  effective  as  of the beginning of a company's
first  fiscal  year  that begins after September 15, 2006.  The Company does not
expect  the  application  of  the  provisions of SFAS No. 156 to have a material
impact  on  its  financial  position,  results  of  operations  or  cash  flows.

     In  June  2006,  the Financial Accounting Standards Board issued Accounting
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes  - an
interpretation  of  FASB  Statement No. 109", which clarifies the accounting for
uncertainty  in  income taxes recognized in an enterprise's financial statements
in  accordance  with  FASB Statement No. 109, Accounting for Income Taxes.  This
Interpretation  prescribes a recognition threshold and measurement attribute for
the  financial  statement recognition and measurement of a tax position taken or
expected  to  be  taken  in  a  tax  return.  This  Interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim  periods,  disclosure,  and transition.  The Interpretation is effective
for fiscal years beginning after December 15, 2006.  The Company does not expect
the  application  of  the provisions of Interpretation No. 48 to have a material
impact  on  its  financial  position,  results  of  operations  or  cash  flows.

     In  September  2006,  the  Financial  Accounting  Standards  Board  issued
Statement  of  Accounting  Standards  No.  157, "Fair Value Measurements", which
provides  enhanced  guidance  for  using  fair  value  to  measure  assets  and
liabilities,  and  also responds to investors' requests for expanded information
about  the  extent  to  which  companies  measure assets and liabilities at fair
value,  the information used to measure fair value, and the effect of fair value
measurements  on  earnings.  The  Statement  applies  whenever  other  standards
require (or permit) assets or liabilities to be measured at fair value, but does
not  expand  the  use  of fair value in any new circumstances.  The Statement is
effective  for  fiscal  years  beginning  after  November  15, 2007, and interim
periods  within those fiscal years.  The Company does not expect the application
of  the  provisions  of  SFAS No. 157 to have a material impact on its financial
position,  results  of  operations  or  cash  flows.

     In  September  2006,  the  Financial  Accounting  Standards  Board  issued
Statement  of  Accounting  Standards No. 158, "Employers' Accounting for Defined
Benefit  Pension  and  Other  Postretirement Plans", and is an amendment to FASB
Statements No. 87, 88, 106 and 132R.  This Statement requires employers to fully
recognize  the  obligations  associated  with  single-employer  defined  benefit
pension,  retiree  healthcare  and other postretirement plans in their financial
statements.  The standard will make it easier for investors, employees, retirees
and  others  to  understand  and assess an employer's financial position and its
ability  to fulfill the obligations under its benefit plans, and applies to plan
sponsors  that  are  public  and  private  companies  and  nongovernmental
not-for-profit organizations.  A requirement to recognize the funded status of a
benefit  plan  and the disclosure requirements is effective as of the end of the
fiscal  year  ending  after December 15, 2006, for entities with publicly traded
equity securities, and at the end of the fiscal year ending after June 15, 2007,
for  all  other  entities.  A  requirement  to  measure  plan assets and benefit
obligations  as  of  the  date  of  the  employer's fiscal year-end statement of
financial position is effective for fiscal years ending after December 15, 2008.
The  Company  does  not expect the application of the provisions of Standard No.
158  to  have a material impact on its financial position, results of operations
or  cash  flows.

     In February 2007, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities - including an amendment of FASB Statement No. 115".  This
Statement  permits  entities to choose to measure many financial instruments and
certain  other  items  at  fair  value.  The  objective  is to improve financial
reporting  by  providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without  having  to  apply  complex hedge accounting provisions.  This Statement
applies to all entities, including not-for-profit organizations, and most of the
provisions  apply  only  to  entities  that  elect  the fair value option.  This
Statement is effective as of the beginning of an entity's first fiscal year that
begins after November 15, 2007.  Early adoption is permitted as of the beginning
of a fiscal year that begins on or before November 15, 2007, provided the entity
also  elects  to  apply  the  provisions  of FASB Statement No. 157, "Fair Value
Measurements."  No  entity  is permitted to apply this Statement retrospectively
to  fiscal  years  preceding  the effective date unless the entity chooses early
adoption.  The  choice  to  adopt  early  should  be made after issuance of this
Statement  but  within 120 days of the beginning of the fiscal year of adoption,
provided  the entity has not yet issued financial statements, including required
notes  to  those financial statements, for any interim period of the fiscal year
of  adoption.  The  Company  does not expect to adopt the provisions of Standard
No.  159  at  this  time.

N.     Income  taxes  -  Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and  liabilities that will result in taxable or deductible amounts in the future
based  on  enacted  tax  laws  and  rates applicable to the periods in which the
differences  are  expected  to  affect taxable income.  Valuation allowances are
established  when necessary to reduce deferred tax assets to the amount expected
to  be  realized.  Income  tax  expense is the tax payable or refundable for the
current period plus or minus the change during the period in deferred tax assets
and  liabilities.


NOTE  2.     BALANCE  SHEET  DATA

PROPERTY  AND  EQUIPMENT  (AT  COST):



<TABLE>
<CAPTION>


                                                   2006       2005
                                                ----------  --------
<S>                                             <C>         <C>
Leasehold improvements                          $  110,000  $ 41,771
Equipment                                        1,331,139   844,060
Furniture, fixtures and computers                   73,488    76,756
                                                ----------  --------
                                                 1,514,627   962,587
Less accumulated depreciation and amortization     582,807   580,502
                                                ----------  --------

                                                $  931,820  $382,085
                                                ==========  ========
</TABLE>




NOTE  2.     BALANCE  SHEET  DATA  (CONTINUED)

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).  Through
December  28, 2006, the Company owned a 47.5% interest in the joint venture and,
as  described  in  Note 1, accounted 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
were  recorded  as  an  increase  to  the allowance against the Note Receivable,
through  November  2005,  when  the total losses matched the value of the Notes.
After  that  date,  the Company has not recorded any additional loss even though
Florida  N-Viro  continued to sustain losses, because of a lack of basis in this
investment.  The total loss recorded by Florida N-Viro in 2006 was $291,997.  Of
this,  the  Company  would  have  been  required to record 47.5% of the loss, or
$138,699,  but  recorded  $-0-.

