THIS DOCUMENT IS A COPY OF THE FORM 10-KSB FOR FISCAL YEAR ENDED DECEMBER 31,
 2005 FILED ON APRIL 3, 2006 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549
                                   FORM 10-KSB
(MARK ONE)
                      ANNUAL REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
                                       OR
                  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
           FOR THE TRANSITION PERIOD FROM ____________ TO ____________
                        COMMISSION FILE NUMBER:  0-21802


                                [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:    $4,184,000
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 15, 2006 was approximately
$3,741,000.
The  number  of shares of Common Stock of the registrant outstanding as of March
15,  2006  was  3,703,059.
The  number  of  shares  of  Preferred Stock of the registrant outstanding as of
March  15,  2006  was  -0-.
Transitional  Small  Business  Disclosure  Format  (Check  One):
Yes  No   X
        ---
                       DOCUMENTS INCORPORATED BY REFERENCE
          NONE.

                                      INDEX

<TABLE>
<CAPTION>


                                                                   PAGE
                                                                   ----


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


Item 1.   Business                                                    2


Item 2.   Properties                                                  9


Item 3.   Legal Proceedings                                           9


Item 4.   Submission of Matters to a Vote of Security Holders        10



          PART II
          -------


Item 5.   Market for Registrant's Common Equity and Related          11
          Stockholder Matters and Small Business Issuer Purchases
          of Equity Securities


Item 6.   Management's Discussion and Analysis or                    12
          Plan of Operations


Item 7.   Financial Statements                                       23


Item 8.   Changes in and Disagreements with Accountants              24
          on Accounting and Financial Disclosure


Item 8A.  Controls and Procedures                                    24


Item 8B.  Other Information                                          24



          PART III
          --------


Item 9.   Directors and Executive Officers of the Registrant         25


Item 10.  Executive Compensation                                     28


Item 11.  Security Ownership of Certain Beneficial Owners            32
          and Management and Related Stockholder Matters


Item 12.  Certain Relationships and Related Transactions             34


Item 13.  Exhibits                                                   36


Item 14.  Principal Accountant Fees and Services                     38
</TABLE>


                                     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; and
(vi)  a  failure  to  collect  upon or otherwise secure the benefits of existing
contractual  commitments  with third parties, including our customers. This list
provides  examples  of  factors  that  could  affect  the  results  described by
forward-looking  statements contained in this Form 10-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 sludges 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  the  N-Viro facility.  To date, our revenues primarily have
been  derived  from  the  licensing  of  the N-Viro Process to treat and recycle
wastewater  sludges  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.  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.  There  are  several  licensees  not  currently  operating, including both
international  and domestic contractors or public generators, who are developing
or  designing  site-specific  N-Viro  facilities.

     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.  In certain
countries  outside  the  United  States,  we  license the N-Viro Process through
agents.  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
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.

               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>



     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 and ongoing royalty fees paid by the licensees and a
portion  of  the proceeds from the distribution and resale of alkaline admixture
and  the  sale  of  N-Viro  Soil.

     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 37% 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  eighteenth  year  of  operation.  With  the  renewal,  our  price  was
renegotiated  and  we  consider  our  relationship with the City of Toledo to be
satisfactory.

          We  jointly  own  with Headwaters, Inc., through a limited partnership
named Florida N-Viro, L.P., or Florida N-Viro, the Fort Meade, Florida facility.
Our  loans  to  Florida  N-Viro,  totaling  $350,000 in unsecured, demand notes,
remain outstanding.  We maintain reserves of approximately $113,000 for the full
amount  of  the  accrued interest on all notes.  In 2005 we continued to reserve
all  accrued  interest due on the notes, and received no cash during the year as
payment  on  the  notes.  In  2005,  Florida  N-Viro  recorded  a  net  loss  of
approximately  $517,000.  Our share of this loss was approximately $246,000, but
we recorded a net loss of approximately $186,000 as the result of limitations of
the  basis  of  our  investment  in the assets of Florida N-Viro.  For 2006, any
further  losses  incurred  by Florida N-Viro will not be recognized by us unless
adequate  basis  is restored through net income or us providing additional loans
or  investment to the partnership, which we do not plan on doing at this time or
the  foreseeable  future.  Cash  flow from operations is negative, but we expect
that  Florida  N-Viro  will  continue  to  provide  adequate  cash  flow to fund
operations  for 2006.  In early 2006, the dormant Ft. Meade facility was sold to
an  independent  third  party, and the proceeds will be used to fund operations.

     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 45% of our
revenue  is  from  management operations, 53% from other domestic operations, 2%
from research and development grants and none 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.

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 sludges
from  municipal wastewater treatment facilities.  N-Viro Soil 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 SoilTM, 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  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.

RESEARCH  AND  DEVELOPMENT

     Research  and  development  on  N-Viro  Soil  has  been, to date, performed
primarily  by  BioCheck  Laboratories, a former wholly-owned subsidiary of ours,
and  Dr.  Terry  J.  Logan,  one  of  our directors, who continues to direct our
research  and  patent  development work under a consulting agreement that became
effective  July  1, 2004.  All participants on our technology council, including
Dr.  Logan  and the officers of BioCheck, have contracts with us, protecting our
rights.

     In  addition,  in  2005  alone,  grants  totaling  $90,000 were secured for
process  and  product  research.  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  BioBlend  ,  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 Medical College
of  Ohio,  or the MCO.  Because of the joint development of early N-Viro patents
with the MCO, we agreed that the rights of MCO to any intellectual property that
is  being developed, patentable or patented, would generate royalties payable by
us  to  MCO.  We  and MCO have also agreed that future claims to the N-Viro Soil
process is one-quarter of one percent ( %) of technical revenues.  MCO 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 MCO
through  December  31,  2005  are  approximately  $63,000.

     On  September  21, 2005, we announced a transaction whereby we would form a
subsidiary,  Alternative  Fuel  Technology,  Inc.,  to  exploit  the N-Viro Fuel
Technology which is covered by several patents.  Negotiations on this initiative
have  not  materialized,  and  as  of  the date of this Form 10-KSB, it does not
appear  that  such  a  transaction  will  be  concluded.

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 sludges 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  sludges,  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.  Sludges  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 sludges
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 sludges 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 sludges in bulk amounts also requires an EPA permit.  Agricultural
and  land applications of all sludges 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 sludges 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  an  adjacent  landfill.  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 sludges 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, 2005, we had 11 employees.  Four of our employees were
engaged  in  sales  and  marketing; three were in finance and administration and
four  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  certain  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.


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.  The total minimum
rental  commitment  for  the  year  ending  December  31,  2006 is approximately
$37,200.  The  total rental expense included in the statements of operations for
the years ended December 31, 2005 and 2004 is approximately $37,500 and $55,400,
respectively.  We  also  lease  various  equipment  on  a  month-to-month basis.

     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.  We have also operated, generally on a start-up basis, N-Viro
facilities for municipalities and currently operate one municipally-owned N-Viro
facility  on  a  contract  management basis in Toledo, Ohio.  As of December 31,
2005,  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 the Toledo, Ohio facility which has been operated
by  us  on  a  contract  management  basis  since  January  1990.

     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.


Item  3.          Legal  Proceedings.

     In  June  2005,  J. Patrick Nicholson, our former Chairman and CEO, filed a
Demand  for  Arbitration, seeking damages of $50,000 from us, based on a claimed
breach  of  a  Consulting  Agreement  dated  August  28, 2003 between us and Mr.
Nicholson.  Mr.  Nicholson also seeks rescission of his Consulting Agreement and
reinstatement of a prior agreement between him and us, which was in effect prior
to the order by the Delaware Chancery Court terminating a shareholder derivative
suit.  This  arbitration  proceeding  was previously reported in our Form 10-QSB
filed  August  15, 2005.  We are vigorously contesting Mr. Nicholson's claims in
this  proceeding.  Discovery is still in process, and a hearing on the matter is
scheduled  for  July  17-21,  2006.

     On  July  13, 2005, our 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 is a reporting beneficial owner of approximately 13.4%
of  our  outstanding  common  stock,  as  of the date of his Form SC 13D/A filed
October 24, 2005.  Mr. Nicholson was being paid an aggregate of over $92,000 per
year  under  the  Consulting Agreement, exclusive of any other payouts earnable.

     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.  The  matter  is in the preliminary stages, and we
contend  that  the  documents sought by Mr. Nicholson in this actions 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,  but  no discovery has been conducted, and no relief has been granted as
of  the  date  of  this  Form  10-KSB.

     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

     There  were  no  matters submitted to a vote of security holders during the
fourth  quarter  of  the  fiscal  year  ending  December  31,  2005.



<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 traded on the Over The Counter Bulletin
Board under the symbol "NVIC.OB".  The price range per share of the Common Stock
since  January  1,  2004,  was  as  follows:

<TABLE>
<CAPTION>


Quarter      High   Low
-----------  ------ -----
<S>          <C>    <C>
First 2004   $3.92  $2.35
Second 2004  $3.05  $1.30
Third 2004   $1.96  $0.90
Fourth 2004  $2.51  $1.25
First 2005   $2.80  $1.70
Second 2005  $2.02  $1.27
Third 2005   $2.88  $1.50
Fourth 2005  $1.90  $1.20
</TABLE>


Our  stock  price  closed  at  $1.50  per  share  on  March  15,  2006.

Holders

     As  of  March 15, 2006, the number of holders of record of our Common Stock
was  approximately  190.

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

     See Item 11 of this Form 10-KSB for the information required by Item 201(d)
of Regulation S-B.

Unregistered  Sales  of  Securities

     During  the  first  quarter  of  2005,  we  issued  958 and 1,358 shares of
unregistered  common  stock to Phillip Levin and Daniel Haslinger, respectively,
both  members  of  our Board of Directors, in exchange for management consulting
work performed outside their duties as directors from January to April 2004, for
$3,000  and  $4,000,  respectively,  or  a  total  of  $7,000.

     Also during the first quarter of 2005, Carl Richard, a director, subscribed
for  10,000  shares of our unregistered common stock in a private placement that
was previously announced in 2004.  These shares were issued in May 2005 at $1.25
per  share,  with associated warrants to purchase additional shares at $1.85 per
share.