Up  until  the acquisition date of December 28, 2006, an unsecured, 9.75% demand
note  receivable  totaling  $158,137 (including accrued interest of $38,137) and
two  unsecured,  prime  (stated by a local bank) plus  % demand notes receivable
totaling  $304,721 (including accrued interest of $74,721) were due from Florida
N-Viro, the Company's joint venture investee.  The notes due from Florida N-Viro
were  deemed  to be noncurrent by management in the accompanying balance sheets.
In  2006, no interest was received on the notes due from Florida N-Viro.  During
2006,  the  Company recorded an additional allowance of $39,453 for the interest
portion  of the notes receivable.  The Company's limited partner interest in the
joint  venture  and  the  value of the Notes due from the joint venture are both
reflected  at  a  $-0-  value  as  of  the  acquisition  date.

On  December  28, 2006, the Company entered into a Share Purchase Agreement (the
"Agreement")  with  VFL, pursuant to which the Company acquired VFL's membership
interests in Florida N-Viro L.P. and Florida N-Viro Management, LLC, the general
partner of Florida N-Viro L.P. The purchase price paid by the Company to VFL for
the  acquisition of the membership interests was $500,000, with $100,000 paid at
closing  and  the balance payable over ten years at 8% interest, pursuant to the
terms  of a promissory note delivered by the Company at closing. Pursuant to the
Purchase  Agreement,  the  payments on the Note will be offset first from annual
royalties  payable  by  VFL  to  the  Company  pursuant  to  an existing license
agreement  between the Company and VFL. Any remaining amounts due under the note
are payable in cash within thirty days after the end of the fiscal year, after a
yearly  accounting  is  agreed  to  between  the parties. In accordance with the
Agreement,  all  Notes  due  the  Company  from  Florida  N-Viro  are cancelled.

Condensed financial information of Florida N-Viro as of December 31, 2006 (after
the  Company's purchase of its remaining interest in Florida N-Viro) and 2005 is
as  follows:


<TABLE>
<CAPTION>


                           2006          2005
                       (unaudited)   (unaudited)
                       ------------  ------------
<S>                    <C>           <C>
Current assets         $    273,837  $   545,097
Long-term assets            377,258      300,673
                       ------------  ------------

                       $    651,095  $   845,770
                       ============  ============

Current liabilities    $    151,095  $ 1,796,705
Long-term liabilities             -            -
Member capital              500,000            -
Partners' deficit                 -     (950,935)
                       ------------  ------------

                       $    651,095  $   845,770
                       ============  ============
</TABLE>



<PAGE>

                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


NOTE  2.     BALANCE  SHEET  DATA  (CONTINUED)

INVESTMENT  IN  FLORIDA  N-VIRO,  L.P.  (CONTINUED):

<TABLE>
<CAPTION>

             Year Ended December 31,
            ------------------------
               2006          2005
           (unaudited)   (unaudited)
           ------------  ------------
<S>        <C>           <C>
Net sales  $ 1,336,383   $ 1,157,321
Net loss      (291,997)     (517,190)
</TABLE>


During  2006  and 2005, the Partnership's largest customer accounted for 25% and
23%,  respectively,  of  its  revenue.  Additionally,  during 2006 and 2005, the
Partnership's largest customers accounted for 83% (four customers) and 85% (four
customers)  of  total  revenue,  respectively.

Condensed  pro-forma  financial  information  on  Florida  N-Viro  as  of
dateYear2006Day31Month12December  31,  2006  and  2005,  assuming  the  Company
purchased  the  remaining ownership interest at dateYear2005Day1Month1January 1,
2005,  is  as  follows:


<TABLE>
<CAPTION>

                         Year Ended December 31,
                ---------------------------------------
                          2006                 2005
                       (unaudited)         (unaudited)
                -------------------------  ------------
<S>             <C>                        <C>
Revenues        $              4,956,725   $ 5,341,745

Net loss        $             (1,982,427)  $  (790,519)

Loss per share  $                  (0.53)  $     (0.22)
</TABLE>



INTANGIBLE  AND  OTHER  ASSETS:

In  September  2005,  we executed a Financial Public Relations Agreement, or the
Agreement,  with  Strategic  Asset  Management,  Inc.,  or  SAMI.  The  Company
appointed  SAMI  as  its  non-exclusive financial public relations counsel for a
term of two years from the date of the Agreement.  For its services, the Company
issued  SAMI  120,000  shares  of  the  Company's unregistered common stock, and
120,000  common stock purchase warrants to purchase an equal number of shares of
the  Company's  common  stock  at  an  exercise price of $1.84 per share.  Total
valuation of the services to be performed as part of the Agreement was estimated
to  be $321,800, to be amortized over the two year period.  The Company recorded
this amount as deferred costs, with the short-term portion in current assets and
the  long-term  portion  in  Intangibles  and  other  assets.

In  December 2006, the Company extended the Agreement for two years to September
2009,  and  in  consideration  issued  SAMI  an additional 100,000 shares of the
Company's  unregistered  common  stock.  Total  valuation  of  these  additional
services  to  be  performed  was  estimated to be $146,300, to be amortized from
January  2007  to September 2009.  Total consideration for the Agreement for the
entire  four  year  period  was  estimated  to  be  $468,100.

The  following  is  a  summary of intangible and other assets as of December 31:

<TABLE>
<CAPTION>

                                                               2006       2005
                                                             --------  ----------
<S>                                                          <C>       <C>
Patents and related intangibles, less accumulated
amortization (2006 - $594,019; 2005 - $656,453)              $400,216  $  597,441

Territory rights, less accumulated amortization
(2006 - $127,671; 2005 - $370,710)                            169,417     315,153

Customer List, less accumulated amortization
(2006 - $-0-; 2005 - n/a)                                      62,755           -

Deferred costs, less accumulated amortization
(2006 - $207,829; 2005 - $46,929)                             164,171     113,971

Loan costs, less accumulated amortization ($31,577 in 2006
and $23,340 in 2005)                                            1,373       9,610

Other                                                           4,040       1,518
                                                             --------  ----------

                                                             $801,972  $1,037,693
                                                             ========  ==========
</TABLE>

<PAGE>

                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


NOTE  2.     BALANCE  SHEET  DATA  (CONTINUED)


ACCRUED  LIABILITIES:

<TABLE>
<CAPTION>

                                         2006      2005
                                       --------  --------
<S>                                    <C>       <C>
Accrued payroll and employee benefits  $ 13,807  $ 16,420
Sales tax payable                       186,780   186,733
Interest payable                          1,708       956
                                       --------  --------

                                       $202,295  $204,109
                                       ========  ========
</TABLE>



NOTE 3.     PLEDGED ASSETS, LINE-OF-CREDIT AND LONG-TERM DEBT

The  Company  presently has a $695,000 credit facility with Monroe Bank + Trust,
or  the  Bank.  This senior debt credit facility is comprised of a $295,000 four
year  term  note  at 7.5% and a line of credit up to $400,000 at Prime (8.25% at
December  31,  2006)  plus 1.5% and secured by a first lien on all assets of the
Company.  Two  certificates  of  deposit  totaling  $131,498  (including accrued
interest)  from  the  Bank  are held as a condition of maintaining the facility.
The  Company  has currently renewed the line of credit through October 2007, and
is  not  in  violation  of  any  financial covenants.  At December 31, 2006, the
Company  had  $195,000  of  borrowing  capacity  under the credit facility.  The
amount  owed  on the term note as of December 31, 2006 was approximately $21,000
and  this  term  note  was  paid  in  full  in  March  2007.

Long-term debt at December 31, 2006 and 2005 is as follows:

<TABLE>
<CAPTION>

                           2006      2005
                         --------  --------
<S>                      <C>       <C>
Notes payable - bank     $261,110  $102,069
Note payable - VFL        400,000         -
                         --------  --------
                          661,110   102,069
Less current maturities   106,673    80,860
                         --------  --------

                         $554,437  $ 21,209
                         ========  ========
</TABLE>


In  the  third  quarter  and fourth quarters of 2006, the Company's wholly-owned
subsidiary,  Bio-Mineral  Transportation  LLC, borrowed a total of $259,309 from
the  Bank to purchase trucks and a trailers that were placed into service during
the  period.  A total of five term notes were issued, three at 8% for five years
and  two  at  9% for two years, and each secured by equipment.  The total amount
owed on the notes as of December 31, 2006 was approximately $240,000 and all are
expected  to  be  paid  in  full  by  July  2011.

On  December  28, 2006, the Company entered into a Share Purchase Agreement with
VFL  (see  Note  2).  The  purchase  price  paid  by  the Company to VFL for the
acquisition  of  the  membership  interests  was $500,000, with $100,000 paid at
closing  and  the balance payable over ten years at 8% interest, pursuant to the
terms  of a promissory note delivered by the Company at closing. Pursuant to the
Purchase  Agreement,  the  payments on the Note will be offset first from annual
royalties  payable  by  VFL  to  the  Company  pursuant  to  an existing license
agreement  between the Company and VFL. Any remaining amounts due under the note
are payable in cash within thirty days after the end of the fiscal year, after a
yearly  accounting  is  agreed  to  between  the  parties.

Aggregate  maturities  of long-term debt for the years ending December 31 are as
follows:  2007  -  $106,673;  2008  - $89,069;  2009 - $77,396;  2010 - $83,760;
2011  and  after  -  $304,212.


NOTE 4.     RELATED PARTY TRANSACTIONS

On  March  1, June 1, September 1 and December 1, 2006, the Company successively
issued  12,500  shares of unregistered common stock to Timothy R. Kasmoch, Chief
Executive  Officer,  pursuant to the terms of his employment agreement agreed to
in  February,  2006.  See  Note  7,  "Commitments  and  Contingencies".

During  the  year  ended December 31, 2006, the Company contracted for trucking,
repair  parts and labor for repair services with Gardenscape, a company that Mr.
Kasmoch  is  the President and CEO of.  The Company also paid certain members of
the Board, or their related companies, fees for consulting services.  These fees
were  exclusive  of  director  fees  and  expenses  paid for with cash and stock
options.

The  following  table  summarizes  these payments and the balance to each of any
monies  owed  as  of  December  31,  2006:

<TABLE>
<CAPTION>


Payee                Trucking, repairs and services   Consulting fees   Account payable balance at 12/31/06
-------------------  -------------------------------  ----------------  ------------------------------------
<S>                  <C>                              <C>               <C>
Gardenscape          $                        72,400  $              -  $                              8,040
R. Francis DiPrete                                 -             1,600                                   715
Daniel J. Haslinger                                -           118,000                                14,266
Terry J. Logan                                     -            54,765                                 3,149
Carl Richard                                       -            17,280                                   683
</TABLE>


<PAGE>


                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


NOTE 5.     EQUITY TRANSACTIONS

The  Company  has a stock option plan approved in May 2004 for directors and key
employees  under  which  1,000,000 shares of common stock may be issued.  Unless
otherwise  stated  in  the stock option agreement, options are 20% vested on the
date  of  grant, with the balance vesting 20% per year over the next four years,
except  for  directors  whose options vest immediately, but can not be exercised
until  six months from the date of grant.  Options were granted in 2006 and 2005
at  the  approximate  market value of the stock at date of grant.  Approximately
310,000  options were granted during 2006 that may be exercised immediately.  In
connection  with  the option grants to Timothy Kasmoch, CEO (250,000), and James
McHugh,  CFO  (50,000),  the  Board  of  Directors  adopted  a waiver of certain
provisions  of  the  plan which would otherwise limit the number of options that
any  participant  may  receive.  In  particular,  the  plan  provides  that  a
participant  may  not  receive  options  to  purchase more that 25,000 shares of
common stock during any calendar year.  The Board adopted a limited amendment of
these  limitations  in  order  to make the grants to Messrs. Kasmoch and McHugh.