     During  the  second  quarter  of  2005,  two  non-affiliate  stockholders
subscribed  for a total of 60,000 shares of our unregistered common stock in the
aforementioned  private  placement.  These  shares  were issued in April 2005 at
$1.25 per share, with associated warrants to purchase additional shares at $1.85
per  share.

     During  the  third  quarter  of  2005,  pursuant  to  a  Stock Subscription
Agreement dated February 28, 2005, we issued to Timothy Kasmoch 50,000 shares of
our  unregistered  common  stock  and  50,000 associated warrants at an exercise
price  of  $1.85  per share and an exercise period not to exceed five years from
the date of the Agreement.  Payment for the securities was made in kind, through
the  provision  of  trucking  services valued at $62,500.  The trucking services
were  provided  from  February  2005 to September 2005.  At the time of both the
agreement  and  the issuance, Mr. Kasmoch was not an affiliate of ours, however,
Mr.  Kasmoch is now our Chief Executive Officer and a director, effective in the
first  quarter  of  2006.

     On  September  27, 2005, we executed a Financial Public Relations Agreement
dated  September  15,  2005, with Strategic Asset Management, Inc., or SAMI.  We
appointed  SAMI  as  our  non-exclusive financial public relations counsel for a
term of two years from the date of the Financial Public Relations Agreement.  In
exchange  for SAMI's services, we issued SAMI 120,000 shares of our unregistered
common  stock,  and  120,000 common stock purchase warrants to purchase an equal
number  of  shares  of our common stock at an exercise price of $1.84 per share,
for  an  exercise period not to exceed five years from the date of the Financial
Public  Relations Agreement.  The President of SAMI, Robert Cooke, was listed as
a more than 5% beneficial owner in our Definitive Proxy Statement, Amendment No.
1,  filed  May  27,  2005.

     During  the  first quarter of 2006, we issued 12,500 shares of unregistered
common  stock  to  Timothy  Kasmoch, our Chief Executive Officer and a director,
pursuant  to  his  employment agreement dated February 14, 2006.  This agreement
was  disclosed  in  a  Form  8-K  filing  on  February  21,  2006.

     All  of  the  foregoing issuances were exempt from registration pursuant to
Section  4(2)  of  the  Securities  and  Exchange  Act  of  1933.


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,
                        2005    2004
                       ------  ------
<S>                    <C>     <C>
Technology fees         10.4%   12.0%
Facility management     25.9%   25.4%
Products and services   63.7%   62.6%
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;  testing income, which represent
fees  charged  for  the  periodic  quality  control of the N-Viro Soil produced;
equipment  sales,  which  represent  the  price  charged  for equipment held for
subsequent  sale.

     Our policy is to record the revenues payable 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.

<PAGE>
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,
                                         2005                Change              2004
                                       ----------         -------------      -----------
<S>                                    <C>                 <C>               <C>

(Dollars in thousands)
-------------------------------------
COMBINED STATEMENT OF
    OPERATIONS DATA:
Revenues. . . . . . . . . . . . . . .  $4,185            (23.3%)             $ 5,454

Cost of revenues. . . . . . . . . . .   2,948            (25.2%)               3,941
                                       ------                                --------

Gross profit. . . . . . . . . . . . .   1,237            (18.3%)               1,513

Operating expenses. . . . . . . . . .   1,405            (13.7%)               1,628
                                       ------                                --------

Operating loss. . . . . . . . . . . .    (168)                *                 (115)

Non-operating income (expense). . . .    (105)                *                   43
                                       ------                                --------

Loss before income tax expense. . . .    (273)                *                  (72)

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

Net loss. . . . . . . . . . . . . . .  $ (273)                *               $  (72)
                                       =======                                  =====

</TABLE>


<TABLE>
<CAPTION>


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

Cost of revenues. . . . . . . . . . .   70.4                                    72.3
                                       ------                                --------

Gross profit. . . . . . . . . . . . .   29.6                                    27.7

Operating expenses. . . . . . . . . .   33.6                                    29.8
                                       ------                                --------

Operating income (loss) . . . . . . .   (4.0)                                   (2.1)

Non-operating income (expense). . . .    2.5                                     0.8
                                       ------                                --------

Loss before income tax expense. . . .   (6.5)                                   (1.3)

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

Net loss. . . . . . . . . . . . . . .  (6.5%)                                  (1.3%)
                                       =======                                  =====

</TABLE>


<PAGE>
Comparison  of  Year  Ended  December 31, 2005 with Year Ended December 31, 2004
     Revenues  decreased $1,269,000, or approximately 23%, to $4,184,000 for the
year  ended  December  31,  2005 from $5,453,000 for the year ended December 31,
2004.  The decrease in revenue was due to the following:  revenues from one-time
domestic  license  or international territory fees decreased $72,000, to $-0- in
2005  from $72,000 in 2004;  revenues from existing on-line facilities decreased
$1,197,000  to $4,184,000 in 2005 from $5,382,000 in 2004.  This net increase in
revenue  from  existing  on-line  facilities  was primarily due to the following
factors:

     a)  Sales  of  alkaline  admixture  decreased $427,000 from the same period
ended  in  2004;

     b)  Revenue  from the service fees for the management of alkaline admixture
decreased  $147,000  from  the  same  period  ended  in  2004;

c)  Our  processing revenue, including facility management revenue, showed a net
decrease  of  $514,000  over  the  same  period  ended  in  2004;

     d)  Miscellaneous revenues decreased $109,000 from the same period ended in
2004;

     e)  Research  and  development  revenue did not change from the same period
ended  in  2004.

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 $536,000 of revenues from both the sale and management of
the  alkaline  admixture  revenue.

The  decrease  in  processing  revenue was primarily from a decrease in facility
management  revenue,  of  which  was  the  result  of a renewed and renegotiated
contract  with one customer, effective at January 1, 2005.  Volume was down only
3%  from  this customer, but a 19% decrease in the unit price for the processing
caused  the  majority  of  the  decrease  of  approximately  $305,000.  Also
contributing  to  the  decrease in processing revenue was a $121,000 decrease in
royalties  generated from the facility referenced in the previous paragraph that
stopped  processing  in  2005.  A  final  aspect  of  the decrease in processing
revenues  were  sales  of the N-Viro Soil product.  In July 2004, we altered our
revenue  and  cost system for selling and trucking out the product, concurrently
reducing  our  gross  revenue  as  well  as  our  cost.  This  accounted  for
approximately  $65,000  of  the overall decrease.  However, the net cost per ton
for  the sale and distribution of the N-Viro Soil product decreased from 2004 to
2005,  from  $3.30  to  $1.82  per  ton  shipped,  or  a $1.48 per ton decrease.

     Our  gross  profit  decreased  $276,000, or 18%, to $1,237,000 for the year
ended  December  31,  2005 from $1,513,000 for the year ended December 31, 2004,
but the gross profit margin increased to 30% from 28% for the same periods.  The
decrease  in  gross  profit  is  primarily  due to the decrease in gross revenue
described  in  the  previous  section.  The  increase  in gross profit margin is
primarily  due  to  an  allocation  in 2004 of approximately $153,000 of certain
administrative  salaries  expense to cost of revenues that was not allocated for
the  2005  financial  results.  Had this accounting change not happened for 2005
the  gross  profit  margin  would  have  decreased  to  26%  from  28%.

     Our  operating  expenses  decreased $223,000, or 14%, to $1,405,000 for the
year  ended  December  31,  2005 from $1,628,000 for the year ended December 31,
2004.  The  decrease  was  primarily  due  to  a  net  decrease of approximately
$162,000 in employee payroll and expenses, $77,000 for office and related costs,
$87,000  in  director-related costs and $51,000 in a 2004 litigation settlement.
These  decreases were partially offset primarily by an increase of approximately
$127,000  in  legal fees, $55,000 in management fees and $29,000 in the increase
to  the  reserve  for  bad debts.  Included in the decrease for director-related
costs  was $74,000 for the value of unregistered stock issued in 2004 to current
and  former  outside  directors  compensation  for  board  meetings.

     Our  nonoperating  income  (expense)  decreased  by  $149,000 to expense of
$105,000  for  the  year  ended December 31, 2005 from income of $44,000 for the
year ended December 31, 2004.  The decrease in nonoperating income was primarily
due to an increase in the loss of $71,000 in the equity of a joint venture, to a
loss  of  $186,000  in  2005  from a loss of $115,000 in 2004.  Also, in 2004 we
recorded  a  one-time gain on the forgiveness of debt due our patent law firm of
approximately  $157,000,  and  in 2005 we recorded an unrelated one-time gain on
the  forgiveness  of  debt due our former general law firm of $108,000, or a net
decrease  in  the  gain  on  legal  debt  forgiven  of  $49,000.

     We  recorded  a  net  loss  of  approximately  $273,000  for the year ended
December  31,  2005 compared to a net loss of approximately $72,000 for the year
ended  December  31,  2004,  an  increase in the loss of approximately $201,000.

     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, and 2005's loss was 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.  For 2006, any
further  losses  incurred  by Florida N-Viro will not be recognized by us unless
adequate  basis  is restored either through net income from the joint venture or
us  providing  additional loans or investment to Florida N-Viro, L.P.  We do not
plan  on  providing  any such additional loans or investments at this time or in
the  foreseeable  future.  Even  though the investment in Florida N-Viro L.P. is
reflected  at  zero  value, we believe the remaining operating assets of Florida
N-Viro have value and will be marginally profitable in 2006.  See the discussion
in  Liquidity  and  Capital  Resources  section  in  this  Item  6,  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 $41,000 at December 31,
2005  compared  to  a  deficit  of  $384,000 at December 31, 2004, a decrease of
approximately  $343,000.  Current  assets  at  December 31, 2005 include cash of
$353,000,  an  increase of approximately $129,000 from December 31, 2004, and of
which  approximately  $128,000  is restricted under our Bank credit agreement to
secure the credit facility.  The increase in working capital was principally due
to  the  private  placement  of  unregistered  common  stock  with  four  stock
subscribers  totaling  $150,000,  and  the  recognition  into  current assets of
approximately  $115,000  of  deferred  costs  relating  to  the financial public
relations agreement signed with SAMI in September 2005, which is to be paid with
shares  of  our  unregistered  common  stock.

     In 2005 our cash flow provided by operations was approximately $286,000, an
increase of approximately $348,000 from 2004.  This increase was principally due
to  the  positive change in working capital of approximately $546,000, decreased
by both the increase in the net loss of approximately $201,000 and a decrease of
$107,000  in  the  amount  of  stock  issued  for  fees  and services from 2004.

     Our  $845,000  credit  facility  with  Monroe  Bank + Trust, or the Bank is
comprised  of a $295,000 four year term note with interest of 7.5% and a line of
credit  up  to  $550,000 at the prime rate plus 1.5%, secured by a first lien on
all  of  our  assets.  In January 2004, we purchased a certificate of deposit in
the amount of $75,000 from the Bank, and transferred custodianship of all of our
treasury  stock  to  the Bank.  In February 2004, the Bank decreased the maximum
amount  available  to borrow on the line of credit to $400,000, but also reduced
the  financial  covenant  requirements,  making it easier for us to maintain the
facility.  In  February 2005, the Bank amended the facility and released certain
additional  collateral  but  required  us  to  provide  an  additional  $50,000
certificate  of  deposit.  In  the fourth quarter of 2005 we renewed the line of
credit through October 2006, and are not presently in violation of any financial
covenants.  At  December  31,  2005, we had $320,000 of borrowing capacity under
the  Credit  Facility.

     The normal collection period for accounts receivable is approximately 30-60
days  for  the  majority  of  customers.  This  is a result of the nature of the
license  contracts,  type  of customer and the amount of time required to obtain
the  information  to  prepare  the  billing.  In  response to an increase in the
amount  of  past due accounts, we increased the reserve for bad debts by $21,000
during  2005,  to  a  reserve  of  $55,000.

     During  2005,  our investment in a 47.5% owned partnership, Florida N-Viro,
L.P.,  recorded  a non-cash net loss to us of approximately $186,000.  Cash flow
from  operations  of  Florida  N-Viro,  L.P.  was negative, partially due to the
closing  of one of its operating facilities, but we believe Florida N-Viro, L.P.
will  obtain  adequate  cash  to  fund  its  operations  for  2006.

     We  are  currently  active  in pursuing a sale of our investment in Florida
N-Viro, L.P., which may provide, in our opinion, additional funds to finance our
cash  requirements.  There  can  be  no  assurance we will successfully complete
                      ====
these  negotiations.

     During  the  first  quarter  of  2005,  we  issued  958 and 1,358 shares of
unregistered  common  stock to Phillip Levin and Daniel Haslinger, respectively,
both  members  of  our Board of Directors, in exchange for management consulting
work performed outside their duties as directors from January to April 2004, for
$3,000  and  $4,000,  respectively,  or  a  total  of  $7,000.

     From  January  to September of 2005, we issued a total of 120,000 shares of
our  unregistered  common stock in a private placement transaction, providing us
with  cash  of  $87,500,  and  in-kind  trucking services equal to $62,500.  See
"Unregistered  Sales  of  Securities"  in  Item  5  above  for  more  details.

     In  December 2005, we reached an agreement to settle trade debt owed to our
former  law  firm.  The firm agreed to forgive the entire balance of $108,112 in
previously billed services, as disclosed in a Form 8-K filed by us on January 6,
2006.

     We  are  currently  in discussions with several companies in the cement and
fuel industries for the development and commercialization of the patented N-Viro
fuel  technology.  There  can  be  no  assurance  that these discussions will be
successful.

     We  continue  to  focus on the development of regional biosolids processing
facilities.  Currently  we  are in negotiations with several privatization firms
to  permit  and  develop  independent,  regional  facilities.

     We  expect  continued  improvements in operating results for 2006 primarily
due  to  lowered  administrative  costs,  along  with  realized and expected new
sources  of  revenue.  Additionally, market developments and ongoing discussions
with  companies  in  the  fuel  and wastewater industries could provide enhanced
liquidity  and  have  a  positive  impact  on  2006  operations.

Off-Balance  Sheet  Arrangements

     At  December 31, 2005, we did not have any material commercial commitments,
including  guarantees  or  standby  repurchase obligations, or any relationships
with unconsolidated entities or financial partnerships, including entities often
referred  to  as  structured  finance  or  special  purpose entities or variable
interest  entities,  which  would  have  been  established  for  the  purpose of
facilitating  off-balance  sheet  arrangements  or other contractually narrow or
limited  purposes.

     From  time  to  time,  during  the  normal  course of business, we may make
certain  indemnities,  commitments and guarantees under which we may be required
to  make  payments  in  relation  to  certain  transactions.  These include: (i)
indemnities  to  vendors and service providers pertaining to claims based on our
negligence  or willful misconduct and (ii) indemnities involving the accuracy of
representations  and warranties in certain contracts.  Pursuant to Delaware law,
we  may  indemnify  certain  officers  and  directors  for  certain  events  or
occurrences  while the officer or director is, or was, serving at our request in
such capacity.  We also have director and officer insurance coverage that limits
our  exposure  and enables us to recover a portion of any future amounts that we
may  pay  for  indemnification  purposes.  We  believe  the applicable insurance
coverage  is  generally  adequate to cover any estimated potential liability for
which  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, 2005, 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)  $   36,400  $          36,400  $          -  $          -  $            -
Long-term debt obligations . . . .        (2)     102,069             80,860        21,209             -               -
Operating leases . . . . . . . . .        (3)      62,223             47,788        14,435             -               -
Capital lease obligations                               -                  -             -             -               -
Other long-term debt obligations                        -                  -             -             -               -
                                               ----------  -----------------  ------------  ------------  --------------
Total contractual cash obligations             $  200,692  $         165,048  $     35,644  $          -  $            -
                                               ==========  =================  ============  ============  ==============
<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.

     Property  and  Equipment/Long-Lived  Assets  -  Property  and  equipment is
reviewed  for impairment pursuant to the provisions of 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.  Management
believes  the  carrying  amount is not impaired based upon estimated future cash
flows.

     Equity  Method Investment - We account for our investment in joint ventures
under  the  equity  method.  We  periodically evaluate the recoverability of our
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, we would record a
write-down  of  excess  investment  cost.  Management  has  determined  that  no
write-down  was  required  at  December  31,  2005  and  2004.

     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.  In accordance with SFAS No. 142, we test for impairment
annually.

     Fair Value of Financial Instruments - The carrying amounts of cash and cash
equivalents,  receivables,  accounts payable and accrued liabilities approximate
their  fair  values  because  of  the  short-term  nature  of these instruments.
Management  believes  the  carrying  amounts  of  the current and long-term debt
approximate  their  fair  value  based on interest rates for the same or similar
debt  offered  to  us  having  the  same  or  similar  terms  and  maturities.

     Income  Taxes -  We assume the deductibility of certain costs in income tax
filings  and  estimate  the  recovery  of  deferred  income  tax  assets.

     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:

     SFAS  No.  123,  "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 had no effect on our financial condition or
results  of  operations  for  the  current  year,  but it expected to affect our
financial condition and results of operations starting with the first quarter of
2006.  This  is  expected  to  be  reflected  by the expensing of existing stock
options  granted  in  2004  that vest through 2008 to current optionees, and any
2006  options  granted  to directors for board meetings.  We are uncertain as to
any  future  grants  in  the  current  year  to  employees or others that may be
approved  by  the  Board.

     In  March  2005,  FASB  Interpretation  No.  47, or FIN 47, "Accounting for
Conditional Asset Retirement Obligations-an interpretation of FASB Statement No.
143",  was  issued.  The primary objective of FIN 47 is to provide guidance with
respect  to the timing of liability recognition for legal obligations associated
with  the  retirement  of  a  tangible long-lived asset when the timing and (or)
method  of settlement of the obligation are conditional on a future event.  This
Interpretation  also  clarifies when an entity would have sufficient information
to  reasonably  estimate  the fair value of an asset retirement obligation.  The
Company  does  not  expect the application of the provisions of FIN 47 to have a
material  impact on its financial position, results of operations or cash flows.

     In  2005,  the  FASB  issued  SFAS  No.  154, "Accounting Changes and Error
Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3", which
amends  the guidance in APB No. 20, "Accounting Changes," and FASB Statement No.
3,  "Reporting  Accounting Changes In Interim Financial Statements", and changes
the  requirements for the accounting for and reporting of a change in accounting
principle.  The Statement is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005.  The Company does
not  expect the application of the provisions of SFAS No. 154 to have a material
impact  on  its  financial  position,  results  of  operations  or  cash  flows.

     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.

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

Risk  Factors

     Our  licensees  are  subject  to extensive and increasingly strict federal,
state  and  local  environmental  regulation  and  permitting.

     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.

The  ability  to  grow  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,
2005  and  2004,  our  single  largest  customer  accounted for approximately 37
percent  and  34  percent,  respectively,  of  our  revenues  and  our top three
customers  accounted  for approximately 62 percent and 63 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  affect  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  dependent  on  the  members  of  our  management  team.

     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.


<PAGE>
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-24

</TABLE>


                                       F-6

<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, 2005 and 2004,
and the related consolidated statements of operations, stockholders' equity, and
cash  flows  for  the years then ended.  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. An audit
includes  examining,  on  a  test  basis,  evidence  supporting  the amounts and
disclosures  in  the  consolidated financial statements.  An audit also includes
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, 2005 and 2004, and the results of its operations
and  its  cash  flows  for  the  year  then  ended in conformity with accounting
principles  generally  accepted  in  the  United  States  of  America.