In  May  2004,  50,000  stock  options  were granted to Mr. Michael G. Nicholson
pursuant  to  his employment agreement dated June 2003.  In the third quarter of
2004,  the  Company  and  Mr.  Nicholson renegotiated primarily the stock option
portion  of  the  employment  agreement,  and  changed the vesting of the 50,000
options  as well as the pricing.  This amended agreement states the first 30,000
options  are fully vested at an option price of $0.90, and the balance of 20,000
options vest on the third and fourth anniversary of the original agreement, June
6,  2005 and 2006, but priced at $1.95.  Because these options were priced lower
than  the  fair  market  value  as of the amended agreement date, the Company is
taking a charge to earnings totaling approximately $68,400 ratably through June,
2007,  the ending date of his employment agreement.  This charge was $21,221 for
the  years  ended  December  31,  2006  and  2005.

There  were  no  stock options exercised in 2006.  In the third quarter of 2005,
one  optionee  exercised  2,000  options  at  an  option  price  of  $1.50.



NOTE  5.     EQUITY  TRANSACTIONS  (CONTINUED)

The  following  summarizes  the  number  of grants and their respective exercise
prices  and  grant  date fair values per option for the years ended December 31,
2006  and  2005  and  the  number  outstanding  and  exercisable at those dates:


<TABLE>
<CAPTION>

                                                         2006                        2005
                                            ---------------------------  --------------------------
                                                           Weighted                    Weighted
                                                            Average                     Average
                                              Shares    Exercise Price    Shares    Exercise Price
                                            ----------  ---------------  ---------  ---------------
<S>                                         <C>         <C>              <C>        <C>
Outstanding, beginning of year                692,575   $          2.33   784,325   $          2.39
Granted                                       376,600              1.89    73,325              2.03
Exercised                                           -                 -    (2,000)             1.50
Expired during the year                       (37,300)             3.68  (163,075)             2.48
                                            ----------                   ---------
Outstanding, end of year                    1,031,875              2.10   692,575              2.33
                                            ==========                   =========

Eligible for exercise at end of year          975,275              2.16   651,575
                                            ==========                   =========

Weighted average fair value per option for
options granted during the year                         $          1.89             $          2.03
                                                        ===============             ===============
</TABLE>



A further summary of stock options follows:


<TABLE>
<CAPTION>


                                         Options Outstanding                    Options Exercisable
                            --------------------------------------------  ------------------------------
                                                   Weighted                    Weighted
                                                   Average     Weighted         Average        Weighted
                                                  Remaining     Average        Remaining        Average
                                                 Contractual   Exercise      Contractual       Exercise
                            Number Outstanding       Life        Price           Life            Price
                            -------------------  ------------  ---------  -------------------  ---------
<S>                         <C>                  <C>           <C>        <C>                  <C>
                                                  2006
-------------------------------------------------------------------------------------------------------
Range of exercise prices:
0.70 - $1.45                            89,075          7.48  $    1.03               52,475  $    1.00
1.50 - $1.99                           224,650          5.89       1.69              218,400       1.69
2.00 - $2.40                           527,500          7.26       2.10              513,750       2.11
2.45 - $3.05                           164,150          6.80       2.88              164,150       2.88
4.00 - $5.00                            26,500          3.12       5.00               26,500       5.00
                            -------------------                           -------------------
                                     1,031,875                                       975,275

                                                  2005
-------------------------------------------------------------------------------------------------------
Range of exercise prices:
0.90 - $1.45                            52,475          7.22  $    1.00               52,150  $    1.00
1.50 - $2.43                           446,150          5.08       1.99              405,875       1.99
2.45 - $3.05                           152,650          8.14       2.91              152,250       2.91
4.00 - $5.00                            41,300          2.87       4.90               41,300       4.90
                            -------------------                           -------------------
                                       692,575                                       651,575
</TABLE>


<PAGE>


NOTE  6.     REVENUE  AND  MAJOR  CUSTOMERS

Revenues for the years ended December 31, 2006 and 2005 consist of the
following:

<TABLE>
<CAPTION>

                          2006        2005
                       ----------  ----------
<S>                    <C>         <C>
Facility management    $1,114,494  $1,081,996
Technology fees           488,331     437,130
Products and services   2,017,517   2,665,298
                       ----------  ----------

                       $3,620,342  $4,184,424
                       ==========  ==========
</TABLE>



Cost  of  revenues for the years ended December 31, 2006 and 2005 consist of the
following:

<TABLE>
<CAPTION>


                          2006        2005
                       ----------  ----------
<S>                    <C>         <C>
Facility management    $  729,669  $  898,414
Technology fees           110,173     492,095
Products and services   1,561,263   1,557,352
                       ----------  ----------

                       $2,401,105  $2,947,861
                       ==========  ==========
</TABLE>


<PAGE>

                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

Revenues  for  the  years ended December 31, 2006 and 2005 include revenues from
one  major  customer,  the  City  of  Toledo,  Ohio  (included  in  the facility
management,  and,  products  and  services  classifications),  which represented
approximately  47%  and  37%, respectively, of total revenues.  In addition, the
Company  had  another  major  customer,  the  City of Raleigh, NC, which totaled
approximately  18%  and  13%  of total revenues (which is included mainly in the
products  and services classification) for the years ended December 31, 2006 and
2005,  respectively.  The  accounts  receivable  balances  due (all of which are
unsecured) from these customers at December 31, 2006 and 2005 were approximately
$198,000  and  $237,000,  respectively.