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

March 1, 2006


<PAGE>


<TABLE>
<CAPTION>

                        N-VIRO INTERNATIONAL CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2005 and 2004
                           --------------------------


                                                       2005        2004
                                                    ----------  ----------
<S>                                                 <C>         <C>
ASSETS
-------

CURRENT ASSETS
Cash and cash equivalents:
  Unrestricted . . . . . . . . . . . . . . . . . .  $  224,447  $  147,549
  Restricted . . . . . . . . . . . . . . . . . . .     128,133      75,600
Receivables:
  Trade, net . . . . . . . . . . . . . . . . . . .     600,180     578,070
  Stock subscription . . . . . . . . . . . . . . .           -      42,500
  Notes receivable - current . . . . . . . . . . .           -     112,802
Prepaid expenses and other assets. . . . . . . . .     204,360     108,732
                                                    ----------  ----------
Total current assets . . . . . . . . . . . . . . .   1,157,120   1,065,253

PROPERTY AND EQUIPMENT, NET. . . . . . . . . . . .     382,085     360,952

INVESTMENT IN AND ADVANCES TO FLORIDA N-VIRO, L.P.           -     186,475

NOTES RECEIVABLE, NET OF CURRENT PORTION . . . . .           -         338

INTANGIBLE AND OTHER ASSETS, NET . . . . . . . . .   1,037,693   1,078,771
                                                    ----------  ----------


                                                    $2,576,898  $2,691,789
                                                    ==========  ==========
</TABLE>








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

<PAGE>



<TABLE>
<CAPTION>

                              N-VIRO INTERNATIONAL CORPORATION

                                 CONSOLIDATED BALANCE SHEETS

                                 December 31, 2005 and 2004
                                 --------------------------





                                                                    2005           2004
                                                                -------------  -------------
<S>                                                             <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES
  Current maturities of long-term debt . . . . . . . . . . . .  $     80,860   $     91,072
  Line-of-credit . . . . . . . . . . . . . . . . . . . . . . .        80,000        200,000
  Accounts payable . . . . . . . . . . . . . . . . . . . . . .       833,447        864,580
  Accrued liabilities. . . . . . . . . . . . . . . . . . . . .       204,109        293,201
                                                                -------------  -------------
Total current liabilities. . . . . . . . . . . . . . . . . . .     1,198,416      1,448,853

LONG-TERM DEBT, LESS CURRENT MATURITIES. . . . . . . . . . . .        21,209        114,263
                                                                -------------  -------------

Total liabilities. . . . . . . . . . . . . . . . . . . . . . .     1,219,625      1,563,116

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
 Common stock, $.01 par value
  Authorized - 7,000,000 shares
  Issued - 3,814,059 shares in 2005 and 3,569,693 shares in 2004      38,141         35,697
 Preferred stock, $.01 par value
  Authorized - 2,000,000 shares
  Issued - -0- shares in 2005 and 1 share in 2004. . . . . . .             -              -
 Additional paid-in capital . . . . . . . . . . . . . .  . . .    15,290,831     14,791,346
 Accumulated deficit. . . . . . . . . . . . . . . . . .  . . .   (13,286,809)   (13,013,480)
                                                                -------------  -------------
                                                                   2,042,163      1,813,563

 Less treasury stock, at cost, 123,500 shares . . .. . . . . .       684,890        684,890
                                                                -------------  -------------
Total stockholders' equity . . . . . . . . . . . . . . . . . .     1,357,273      1,128,673
                                                                -------------  -------------

                                                                $  2,576,898   $  2,691,789
                                                                =============  =============
</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, 2005 and 2004
                          --------------------------------------



                                                                    2005         2004
                                                                 -----------  -----------
<S>                                                              <C>          <C>
REVENUES. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $4,184,424   $5,453,493

COST OF REVENUES. . . . . . . . . . . . . . . . . . . . . . . .   2,947,861    3,940,703
                                                                 -----------  -----------

GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . .   1,236,563    1,512,790

OPERATING EXPENSES
  Selling, general and administrative . . . . . . . . . . . . .   1,418,684    1,591,009
  Litigation settlement expense (income). . . . . . . . . . . .     (14,000)      37,100
                                                                 -----------  -----------
                                                                  1,404,684    1,628,109
                                                                 -----------  -----------

OPERATING LOSS. . . . . . . . . . . . . . . . . . . . . . . . .    (168,121)    (115,319)

NONOPERATING INCOME (EXPENSE)
  Interest income . . . . . . . . . . . . . . . . . . . . . . .       6,440       23,686
  Interest expense. . . . . . . . . . . . . . . . . . . . . . .     (26,950)      (6,274)
  Loss on sale of assets. . . . . . . . . . . . . . . . . . . .      (6,335)     (15,632)
  Loss from equity investment in joint venture. . . . . . . . .    (186,475)    (115,449)
  Gain on legal debt forgiven . . . . . . . . . . . . . . . . .     108,112      157,174
                                                                 -----------  -----------
                                                                   (105,208)      43,505
                                                                 -----------  -----------

LOSS BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . . . .    (273,329)     (71,814)

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

NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ (273,329)  $  (71,814)
                                                                 ===========  ===========


Basic and diluted loss per share. . . . . . . . . . . . . . . .  $    (0.08)  $    (0.02)
                                                                 ===========  ===========

Weighted average common shares outstanding - basic and diluted.   3,542,088    3,079,216
                                                                 ===========  ===========
</TABLE>



   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, 2005 and 2004

                                                              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, 2004. . . . . . .     2,713,833  $27,138  $13,587,484  $(12,941,666)  $(684,890)  $  (11,934)

 Net loss . . . . . . . . . . .. . .             -        -            -       (71,814)          -      (71,814)
 Issuance of common stock for options       41,500      415       65,429             -           -       65,844
 Issuance of common stock . . . .  .       814,360    8,144    1,122,264             -           -    1,130,408
 Other. . . . . . . . . . . . . .  .             -        -       16,169             -           -       16,169
                                      ------------  -------  -----------  -------------  ----------  -----------

BALANCE DECEMBER 31, 2004. . . . . .     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
                                      ============  =======  ===========  =============  ==========  ===========
</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, 2005 and 2004
                     --------------------------------------

                                                         2005         2004
                                                      ----------  ------------
<S>                                                   <C>         <C>
Cash Flows From Operating Activities
 Net loss . . . . . . . . . . . . . . . . . . . .. .  $(273,329)  $   (71,814)
 Adjustments to reconcile net loss to net
  cash (used in) provided by operating activities:
   Depreciation and amortization. . . . . . . . .. .    223,553       232,857
   Provision (credit) for bad debts . . . . . . .. .     21,000       (21,946)
   Issuance of stock for debt and services. . . .. .    391,300       498,543
   Loss on the sale of fixed assets . . . . . . .. .      6,336        15,632
   Loss from investment in Florida N-Viro . . . .. .    186,475       115,449
   Changes in Operating Assets and Liabilities
   Decrease in trade receivables. . . . . . . . .. .     28,046       279,762
   Increase in prepaid expenses and other assets.. .   (198,060)      (75,770)
   Decrease in inventory. . . . . . . . . . . . .. .          0        80,932
   Decrease in accounts payable and accrued liabilities (99,003)   (1,114,030)
                                                      ----------  ------------
Net cash provided by (used in) operating activities.    286,318       (60,385)

Cash Flows From Investing Activities
 Increases from restricted cash and cash equivalents.   (52,533)      (75,600)
 Purchases of property and equipment. . . . . . .  .   (105,348)       (3,395)
 Proceeds from sale of property and equipment . .  .      1,139         1,354
 Collections on notes receivable. . . . . . . . .  .     43,768        22,000
 Expenditures for intangible assets . . . . . . .  .          0       (25,020)
                                                      ----------  ------------
Net cash used in investing activities. . . . . . . .   (112,974)      (80,661)

Cash Flows From Financing Activities
 Net repayments on line-of-credit . . . . . . . .  .   (120,000)     (198,223)
 Borrowings under long-term obligations . . . . .  .          -        74,386
 Principal payments on long-term obligations. . .  .   (103,266)     (317,554)
 Issuance of common stock for options exercised .  .          -        69,867
 Issuance of common stock . . . . . . . . . . . .  .    130,000       548,313
 Expenditures for private placement of stock. . .  .     (3,180)      (11,741)
                                                      ----------  ------------
Net cash provided by (used in) financing activities.    (96,446)      165,048
                                                      ----------  ------------

Net Increase in Cash and Cash Equivalents. . . . . .     76,898        24,002

Cash and Cash Equivalents - Beginning. . . . . . . .    147,549       123,547
                                                      ----------  ------------

Cash and Cash Equivalents - Ending . . . . . . . . .  $ 224,447   $   147,549
                                                      ==========  ============

Supplemental disclosure of cash flows information:
Cash paid during the year for interest . . . . . . .  $  38,240   $    49,990
                                                      ==========  ============
</TABLE>

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


<PAGE>
                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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  sludges  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.

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  and  2004.

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  a  certificate of deposit which was held as
collateral  against  the  Company's  line-of-credit  as  of  December  31, 2005.

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 $56,467 and $13,553 of net receivables
for  the  years  ended  December 31, 2005 and 2004, 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
NOTE  1.     OPERATIONS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES
(CONTINUED)

     Management  estimates an allowance for doubtful accounts, which was $55,000
and  $34,000  as  of  December 31, 2005 and 2004, 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 $79,636
and  $89,303  in  2005 and 2004, 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
14.7  years  at  December  31, 2005 and 2004).  Amortization expense amounted to
$143,917  and  $143,554  in  2005 and 2004, respectively; estimated amortization
expense,  based  on  intangible  assets  at  December  31, 2005, for each of the
ensuing  five  years  is  as  follows:  2006 - $137,000; 2007 - $122,000; 2008 -
$105,000;  2009  -  $97,000; 2010 - $94,000.  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.  Management believes the carrying amount is not impaired based upon
estimated future cash flows.  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
2005 and 2004;  estimated amortization expense for each of the next two years is
as  follows:  2006  -  $7,500;  2007  -  $795.

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, 2005 and 2004, the effects
of the stock options granted are excluded from the diluted per share calculation
because  they  would  be  antidilutive.

L.      Stock  Options  -  As  permitted  under  accounting principles generally
accepted  in the United States of America, the Company's present accounting with
respect  to the recognition and measurement of stock-based employee compensation
costs  is  in  accordance with APB Opinion No. 25, which generally requires 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
years  ended  December  31,  2005  and 2004.  The Company follows the disclosure
provisions  of  SFAS Statements No. 123 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.