A substantial portion of the Company's revenue is derived from services provided
under  contracts  and  agreements  with  existing  licensees.  Some  of  these
contracts,  especially  those  contracts  with large municipalities, provide for
termination of the contract by the customer after giving relatively short notice
(in  some  cases  as  little as ten days).  In addition, some of these contracts
contain  liquidated  damages clauses, which may or may not be enforceable in the
event  of early termination of the contracts.  If one or more of these contracts
are  terminated prior to the expiration of its term, and the Company is not able
to  replace  revenues from the terminated contract or receive liquidated damages
pursuant  to  the  terms of the contract, the lost revenue could have a material
and  adverse  effect  on  its  business  and  financial  condition.


NOTE 7.     COMMITMENTS AND CONTINGENCIES

In June 2003, the Company entered into an Employment Agreement (the "Agreement")
with  Michael  G.  Nicholson, the Chief Development Officer and then a member of
the  Board of Directors of the Company.  The employment agreement will expire in
June  2007, and future compensation amounts are to be determined annually by the
Board of Directors.  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

In  June  2005,  J.  Patrick Nicholson filed a Demand for Arbitration based on a
claimed  breach  of  a  Consulting  Agreement  dated August 28, 2003 between the
Company  and  Mr. Nicholson.  In July 2005, the Company terminated for cause his
Consulting Agreement.  Mr. Nicholson was being paid an aggregate of over $92,000
per  year  under  the  Agreement,  exclusive  of any other payouts earnable.  In
November 2005, Mr. Nicholson filed an amended complaint pertaining to his Demand
for Arbitration.  The Company is vigorously contesting Mr. Nicholson's claims in
this  proceeding.  A  hearing  on  the matter commenced over two days in January
2007,  and  is  to  be  concluded  in  April  2007.

In January 2006, J. Patrick Nicholson applied to the Delaware Chancery Court for
an  order to compel the Company to allow him access to inspect our corporate and
business  books  and  records  and  our stockholder list.  No monetary relief is
sought  in  this  action.  The Company contends that the documents sought by Mr.
Nicholson  in  this  action  far  exceed  those  to  which  he  is entitled, and
principally  relate  to  his  claims  in  the  arbitration described above.  The
Company  is  vigorously  defending  this  action and has filed a response in the
Delaware  Chancery Court, but no discovery has been conducted, and no relief has
been  granted  as  of  the  date  of  this  Form  10-KSB.

In  July  2006,  J.  Patrick  Nicholson  and N-Viro Energy Systems, Inc. filed a
Complaint  with Jury Demand in the United States District Court for the Northern
District  of  Ohio,  against  the Company, Ophir Holdings, Inc., Strategic Asset
Management,  Inc.,  Robert  A.  Cooke,  the Cooke Family Trust and the following
members  of  our  Board  of  Directors:  Daniel  J. Haslinger, Phillip Levin, R.
Francis  DiPrete  and  Terry  J. Logan.  The Complaint is seeking undeterminable
damages  and  other  relief from the named defendants.  N-Viro filed a motion to
dismiss  the lawsuit in August 2006.  Mr. Nicholson has requested an opportunity
to amend his complaint, and has been given until April 2, 2007 to do that.   The
Company  then  has  until  May  1,  2007  to  renew  its motion to dismiss.  All
discovery  has  been  stayed  pending  the  anticipated  motion  to  dismiss.

In  February  2006, the Company executed an Employment Agreement with Timothy R.
Kasmoch.  Mr.  Kasmoch  is  now  employed  by the Company as President and Chief
Executive  Officer,  and  is  a member of the Company's Board of Directors.  The
Company and Mr. Kasmoch agreed primarily to enter into an employment arrangement
for  a  one-year  term,  at  $60,000 per year plus 50,000 unregistered shares of
stock  in  the Company.  The Employment Agreement was terminable with or without
cause,  and  was  effective  at  the  date  of  agreement.

In  March  2007,  the  Company  and  Mr.  Kasmoch  entered into a new Employment
Agreement  dated  and  commencing  February  13, 2007, for a two-year term.  Mr.
Kasmoch  is  to  receive an annual base salary of $150,000, subject to an annual
discretionary increase.  In addition, Mr. Kasmoch is eligible for an annual cash
bonus.  Generally,  the  agreement  may  be  terminated  by  the Company with or
without  cause  or  by the Employee for any reason.  A copy of Mr. Kasmoch's new
Employment  Agreement  was  attached to a Form 8-K as Exhibit 10.1, filed by the
Company  March  12,  2007.

In  March 2006, the Company approved a First Amendment to a Consulting Agreement
dated  July  1,  2004  with  Terry  J.  Logan,  then a member of the Board.  The
existing  Consulting Agreement was scheduled to expire on June 30, 2006, and was
extended  an  additional  two  (2) years from that date.  All other terms of the
existing  Consulting Agreement have been retained, with the exception of Section
5.4,  referring to Dr. Logan's stock option compensation, which has been deleted
by the First Amendment.  Dr. Logan will continue to be compensated at a base fee
of  $87.50  per  hour.  The  First  Amendment  to  the  Consulting  Agreement is
effective  as  of  February  13,  2006.  A  copy of the Consulting Agreement was
attached  to  a  Form  8-K as Exhibit 10.3, filed by the Company March 20, 2006.

In  March 2006, the Company approved a Consulting Agreement with Carl Richard, a
current  member  of the Board.  The term of the Consulting Agreement was one (1)
year,  terminable  by  Mr.  Richard  upon fifteen (15) days notice or by us upon
ninety  (90)  days  notice.  Payments under the Consulting Agreement were $1,600
per  month.  The  Consulting Agreement was effective as of February 13, 2006.  A
copy  of  the  Consulting  Agreement was attached to a Form 8-K as Exhibit 10.2,
filed  by  the Company March 20, 2006.  At this time, the Company is considering
extending  Mr.  Richard's  agreement  until  the  end  of  2007.

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.  Our
lease  expired  on  February  28, 2007, and we have not renewed it at this time.
The  total  minimum  rental  commitment for the year ending December 31, 2007 is
approximately  $6,200.  The  total  rental expense included in the statements of
operations  for  each  of  the  years  ended  December  31,  2006  and  2005  is
approximately  $37,500.  The  Company  also  leases  various  equipment  on  a
month-to-month  basis.