<TABLE>
<CAPTION>


                                                2005        2004
                                             ----------  ----------
<S>                                          <C>         <C>
Loss from continuing operations:
Net loss as reported. . . . . . . . . . . .  $(273,329)  $ (71,814)
Deduct: Total stock-based employee
  compensation expense determined under
  fair value based method for all awards, net
  of related tax effects. . . . . . . . . .    179,045     692,284
                                             ----------  ----------
Pro-forma net loss. . . . . . . . . . . . .   (452,374)   (764,098)
Loss from continuing operations per
  share (basic and diluted):
   As reported . . . .. . . . . . . . . . .  $   (0.08)  $   (0.02)
   Pro-forma . . . . .. . . . . . . . . . .  $   (0.13)  $   (0.25)
                                             ----------  ----------
</TABLE>



                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and 2004,
respectively:  no assumed dividend rates for all years; risk-free interest rates
of 4.4% for both years, on expected lives of either 10 years or 5 years for both
years;  and  expected  price volatility averaging 132% on the 5 year options and
174%  on  the 10 year options for 2005, and 237% on all options granted in 2004,
respectively.

M.  New  Accounting  Standards - In December 2004, SFAS No. 123, "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 had
no  effect  on  our financial condition or results of operations for the current
year,  but  it  expected  to  affect  our  financial  condition  and  results of
operations  starting  with  the  first  quarter of 2006.  This is expected to be
reflected  by  the expensing of existing stock options granted in 2004 that vest
through 2008 to current optionees, and any 2006 options granted to directors for
board meetings.  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>

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

          In March 2005, FASB Interpretation No. 47 (or FIN 47), "Accounting for
Conditional Asset Retirement Obligations-an interpretation of FASB Statement No.
143",  was  issued.  The primary objective of FIN 47 is to provide guidance with
respect  to the timing of liability recognition for legal obligations associated
with  the  retirement  of  a  tangible long-lived asset when the timing and (or)
method  of settlement of the obligation are conditional on a future event.  This
Interpretation  also  clarifies when an entity would have sufficient information
to  reasonably  estimate  the fair value of an asset retirement obligation.  The
Company  does  not  expect the application of the provisions of FIN 47 to have a
material  impact on its financial position, results of operations or cash flows.

          In  May  2005,  the  FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3",
which  amends  the  guidance  in  APB  No.  20,  "Accounting  Changes," and FASB
Statement No. 3, "Reporting Accounting Changes In Interim Financial Statements",
and changes the requirements for the accounting for and reporting of a change in
accounting  principle.  The  Statement  is  effective for accounting changes and
corrections  of  errors  made in fiscal years beginning after December 15, 2005.
The Company does not expect the application of the provisions of SFAS No. 154 to
have  a material impact on its financial position, results of operations or cash
flows.

          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

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.

<PAGE>

NOTE  2.     BALANCE  SHEET  DATA

STOCK  SUBSCRIPTION  RECEIVABLE:

At  December  31,  2004,  the Company had a stock subscription receivable in the
amount  of  $42,500  due  from two related parties, both members of the Board of
Directors,  and  this  amount  was  paid  to  the  Company  in  January  2005.


NOTES  AND  OTHER  RECEIVABLES:

At  December  31, 2004, an unsecured, 6% demand note receivable dated October 1,
2003  was due from an unrelated third-party licensee, Soil Preparation Inc., for
$110,528,  including  accrued  interest.  The  Note  was  for  18  months,  with
principal  scheduled  to  be paid commencing July 1, 2004 and ending December 1,
2005.  The  Note was paid in 2005 from a combination of $41,749 in cash received
and  a  credit  offset  of  $68,779  for  related  payables due a common vendor.

At December 31, 2004, an unsecured, 6% demand note receivable dated December 15,
2003  was due from an unrelated third-party licensee, N-Viro Systems Canada, for
a  balance  of  $2,612.  The  Note  was  paid  off  in  February  2005.


<TABLE>
<CAPTION>

                                          2005     2004
                                          -----  --------
<S>                                       <C>    <C>
Notes receivable - third-party licensees  $   -  $113,140

Less current maturities. . . . . . . . .      -   112,802
                                          -----  --------

                                          $   -  $    338
                                          =====  ========
</TABLE>



PROPERTY  AND  EQUIPMENT  (AT  COST):

<TABLE>
<CAPTION>


                                                  2005       2004
                                                --------  ----------
<S>                                             <C>       <C>
Leasehold improvements . . . . . . . . . . . .  $ 41,771  $   42,464
Equipment. . . . . . . . . . . . . . . . . . .   844,060     861,435
Furniture, fixtures and computers. . . . . . .    76,756     103,029
                                                --------  ----------
                                                 962,587   1,006,928
Less accumulated depreciation and amortization   580,502     645,976
                                                --------  ----------

                                                $382,085  $  360,952
                                                ========  ==========
</TABLE>



                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<PAGE>

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).  The Company
owns a 47.5% interest in the joint venture and, as described in Note 1, accounts
for  its  investment under the equity method.  The Company's has recognized it's
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  2005 was $517,190.  Of this, the
Company  would  have been required to record 47.5% of the loss, or $245,665, but
recorded  $186,475.

At  December  31,  2005,  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)  are  due  from  Florida N-Viro, the
Company's  joint  venture investee.  The notes due from Florida N-Viro have been
deemed  to  be  noncurrent by management in the accompanying balance sheets.  In
2005,  no  interest  was  received on the notes due from Florida N-Viro.  During
2005,  the  Company recorded an additional allowance of $39,538 for the interest
portion  of  the notes receivable.  In 2005, an additional $186,475 was recorded
to the allowance against the Note, to recognize the additional loss in excess of
the remaining investment account.  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 December 31, 2005.  Any additional losses passed
through  from  the  partnership  will  no longer be recorded on the books of the
Company,  exclusive  of  any  further  funding  from  the Company or net profits
generated  from  the  joint  venture.


<TABLE>
<CAPTION>

                                                               2005     2004
                                                               -----  --------
<S>                                                            <C>    <C>
Notes receivable - Florida N-Viro, L.P., net of allowance of
462,858 in 2005 and $236,845 in 2004 . . . . . . . . . . . .  $   -  $186,475
</TABLE>



The  Company  is  currently  actively pursuing sale of its investment in Florida
N-Viro,  L.P.,  which  may provide, in management's opinion, additional funds to
finance  the  Company's  cash  requirements.  Because these efforts are still in
progress, there can be no assurance the Company will successfully complete these
negotiations.

Condensed  financial  information of the partnership as of December 31, 2005 and
2004  is  as  follows:

<TABLE>
<CAPTION>

                          2005         2004
                       -----------  -----------
<S>                    <C>          <C>
Current assets. . . .  $  545,097   $  432,028
Long-term assets. . .     300,673      656,843
                       -----------  -----------

                       $  845,770   $1,088,871
                       ===========  ===========

Current liabilities .  $1,796,705   $1,522,616
Long-term liabilities           -            -
Partners' deficit . .    (950,935)    (433,745)
                       -----------  -----------

                       $  845,770   $1,088,871
                       ===========  ===========
</TABLE>



NOTE  2.     BALANCE  SHEET  DATA  (CONTINUED)

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

<TABLE>
<CAPTION>

                                Year Ended December 31,
                               ------------------------

                                    2005         2004
                               -----------  -----------
<S>                            <C>          <C>
Net sales                      $1,157,321   $1,894,657
Net loss.                        (517,190)    (243,050)
</TABLE>


During  2005  and 2004, the Partnership's largest customer accounted for 23% and
25%,  respectively,  of  its  revenue.  Additionally,  during 2005 and 2004, the
Partnership's largest customers accounted for 85% (four customers) and 73% (four
customers)  of  total  revenue,  respectively.



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.


<TABLE>
<CAPTION>

                                                                    2005        2004
                                                                 ----------  ----------
<S>                                                              <C>         <C>
Patents and related intangibles, less accumulated
amortization (2005 - $656,453; 2004 - $569,800) . . . . . . . .  $  597,441  $  688,284

Territory rights, less accumulated amortization
(2005 - $370,710; 2004 - $314,700). . . . . . . . . . . . . . .     315,153     371,122

Deferred costs, less accumulated amortization ($46,929 in 2005)     113,971           -

Loan costs, less accumulated amortization ($23,340 in 2005
and $14,365 in 2004). . . . . . . . . . . . . . . . . . . . . .       9,610      15,635

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,518       3,730
                                                                 ----------  ----------

                                                                 $1,037,693  $1,078,771
                                                                 ==========  ==========
</TABLE>



                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<PAGE>
NOTE  2.     BALANCE  SHEET  DATA  (CONTINUED)


ACCRUED  LIABILITIES:

<TABLE>
<CAPTION>

                                         2005      2004
                                       --------  --------
<S>                                    <C>       <C>
Accrued payroll and employee benefits  $ 16,420  $100,379
Sales tax payable . . . . . . . . . .   186,733   181,670
Interest payable. . . . . . . . . . .       956    11,152
                                       --------  --------

                                       $204,109  $293,201
                                       ========  ========
</TABLE>




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

Our  $845,000 credit facility with Monroe Bank + Trust, or the Bank is comprised
of a $295,000 four year term note at 7.5% and a line of credit up to $550,000 at
Prime plus 1.5% and secured by a first lien on all our assets.  In January 2004,
we  purchased  a  certificate of deposit in the amount of $75,000 from the Bank,
and  transferred  custodianship  of  all  of our treasury stock to the Bank.  In
February  2004, the Bank decreased the maximum amount available to borrow on the
line to $400,000, but also reduced the financial covenants to make it easier for
us  to  maintain  the facility.  In February 2005, the Bank amended the facility
and  released  certain  additional  collateral  but  required  us  to provide an
additional  $50,000  certificate  of  deposit.  In the fourth quarter of 2005 we
renewed the line of credit through October 2006, and are not in violation of any
financial  covenants.  At  December  31,  2005,  we  had  $320,000  of borrowing
capacity  under  the  Credit  Facility.

Long-term  debt  at  December  31,  2005  and  2004  is  as  follows:

<TABLE>
<CAPTION>

                           2005      2004
                         --------  --------
<S>                      <C>       <C>
Notes payable . . . . .  $102,069  $205,335
Less current maturities    80,860    91,072
                         --------  --------

                         $ 21,209  $114,263
                         ========  ========
</TABLE>


                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The  notes payable are owed to the Company's bank at December 31, 2005 and to an
equipment  vendor  and  the Company's bank at December 31, 2004.  The notes bear
interest  of  7.5%  at  December  31,  2005  and  ranging from 7.5% to 9.837% at
December  31,  2004,  and are due at varying dates through March 2007.  The note
payable  at  December  31, 2005 is secured by the general assets of the Company.
Aggregate  maturities  of long-term debt for the years ending December 31 are as
follows:  2006 - $80,860; 2007 - $21,209.  Interest paid was $38,240 and $49,990
for  the  years  ended  December  31,  2005  and  2004,  respectively.

<PAGE>

                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  4.     EQUITY  TRANSACTIONS

The  Company  has  authorized  2,000,000 shares of preferred stock, par value of
$.01  per  share, of which -0- shares and one share were outstanding at December
31,  2005 and 2004, respectively.  In 2003, the Board authorized the creation of
a  class  of Series A Preferred Stock of the Company, $0.01 par value, one share
of which was issued to Mr. J. Patrick Nicholson, in connection with a Settlement
Agreement.  The  Series  A  Preferred  Stock  issued  to  Mr.  Nicholson  was
non-transferable,  had  a  term  equal  to ten years, and the right to appoint a
Director  that was subject to cancellation if Mr. Nicholson ceased to control at
least  17.5%  of  the aggregate number of shares of the Company's voting, common
stock issued and outstanding as a result of his actions.  The Series A Preferred
Stock  did  not  have  a  liquidation  preference, and was issued pursuant to an
exemption  from  registration  under  to Section 4(2) of the Securities Act as a
transaction  not involving a public offering.  In May 2005, the Company redeemed
the  share  of  Preferred  Stock  due to sales by Mr. Nicholson of the Company's
common  stock  in  2003.

The  Company  has a stock option plan approved in May 2004 for directors and key
officers  under  which  1,000,000  shares  of  common  stock may be issued.  The
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  2005 and 2004 at the approximate market value of the
stock  at  date  of grant, except for grants to Michael Nicholson, the Company's
Chief  Development  Officer  and  a  member  of  the  Board.

In  May  2004,  50,000  stock  options  granted to Mr. 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 and
$15,947  for  the  years  ended  December  31,  2005  and  2005,  respectively.

In  the third quarter of 2005, one optionee exercised 2,000 options at an option
price of $1.50.  In the first quarter of 2004, seven optionees exercised a total
of  41,500  options  at  a  weighted  average  option  price  of  $1.59.

<PAGE>

NOTE  4.     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,
2005  and  2004  and  the  number  outstanding  and  exercisable at those dates:

<TABLE>
<CAPTION>

                                              2005                                        2004
                                            ------------------------------------------    ----------------------------------------
                                             Shares   Weighted Average Exercise Price    Shares   Weighted Average Exercise Price
                                            --------  --------------------------------  --------  --------------------------------
<S>                                         <C>       <C>                               <C>       <C>
Outstanding, beginning of year . . . . . .  784,325   $                           2.39  512,375   $                           2.35
Granted. . . . . . . . . . . . . . . . . .   73,325                               2.03  314,450                               2.27
Exercised              . . . . . . . . . .  ( 2,000)                              1.50  (41,500)                              1.59
Expired during the year. . . . . . . . . . (163,075)                              2.48  ( 1,000)                              4.00
                                            --------                                    --------
Outstanding, end of year . . . . . . . . .  692,575                               2.33  784,325                               2.39
                                            ========                                    ========

Eligible for exercise at end of year . . .  651,575                                     640,225
                                            ========                                    ========

Weighted average fair value per option for
options granted during the year                       $                           2.03            $                           2.50
                                                      ================================            ================================
</TABLE>



A  further  summary  of  stock  options  follows:

<TABLE>
<CAPTION>

                            Options Outstanding                                          Options Exercisable
                            ----------------------------------------------------------   -------------------------------------
                                   # O/S         Whtd Ave Remain Life  Whtd Ave Exer $         # Exer.        Wgtd Ave Exer $
                            -------------------  --------------------  ----------------  -------------------  ----------------
<S>                         <C>                  <C>                   <C>               <C>                  <C>
                                                                   2005
                            --------------------------------------------------------------------------------------------------
Range of exercise prices:
0.90 to $1.45 . . . . . .               52,475                  7.22  $           1.00               52,150  $           1.00
1.50 to $2.43 . . . . . .              446,150                  5.08              1.99              405,875              1.99
2.45 to $3.45 . . . . . .              152,650                  8.14              2.91              152,250              2.91
4.00 to $5.00 . . . . . .               41,300                  2.87              4.90               41,300              4.90
                            -------------------                                          -------------------
                                       692,575                                                      651,575

                                                                   2004
                            --------------------------------------------------------------------------------------------------
Range of exercise prices:
0.90 to $1.45 . . . . . .               52,150                  8.22  $           1.00               35,600  $           0.90
1.50 to $2.43 . . . . . .              532,800                  5.49              2.07              405,250              2.11
2.50 to $3.45 . . . . . .              136,200                  9.14              2.98              136,200              2.98
4.00 to $5.00 . . . . . .               63,175                  4.12              4.88               63,175              4.88
                            -------------------                                          -------------------
                                       784,325                                                      640,225
</TABLE>


NOTE  5.     REVENUE  AND  MAJOR  CUSTOMERS

Revenues  for  the  years  ended  December  31,  2005  and  2004  consist of the
following:

<TABLE>
<CAPTION>

                          2005        2004
                       ----------  ----------
<S>                    <C>         <C>
Facility management .  $1,081,996  $1,386,693
Technology fees . . .     437,130     653,624
Products and services   2,665,298   3,413,176
                       ----------  ----------

                       $4,184,424  $5,453,493
                       ==========  ==========
</TABLE>





Cost  of  revenues for the years ended December 31, 2005 and 2004 consist of the
following:

<TABLE>
<CAPTION>

                          2005        2004
                       ----------  ----------
<S>                    <C>         <C>
Facility management .  $1,044,066  $1,311,501
Technology fees . . .     492,095      97,238
Products and services   1,411,700   2,531,964
                       ----------  ----------

                       $2,947,861  $3,940,703
                       ==========  ==========
</TABLE>



                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenues  for  the  years ended December 31, 2005 and 2004 include revenues from
one  major  customer,  the  City  of  Toledo,  Ohio  (included  in  the facility
management  and  products  and  services  classifications),  which  represented
approximately  37%  and  34%, respectively, of total revenues.  In addition, the
Company had another major customer, WeCare Environmental Services, which totaled
approximately  14%  of  total revenues (which is included mainly in the products
and services classification) for the year ended December 31, 2004, but decreased
to  approximately  5%  for  the  year  ended  December  31,  2005.  The accounts
receivable  balances  due  (all  of which are unsecured) from these customers at
December  31,  2005  and  2004  were  approximately  $125,000  and  $190,000,
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.


<PAGE>

NOTE  6.     COMMITMENTS  AND  CONTINGENCIES

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

In  August  2003,  the  Company  entered into a Settlement Agreement with Mr. J.
Patrick  Nicholson, our former Chairman and CEO, and negotiated a new Consulting
Agreement  (the  "Agreement").  The  Agreement was scheduled to expire in August
2008,  and  Mr. Nicholson was required to provide future services to be eligible
for  compensation.  Mr.  Nicholson  was also entitled to payments of $48,000 per
year  for non-competition and $6,000 per year for office space reimbursement, in
addition  to  life  and  health  insurance  coverage  similar  to  the provision
contained  in  his 1999 employment and consulting agreements.  Mr. Nicholson was
being  paid an aggregate of over $92,000 per year under the Agreement, exclusive
of  any  other payouts earnable.  In June 2005, Mr. Nicholson filed a Demand for
Arbitration,  seeking  damages  of  $50,000  based  on  a  claimed breach of the
Agreement.  The  Company  is  uncertain  as to any additional obligations to Mr.
Nicholson  under  the  Agreement  or in settlement of any additional claims.  In
July  2005,  the  Board of Directors voted to terminate the Agreement for cause,
based on numerous specific instances of violations of the terms of the Agreement
by  Mr.  Nicholson.  Mr.  Nicholson  is  a  reporting  beneficial  owner  of our
outstanding  common stock, as of the date of his Form SC 13D/A filed October 24,
2005.

In  July  2004,  the Company completed negotiations and engaged its former Chief
Executive  Officer and current member of the Board of Directors, Terry J. Logan,
as  an  outside consultant.  The consulting agreement extended through June 2006
and required Dr. Logan to provide a minimum of 104 business days annually, to be
paid at a rate of $700 per day and 1,000 stock options per month.  In July 2005,
Dr.  Logan  rescinded  the  stock  options  portion of his consulting agreement,
effective  with  services  rendered after June 2005.  In March 2006, the Company
approved  a  First  Amendment  to  the  consulting agreement and was extended an
additional  two  (2)  years  to  June  2008.  All  other  terms  of the existing
agreement have been retained, with the exception of the section referring to Dr.
Logan's  stock  option  compensation,  which  has  been  deleted  by  the  First
Amendment.  Dr.  Logan  will  continue  to be compensated at the same rate.  The
First  Amendment  to  the  Consulting  Agreement is effective as of February 13,
2006.

In  March  2006,  the Company approved a consulting agreement with DJH Holdings,
LLC,  a  company  owned by Daniel J. Haslinger, a current member of the Board of
Directors  and  up  until  February 14, 2006, it's Chief Executive Officer.  The
consulting agreement is for a six-month term, is terminable by DJH Holdings, LLC
upon  fifteen  (15)  days notice or by the Company upon ninety (90) days notice.
Payments  under  the  consulting agreement are $9,000 per month.  The consulting
agreement  is  effective  as  of  February  13,  2006.