On  December  28, 2006, we purchased the remaining ownership interest in Florida
N-Viro  and  now operate its facility in Volusia County, Florida. We maintain an
office  in  Daytona  Beach  under  a  lease  with the County of Volusia, Florida
renewed  in  April, 2005 for five years. The total minimum rental commitment for
the  years  ending  December 31, 2007 through 2009 is $48,000 each year, and for
2010  is  $12,000.  The  total  rental  expense  included  in  the statements of
operations  for  each  of the years ended December 31, 2006 and 2005 is zero, as
this  property  commitment was acquired pursuant to the Share Purchase Agreement
with  VFL  Technology  Corporation,  effective  December 31, 2006. We also lease
various  equipment  on  a  month-to-month  basis  at  our  Florida  operation.


<PAGE>

NOTE 7.     COMMITMENTS AND CONTINGENCIES (CONTINUED)

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.

The  Company  is  involved in legal proceedings and subject to claims which have
arisen  in  the  ordinary course of business.  These actions, when concluded and
determined,  will  not,  in  the  opinion of management, have a material adverse
effect  upon  the financial position, results of operations or cash flows of the
Company.


NOTE 8.     INCOME TAX MATTERS

The composition of the deferred tax assets and liabilities at December 31, 2006
and 2005 is as follows:


<TABLE>
<CAPTION>


                                          2006          2005
                                      ------------  ------------
<S>                                    <C>           <C>
Gross deferred tax liabilities:
  Property and equipment depreciation  $  (122,000)  $   (18,700)
  Florida N-Viro book vs. tax loss         (79,200)      (23,700)
Gross deferred tax assets:
  Loss carryforwards                     5,620,900     5,213,800
  Patent costs                              27,900        54,700
  Florida N-Viro asset impairment          200,000       200,000
  Allowance for doubtful accounts           68,000        22,000
  Allowance for notes receivable                 -        45,100
  Other                                      3,100         3,100

Less valuation allowance                (5,718,700)   (5,496,300)
                                      ------------  ------------

                                      $         -   $         -
                                      ============  ============
</TABLE>




<PAGE>

NOTE 8.     INCOME TAX MATTERS (CONTINUED)

The  income  tax  provisions  differ from the amount of income tax determined by
applying  the  U.S.  Federal  income  tax rate to pre-tax income from continuing
operations  for  the  years ended December 31, 2006 and 2005 and are as follows:


<TABLE>
<CAPTION>


                                                    2006        2005
                                                 ----------  ---------
<S>                                              <C>         <C>
Computed "expected" tax (credits)                $(574,700)  $(92,900)
State taxes, net of federal tax benefit            (50,600)    (8,200)
(Decrease) increase in income taxes resulting
from:
  Change in valuation allowance                    228,800    105,600
  Stock options and warrants                       418,600          -
  Other                                            (22,100)    (4,500)
                                                 ----------  ---------

                                                 $       -   $      -
                                                 ==========  =========
</TABLE>



The net operating losses available at December 31, 2006 to offset future taxable
income  total  approximately  $14,000,000 and expire principally in years 2009 -
2026.


NOTE  9.     CASH  FLOWS  INFORMATION

Information relative to the statements of cash flows not disclosed elsewhere for
the  years  ended  December  31,  2006  and  2005  follows:



<TABLE>
<CAPTION>


                                            2006      2005
                                          --------  --------
<S>                                       <C>       <C>
Issuances of stock for debt and services  $ 55,125  $391,300
                                          ========  ========

Investment in Florida N-Viro              $500,000  $      -
                                          ========  ========
</TABLE>


On March 1, June 1, September 1 and December 1, 2006, we issued 12,500 shares of
unregistered  common  stock, or a total of 50,000 shares, to our Chief Executive
Officer  and  member  of our Board of Directors, Timothy R. Kasmoch, pursuant to
the  terms  of his employment agreement dated February, 2006.  These shares were
valued  at  a  total  estimated  cost  of  $55,125.

On  December  28, 2006, the Company acquired its remaining ownership interest in
Florida  N-Viro, for $500,000.  The acquisition was financed with a Note payable
to  VFL  Technologies,  Inc. for $400,000, payable at 8% interest over 10 years.
The  Company  paid  $100,000  toward  the purchase, but realized cash of $80,000
pursuant  to  the  Agreement.

In  2005, the Company issued 2,316 shares of unregistered common stock to Daniel
Haslinger and Phillip Levin, both members of the Board of Directors, in exchange
for  services  rendered  to  management  in  the  amount  of  $4,000 and $3,000,
respectively,  or  a  total  of  $7,000.

In  2005,  the  Company  contracted  with  Timothy  R.  Kasmoch,  at the time an
unrelated  third  party, in exchange for services to provide in-kind trucking to
the  Company,  and  we  issued  50,000 shares of unregistered common stock for a
total  of  $62,500.

<PAGE>

NOTE 10.     SEGMENT INFORMATION

In  2005,  the  Company  contracted  with  Strategic  Asset Management, Inc., to
provide  non-exclusive  financial public relations counsel and we issued 120,000
shares  of  unregistered common stock and 120,000 common stock purchase warrants
to  purchase  an  equal  number  of  shares  of the Company's common stock at an
exercise  price  of  $1.84  per  share,  at an estimated total cost of $321,800.

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 those described in Note
1  which  contains  the Company's significant accounting policies.  Fixed assets
generating  specific  revenue  are  identified with their respective segments as
they  are  accounted  for as such in the internal accounting records.  All other
assets, including cash and other current assets, and all long-term assets, other
than  fixed assets, are identified with the Corporate segment.  The Company does
not  allocate  any  selling, general and administrative expenses to any specific
segments.  All  of  the  other  income  (expense)  costs  or  income  are
non-apportionable and not allocated to a specific segment.  The Company accounts
for  and  analyzes  the  operating data for its segments generally by geographic
location,  with  the  exception  of  the  Management Operations and Research and
Development  segments.  These  segments  represent  both a significant amount of
business  generated  as  well as a specific location and unique type of revenue.