In  March 2006, the Company approved a consulting agreement with Carl Richard, a
current  member of the Board of Directors.  The term of the consulting agreement
is  one  (1) year, is terminable by Mr. Richard upon fifteen (15) days notice or
by  the  Company  upon  ninety  (90) days notice.  Payments under the consulting
agreement  are  $1,600  per  month.  The consulting agreement is effective as of
February  13,  2006.

The  Company  leases  its  executive  and administrative office in Toledo, Ohio,
under  a  lease  that  was renewed in January 2003 and amended in November 2004.
The  Company  believes  its  relationship  with its lessor is satisfactory.  The
total  minimum rental commitment for the years ending December 31, 2006 and 2007
is  approximately  $37,200  and  $6,200, respectively.  The total rental expense
included  in  the  statements of operations for the year ended December 31, 2005
and  2004  is approximately $37,500 and $55,400, respectively.  The Company also
leases  various  equipment  on  a  month-to-month  basis.

<PAGE>

NOTE  6.     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  7.     INCOME  TAX  MATTERS

The  composition of the deferred tax assets and liabilities at December 31, 2005
and  2004  is  as  follows:


<TABLE>
<CAPTION>

                                            2005          2004
                                        ------------  ------------
<S>                                     <C>           <C>
Gross deferred tax liabilities:
  Property and equipment depreciation   $   (18,700)  $   (28,200)
  Florida N-Viro book vs. tax loss. .       (23,700)            -
Gross deferred tax assets:
  Loss carryforwards. . . . . . . . .     5,213,800     5,034,400
  Patent costs. . . . . .  . . . . . .       54,700       131,100
  Florida N-Viro asset impairment . .       200,000       200,000
  Allowance for doubtful accounts . .        22,000        13,600
  Allowance for notes receivable. . .        45,100        29,300
  Other . . . . . . . . . . . . . . .         3,100        10,500

Less valuation allowance. . . . . .      (5,496,300)   (5,390,700)
                                        ------------  ------------

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





<PAGE>

NOTE  7.     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, 2005 and 2004 and are as follows:


<TABLE>
<CAPTION>

                                                  2005       2004
                                                ---------  ---------
<S>                                             <C>        <C>
Computed "expected" tax (credits). . . . . . .  $(92,900)  $(24,400)
State taxes, net of federal tax benefit. . . .    (8,200)    (2,100)
(Decrease) increase in income taxes resulting
from:
  Change in valuation allowance. . . . . . . .   105,600     30,800
  Other. . . . . . . . . . . . . . . . . . . .    (4,500)    (4,300)
                                                ---------  ---------

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


The net operating losses available at December 31, 2005 to offset future taxable
income  total  approximately  $13,000,000 and expire principally in years 2009 -
2025.



NOTE  8.     CASH  FLOWS  INFORMATION

Information relative to the statements of cash flows not disclosed elsewhere for
the  years  ended  December  31,  2005  and  2004  follows:


<TABLE>
<CAPTION>


                                            2005      2004
                                          --------  --------
<S>                                       <C>       <C>
Issuances of stock for debt and services  $391,300  $498,543
                                          ========  ========
</TABLE>

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 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.

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.

In 2004, the Company issued 7,329 shares of unregistered common stock to members
of  the  Board  of Directors, in exchange for services rendered to management in
the  amount  of  $9,000  each,  or  a  total  of  $18,000.

In  2004,  the  Company issued 72,237 shares of unregistered common stock to two
trade  creditors,  eliminating  $162,533  worth  of  debt  owed  by  us  to such
creditors.

<PAGE>

NOTE  8.     CASH  FLOWS  INFORMATION  (CONTINUED)

In  2004,  the  Company  issued  32,760  shares  of unregistered common stock to
current  and  former members of the Board of Directors, to replace stock options
not  granted,  at  a  total  estimated  cost  of  $73,710.

In  2004,  the  Company issued 34,211 shares and 37,143 shares, respectively, of
unregistered  common  stock  to  our patent law firm in settlement of trade debt
owed.  As part of the settlement, we agreed to issue the stock worth $130,000 at
the  time  of  delivery,  in  two  installments  on  the  dates  issued.

In  2004,  the  Company  contracted  with  Quest  Equities,  LLC  to  provide
non-exclusive  financial  and  business consulting services and we issued 50,000
shares  of  unregistered  common  stock  at  an  estimated  cost  of  $75,300.

In  2004,  the  Company  issued  31,200  shares  of unregistered common stock to
Strategic  Asset  Management,  Inc.,  for  payment of a proposed settlement of a
pending  shareholder  derivative  action,  totaling  $39,000.


NOTE  9.     SEGMENT  INFORMATION

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  9.     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, 2005 and 2004 (dollars in thousands).


<TABLE>
<CAPTION>

                                     Other
                     Management    Domestic      Foreign     Research &
                     Operations   Operations   Operations   Development   Total
                     -----------  -----------  -----------  ------------  ------
<S>                  <C>          <C>          <C>          <C>           <C>
                                           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

                                           2004
--------------------------------------------------------------------------------
Revenues. . . . . .  $     1,845  $     3,465  $        52  $         92  $5,454
Cost of revenues. .        1,216        2,668            -            57   3,941
Segment profits . .          629          797           52            35   1,513
Identifiable assets          287           63            -             -     350
Depreciation. . . .           62           18            -             -      80
</TABLE>


NOTE  9.     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,  2005  and  2004  follows  (dollars  in  thousands):


<TABLE>
<CAPTION>

                                                  2005      2004
                                                --------  --------
<S>                                             <C>       <C>
Segment profits:
Segment profits for reportable segments. . . .  $ 1,237   $ 1,513
Corporate selling, general and administrative
  expenses and research and development costs.   (1,405)   (1,628)
Other income (expense) . . . . . . . . . . . .     (105)       44
                                                --------  --------
Consolidated earnings before taxes . . . . . .  $  (273)  $   (71)
                                                ========  ========

Identifiable assets:
 Identifiable assets for reportable segments .  $   376   $   350
 Corporate property and equipment . . . . .  .        6        11
 Current assets not allocated to segments .  .    1,157     1,065
Intangible and other assets not allocated to
 segments . . . . . . . . . . . . . . . . .  .    1,038     1,266
Consolidated eliminations. . . . . . . . . . .        -         -
                                                --------  --------
Consolidated assets. . . . . . . . . . . . . .  $ 2,577   $ 2,692
                                                ========  ========

Depreciation and amortization:
 Depreciation for reportable segments . .  . .  $    75   $    80
 Corporate depreciation and amortization.  . .      149       150
                                                --------  --------
Consolidated depreciation and amortization . .  $   224   $   230
                                                ========  ========
</TABLE>



                        N-VIRO INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  10.     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,  2005  and  2004.


NOTE  11.     GAIN  ON  LEGAL  DEBT  FORGIVEN

     In  2005, the Company reached an agreement to settle trade debt owed to its
law  firm  which  totalled  $108,112  at  the time of settlement, for previously
billed  legal  services  provided  through September 2004.  In 2004, the Company
reached  settlement  on  trade debt and a note owed to its patent law firm which
totalled  $470,442  at the time of settlement.  The law firm agreed, in exchange
for  cash  payments totaling $183,268 and registered common stock of the Company
worth  $130,000  at  the time of delivery, to forgive the balance of $157,174 in
previously  billed  services and accrued interest.  The stock was required to be
delivered  on September 1 and November 1, 2004 in equal installments.  Our total
cash  saved  as  a  result  of  this  settlement  was  $287,174.




<PAGE>

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

     None


ITEM  8A.          CONTROLS  AND  PROCEDURES

     As of December 31, 2005, under the direction of our Chief Executive Officer
and  Chief  Financial  Officer, we evaluated the effectiveness of the design and
operation  of  our disclosure controls and procedures, as defined in Rules 13a -
15(e)  and  15d  -  15(e)  under the Securities Exchange Act of 1934, as amended
("the  Act").  We  concluded  that  our  disclosure controls and procedures were
effective  as  of  December  31,  2005, such that the information required to be
disclosed  in  our  SEC  reports is recorded, processed, summarized and reported
within  the  time  periods  specified  by  the  SEC's  rules  and  forms, and is
accumulated  and  communicated  to  management,  including  our  Chief Executive
Officer  and  Chief  Financial Officer, as appropriate to allow timely decisions
regarding  required  disclosure.

     There  were  no  changes  in our internal controls over financial reporting
during  the  year  ended December 31, 2005 that have materially affected, or are
reasonably  likely  to  materially  affect, our internal controls over financial
reporting.

ITEM  8B.     OTHER  INFORMATION

     Our  Annual Stockholders Meeting has been held in May or June during recent
years. Due to recent changes in management, our Board of Directors has scheduled
Tuesday,  November  14,  2006 as the date of our Annual Stockholders Meeting for
2006.  The  Board requests that any stockholder proposals intended for inclusion
in  our  proxy  materials  for  the 2006 Annual Meeting be submitted to James K.
McHugh,  our  Chief  Financial  Officer,  Treasurer  and Corporate Secretary, in
writing  no  later  than  a  reasonable  time  before  the  scheduled  meeting.

     On  September  21, 2005, we announced a transaction whereby we would form a
subsidiary,  Alternative  Fuel  Technology,  Inc.,  to  exploit  the N-Viro Fuel
Technology which is covered by several patents.  Negotiations on this initiative
have  not  materialized,  and  as  of  the date of this Form 10-KSB, it does not
appear  that  such  a  transaction  will  be  concluded.


<PAGE>

                                    PART III


ITEM  9.          DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

                            DIRECTORS OF THE COMPANY

     R.  FRANCIS DIPRETE, AGE 51.  Mr. DiPrete is an attorney and is currently a
self-employed  business  consultant.  From  March 1999 until December, 2003, Mr.
DiPrete  served  as  President and Board Chairman of Strategic Asset Management,
Inc.  (formerly  WorldTech  Waste  Management,  Inc.),  a Nevada corporation and
holding  company  that  provides  business  and  financial  consulting  advisory
services  to,  and control and operation of, businesses.  From August 2003 until
December  2003,  Mr. DiPrete served as President and director of Ophir Holdings,
Inc.,  a  Nevada  corporation  and  consulting  firm  specializing in public and
shareholder  relations.  Mr.  DiPrete  is  a  graduate of Rutgers University and
Roger  Williams  University,  School  of  Law.  Mr.  DiPrete  has  served as our
Director  since  May 2000, and is a member of the Board's Audit and Compensation
Committees.