The next two segments are divided between domestic and foreign sources, as these
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 three years and are not expected to change in the
near  term.

The  last  segment  is  the  Research  and Development segment.  This segment is
unlike  any other segment in that revenue is generated as a result of a specific
project  to  conduct  initial  or additional ongoing research into the Company's
emerging  technologies.


<PAGE>

NOTE 10.     SEGMENT INFORMATION (CONTINUED)

The table below presents information about the segment profits and segment
identifiable assets used by the chief operating decision makers of the Company
as of and for the years ended December 31, 2006 and 2005 (dollars in thousands).



<TABLE>
<CAPTION>


                                    Other
                     Management    Domestic      Foreign      Research &
                     Operations   Operations    Operations   Development   Total
                     -----------  -----------  ------------  ------------  ------
<S>                  <C>          <C>          <C>           <C>           <C>
                                              2006
                     ------------------------------------------------------------
Revenues             $     1,694  $     1,770  $        66   $         90  $3,620
Cost of revenues             999        1,304           16             82   2,401
Segment profits              695          466           50              8   1,219
Identifiable assets          503           99            -              -     602
Depreciation                  78           27            -              -     105

                                              2005
                     ------------------------------------------------------------
Revenues             $     1,561  $     2,521  $        13   $         90  $4,185
Cost of revenues           1,044        1,809           19             76   2,948
Segment profits              517          712           (6)            14   1,237
Identifiable assets          242          134            -              -     376
Depreciation                  62           13            -              -      75
</TABLE>



<PAGE>


NOTE 10.     SEGMENT INFORMATION (CONTINUED)

A reconciliation of total segment profits, identifiable assets and depreciation
and amortization to the consolidated financial statements as of and for the
years ended December 31, 2006 and 2005 follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                  2006      2005
                                                --------  --------
<S>                                             <C>       <C>
Segment profits:
Segment profits for reportable segments         $ 1,219   $ 1,237
Corporate selling, general and administrative
 expenses and research and development costs     (2,885)   (1,405)
Other income (expense)                              (24)     (105)
                                                --------  --------
Consolidated earnings before taxes              $(1,690)  $  (273)
                                                ========  ========

Identifiable assets:
Identifiable assets for reportable segments     $   602   $   376
Corporate property and equipment                    330         6
Current assets not allocated to segments          1,212     1,157
Intangible and other assets not allocated to
  segments                                          802     1,038
Consolidated eliminations                             -         -
                                                --------  --------
Consolidated assets                             $ 2,946   $ 2,577
                                                ========  ========

Depreciation and amortization:
Depreciation for reportable segments            $   105   $    75
Corporate depreciation and amortization             345       149
                                                --------  --------
Consolidated depreciation and amortization      $   450   $   224
                                                ========  ========
</TABLE>

<PAGE>



                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

NOTE 11.     401(K) PLAN

     The  Company  has  a 401(k) plan covering substantially all employees which
provides  for  contributions  in  such  amounts  as  the  Board of Directors may
determine  annually.  Participating  employees  may also contribute a portion of
their  annual  compensation.  There were no employer contributions for the years
ended  December  31,  2006  and  2005.


<PAGE>


ITEM  8.          CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON
                         ACCOUNTING  AND  FINANCIAL  DISCLOSURE

     None


ITEM  8A.          CONTROLS  AND  PROCEDURES

     As of December 31, 2006, 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
("the  Act").  We  concluded  that  our  disclosure controls and procedures were
effective  as  of  December  31,  2006, 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.

     There  were  no  changes  in our internal controls over financial reporting
during  the  year  ended December 31, 2006 that have materially affected, or are
reasonably  likely  to  materially  affect, our internal controls over financial
reporting.

     In  connection with its audit of our financial statements as of and for the
year  ended  December  31,  2006,  our  auditor advised management and our Audit
Committee  that it had identified significant deficiencies which were designated
as  "reportable  conditions"  and collectively constitute a material weakness in
our  internal  control  over  financial  reporting.  Areas requiring improvement
include  (1) timing for recording prepaid consulting contracts, (2) analysis and
evaluation  of  the allowance for doubtful accounts, and (3) a consistent policy
for  valuing  the  expense  for  stock-based compensation issued to consultants,
employees  and directors.  A primary factor in contributing towards the weakness
in our internal control is a lack of personnel working in the finance operations
of  the Company.  We will seek to implement a short correction of these internal
control deficiencies and believe we can make progress toward correction of these
matters.


ITEM  8B.     OTHER  INFORMATION

     None.


                                    PART III

ITEM  9.          DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

     The  information  required by this Item is incorporated by reference to the
information  under  the  heading  "Election  of  Directors"  and  "Management  -
Directors  and  Executive  Officers"  in  the  definitive proxy statement of the
Company  for  the  2007  Annual  Meeting  of  Stockholders.


ITEM  10.          EXECUTIVE  COMPENSATION

     The  information  required by this Item is incorporated by reference to the
information  under  the heading "Executive Compensation" in the definitive proxy
statement  of  the  Company  for  the  2007  Annual  Meeting  of  Stockholders.


ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND  RELATED  STOCKHOLDER  MATTERS

     The  information  required by this Item is incorporated by reference to the
information  under  the heading "Security Ownership of Certain Beneficial Owners
and  Management"  in  the definitive proxy statement of the Company for the 2007
Annual  Meeting  of  Stockholders.


ITEM  12.          CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     The  information  required by this Item is incorporated by reference to the
information  under  the heading "Certain Relationships and Related Transactions"
in  the definitive proxy statement of the Company for the 2007 Annual Meeting of
Stockholders.


ITEM  13.     EXHIBITS


Exhibit
No.     Description
---     -----------

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     Amendment to the Certificate of Incorporation of the Company, dated June
30,  2005  (incorporated  by  reference to Exhibit 3.4 to Form 8-K filed July 6,
2005).

3.4     Amended  and  Restated  By-Laws  of the Company, dated November 13, 2003
(incorporated  by  reference  to Exhibit 3.7 to Form 10-K filed April 14, 2004).

3.5     Text  of  amendment  to the Amended and Restated By-Laws of the Company,
dated May 13, 2005 (incorporated by reference to Exhibit 99.1 to Form 10-K filed
April  14,  2004).

3.6     Amended  and  Restated  By-Laws  of  the Company, dated January 27, 2006
(incorporated  by  reference to Exhibit 3.2 to Form 8-K filed February 2, 2006).

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  Amended  and Restated N-Viro International Corporation Stock Option
Plan  (incorporated  by  reference  to  Form  S-8  filed  May  9,  2000).*

4.3     The  N-Viro  International  Corporation  2004  Stock  Option  Plan
(incorporated  by  reference  to  Form  S-8  filed  December  20,  2004).*

10.1     Employment Agreement, dated June 14, 1999, between N-Viro International
Corporation  and  Terry J. Logan (incorporated by reference to Exhibit 1 to 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  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 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 to Form 8-K filed
August  29,  2003).

10.5     Financial Public Relations Agreement, dated September 15, 2005, between
Strategic  Asset  Management,  Inc.  and  N-Viro  International  Corporation
(incorporated by reference to Exhibit 10.1 to Form 8-K dated October 12, 2005).*

10.6     Warrant  to Purchase 120,000 Shares of Common Stock dated September 15,
2005  between  Strategic  Asset  Management,  Inc.  and  N-Viro  International
Corporation (incorporated by reference to Exhibit 10.2 to Form 8-K dated October
12,  2005).*

10.7     Employment  Agreement,  executed  February  17, 2006 between Timothy R.
Kasmoch  and  N-Viro  International  Corporation  (incorporated  by reference to
Exhibit  10.1  to  Form  8-K  filed  February  21,  2006).*

10.8     First  Amendment  to  Consulting  Agreement  dated July 1, 2004 between
Terry J. Logan and N-Viro International Corporation, effective February 13, 2006
(incorporated  by  reference to Exhibit 10.3 to Form 8-K filed March 20, 2006).*

10.9     Consulting  Agreement  between  Carl  Richard  and N-Viro International
Corporation,  effective  February 13, 2006 (incorporated by reference to Exhibit
10.2  to  Form  8-K  filed  March  20,  2006).*

10.10     Share  Purchase  Agreement  dated  December  28,  2006  between N-Viro
International  Corporation  and  VFL  Technology  Corporation  (incorporated  by
reference  to  Exhibit  99.1  to  Form  8-K  filed  January  19,  2007).

10.11     Employment  Agreement,  dated  February  13,  2007  between Timothy R.
Kasmoch  and  N-Viro  International  Corporation  (incorporated  by reference to
Exhibit  10.1  to  Form  8-K  filed  March  12,  2007).*

14.1     Code  of  Ethics.

21.1     List  of  subsidiaries  of  the  Company.#

23.1     Consent  of  UHY  LLP.

24.1     Power(s)  of  Attorney.#

31.1     Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley  Act  of  2002.

31.2     Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley  Act  of  2002.

32.1     Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley  Act  of  2002.

32.2     Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley  Act  of  2002.


               #     Only  included in Form 10-KSB filed electronically with the
Securities  and  Exchange  Commission.

               *     Indicates  a  management  contract  or compensatory plan or
arrangement.


ITEM  14.          PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES

     The  information  required by this Item is incorporated by reference to the
information  under  the  heading  "Independent Auditors" in the definitive proxy
statement  of  the  Company  for  the  2007  Annual  Meeting  of  Stockholders.



<PAGE>

                                   SIGNATURES


     Pursuant  to  the  requirements of Section 13 or 15(d) of the Exchange Act,
the  registrant  has  duly  caused this report to be signed on its behalf by the
undersigned,  thereunto  duly  authorized.

     N-VIRO  INTERNATIONAL  CORPORATION
Dated:  April  2,  2007

     By:  /s/  Timothy  R.  Kasmoch  *
        ------------------------------
          Timothy  R.  Kasmoch,  Chief  Executive  Officer  and  President
          (Principal  Executive  Officer)


                                POWER OF ATTORNEY

     Know  all  persons  by  these  presents,  that  each person whose signature
appears  below  constitutes  and  appoints James K. McHugh his attorney-in-fact,
each  with the power of substitution, for him in any and all capacities, to sign
any  amendments to this Form 10-KSB, and to file the same, with exhibits thereto
and  other  documents  in connection therewith, with the Securities and Exchange
Commission,  hereby  ratifying  and  confirming  all  that  each  of  said
attorneys-in-fact,  or  his  substitutes,  may  do or cause to be done by virtue
hereof.

     Pursuant  to  the  requirements  of  the Exchange Act, this report has been
signed  below  by  the  following persons on behalf of the registrant and in the
capacities  and  on  the  date  indicated.

Dated:  April  2,  2007

/s/  Timothy  R.  Kasmoch*             /s/  James  K.  McHugh
--------------------------             ----------------------
Timothy  R.  Kasmoch,                  James  K.  McHugh
Chief Executive Officer                Chief Financial Officer,
President and Director                 Secretary and Treasurer
(Principal  Executive  Officer)        (Principal  Financial  Officer)


/s/ James  H.  Hartung*                /s/  R.  Francis  DiPrete*
----------------------                 ----------------------------
James  H.  Hartung,  Director          R. Francis DiPrete, Director
and Chairman of the Board


/s/  Joseph H. Scheib,  Director*      /s/  Mark  D.  Hagans*
---------------------------------      ----------------------
Joseph  H.  Scheib,  Director          Mark  D.  Hagans,  Director


/s/  Carl  Richard*                    /s/ Thomas  L.  Kovacik*
-------------------                    -------------------------
Carl  Richard,  Director               Thomas  L.  Kovacik,  Director

<PAGE>