     JAMES  H. HARTUNG, AGE 62. Mr. Hartung is the President and Chief Executive
Officer of the Toledo-Lucas County (Ohio) Port Authority, a position he has held
Since  1994. Mr. Hartung has served as our Director since February 2006 and is a
member  of the Board's Compensation Committee. Mr. Hartung's son, Howard, is our
Chief  Operating  Officer.

     DANIEL  J. HASLINGER, AGE 50. In 2004, Mr. Haslinger was initially employed
as  our  Chief Operating Officer, and then was appointed Chief Executive Officer
beginning  January  1, 2005 through February 13, 2006. Mr. Haslinger is also the
Chief  Executive  Officer  and  Owner  of Micro Macro Integrated Technologies, a
Nevada  company  specializing  in  computer-aided process control technology. In
addition,  Mr.  Haslinger  is  a  member  of  N-Viro  Filipino,  LLC, one of our
international  licensees,  and  is  also  a  member  of  DJH  Holdings,  LLC, an
investment  company. Mr. Haslinger has served as our Director since May 1999 and
is  a  member  of  the  Board's  Finance  Committee.

     TIMOTHY  R.  KASMOCH,  AGE  44.  Mr.  Kasmoch  is also President and CEO of
Tri-State Garden Supply, d/b/a Gardenscape, a bagger and distributor of lawn and
garden  products,  which provides trucking services to our Company.  Mr. Kasmoch
is  a graduate of Penn State University.  Mr. Kasmoch has served as our Director
since  February  2006.

     PHILLIP  LEVIN, AGE 66.  From July through December 2004, Mr. Levin was our
Chief  Executive  Officer.  Currently,  Mr. Levin has been the President of both
Levin Development Company and MGM Consulting Services, a real estate development
and financial consulting company, respectively, located in Troy, Michigan, since
1992.  Mr.  Levin  holds  an  MBA  in  both  Accounting  and  Finance, and was a
partner-in-charge of PriceWaterhouseCoopers' consulting division in Michigan for
16  years.  Mr.  Levin  has  served as our Director since November 2002 and is a
member  of  the  Board's  Audit,  Nominating  and  Compensation  Committees.

     TERRY  J.  LOGAN,  PH.D.,  AGE  63.  Dr.  Logan  is  the President of Logan
Environmental,  Inc.,  an  environmental  consulting  firm  in  Beaufort,  South
Carolina,  and our consultant.  From July 1999 to June 2004, Dr. Logan served as
our  Chief  Operating  Officer  and President, and was appointed Chief Executive
Officer  in  May  2002.  From 1971 until July 1999, Dr. Logan was a professor of
Agronomy  at  The  Ohio  State University.  Dr. Logan has served as our Director
since  May  1993  and  is  a  member  of  the  Board's  Finance  Committee.

     MICHAEL  G.  NICHOLSON,  AGE  39.  Mr.  Nicholson  was  appointed  Chief
Development  Officer  in  September  2004,  and  prior  to  that served as Chief
Operating  Officer  from  May  2002  until September 2004, and Vice-President of
Sales  and Marketing since December 1996.  Prior to December 1996, Mr. Nicholson
served  us  and N-Viro Energy Systems Ltd. in various sales management positions
since 1990.  Mr. Nicholson is the son of J. Patrick Nicholson, a reporting owner
of  our stock, has served as our Director since February 1998 and is a member of
the  Board's  Finance  Committee.

     CARL RICHARD, AGE 79.  Mr. Richard is currently an Executive Vice-President
of P.R. Transportation, a trucking company located in Toledo, Ohio.  Mr. Richard
served  as  Vice-President  of C.A. Transportation from 1988 through 2000 and as
Vice-President of R.O.S.S. Investments, a real estate holding company, from 1980
through 2000.  Mr. Richard has served as our Director since December 2004 and is
a  member  of  the  Board's  Audit,  Nominating  and  Compensation  Committees.

     JOSEPH  H.  SCHEIB,  AGE  49.  Mr. Scheib is the Chief Financial Officer of
Broad Street Software Group, a comprehensive software technology company located
in  Edenton,  North Carolina.  From May 2000 until February 2003, Mr. Scheib was
the Financial Operation Principal/Compliance Officer of Triangle Securities, LLC
of  Raleigh,  North  Carolina,  an  asset  management,  brokerage and investment
banking  firm.  Mr.  Scheib  is a CPA and a graduate of East Carolina University
with  a  degree  in  accounting.  Mr.  Scheib  has  served as our Director since
December  2004.


                             OFFICERS OF THE COMPANY

     TIMOTHY  R.  KASMOCH,  AGE  44.  Mr.  Kasmoch  is also President and CEO of
Tri-State Garden Supply, d/b/a Gardenscape, a bagger and distributor of lawn and
garden  products,  which provides trucking services to our Company.  Mr. Kasmoch
is  a graduate of Penn State University.  Mr. Kasmoch has served as our Director
since  February  2006.

     JAMES  K.  MCHUGH,  AGE  47.  Mr.  McHugh has served as our Chief Financial
Officer,  Secretary  and  Treasurer since January 1997.  Prior to that date, Mr.
McHugh  served  us and N-Viro Energy Systems Ltd. in various financial positions
since  April  1992.

     MICHAEL  G.  NICHOLSON,  AGE  39.  Mr.  Nicholson  was  appointed  Chief
Development  Officer  in  September  2004,  and  prior  to  that served as Chief
Operating  Officer  from  May  2002  until September 2004, and Vice-President of
Sales  and Marketing since December 1996.  Prior to December 1996, Mr. Nicholson
served  us  and N-Viro Energy Systems Ltd. in various sales management positions
since 1990.  Mr. Nicholson is the son of J. Patrick Nicholson, a reporting owner
of  our  stock,  and  has  served  as  our  Director  since  February  1998.

     HOWARD  E.  HARTUNG, AGE 35.  Mr. Hartung was hired and appointed our Chief
Operating  Officer  in  September  2005.  Since  2004, Mr. Hartung served as the
International Trade Representative for the State of Michigan's Michigan Economic
Development  Corporation,  an economic development arm for the State, located in
Lansing,  Michigan.  Prior  to that, Mr. Hartung served as a Product Development
Manager  with a technology development firm and as a lobbyist in Columbus, Ohio.
Mr.  Hartung is the son of James H. Hartung, a member of our Board of Directors.


                                 AUDIT COMMITTEE

     The  Audit  Committee,  consisting  of  Messrs. Levin, DiPrete and Richard,
recommends  the  appointment of the outside auditor, oversees our accounting and
internal  audit  functions  and  reviews  and approves the terms of transactions
between us and related party entities.  The directors who serve on the Committee
are  all "independent" for purposes of the NYSE listing standards.  That is, the
Board  of  Directors has determined that none of them has a relationship with us
that  may  interfere  with  their  independence from us and our management.  The
Board  of  Directors  has  determined  that  Mr. Levin qualifies as a "financial
expert"  as  defined  by  the  SEC.  During  2005, the Audit Committee met three
times.  The  Audit  Committee  has retained UHY LLP to conduct the audit for the
year  ended  December  31,  2006.  The  audit committee is governed by a written
charter,  a  copy of which was attached as an exhibit to the proxy statement for
the  2002  annual  meeting.


                                 CODE OF ETHICS

     We  have  adopted a Code of Ethics which covers the Chief Executive Officer
and  Chief  Financial  Officer, which is administered and monitored by the Audit
Committee  of  the  Board.  A  copy of the Code of Ethics is attached as Exhibit
14.1 to this Form 10-KSB, and is posted on our web site, www.nviro.com.  We will
provide  a  free  copy  of  the Code of Ethics upon written request addressed to
Corporate Secretary, N-Viro International Corporation, 3450 West Central Avenue,
Suite  #328,  Toledo,  OH  43606,  or  by  e-mail  to  info@nviro.com.


                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     Section  16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers, and persons who own beneficially more than
ten  percent  (10%)  of  the  shares  of  our  Common  Stock, to file reports of
ownership  and changes of ownership with the Securities and Exchange Commission,
or SEC.  Copies of all filed reports are required to be furnished to us pursuant
to  Section  16(a).  Based  solely  on the reports received by us and on written
representations  from  reporting  persons, we believe that the current directors
and  executive  officers complied with all applicable filing requirements during
the  fiscal  year  ended  December  31,  2005,  with  the  following exceptions:

Joseph  Scheib  filed  a  report  of  beneficial  ownership  on  April 21, 2005,
reporting  late  three  sales  of  common  stock  on  April  8,  2005.

R. Francis DiPrete filed a report of beneficial ownership on September 19, 2005,
reporting  late  two  sales  of  common  stock  on  September  14,  2005.



ITEM  10.          EXECUTIVE  COMPENSATION

COMPENSATION  OF  EXECUTIVE  OFFICERS

     The  following  table  presents  the  total  compensation paid to our Chief
Executive  Officer during 2004 and 2005.  There were no other executive officers
who  were serving at the end of 2005 and whose total annual salary and bonus, if
any,  exceeded  $100,000.

     SUMMARY  COMPENSATION  TABLE

<TABLE>
<CAPTION>

                                                                                          Long-Term Compensation
                                                                                    --------------------------------
                                                                                      Securities
                                                       Annual Compensation            Underlying       All Other
Name and Principal Position             Year       Salary ($)         Bonus ($)      Options(#) (1)  Compensation($)
-------------------------------------   ----  -----------------  ------------------  --------------  ---------------
<S>                                     <C>   <C>                <C>                 <C>             <C>
Daniel Haslinger (2). . .. . . . . . .  2005  $          18,000  $       16,000 (3)           -0-    $71,000 (4)
President and Chief Executive Officer.  2004  $           6,750  $              -0-        37,650    $39,500 (4)
--------------------------------------  ----  -----------------  ------------------  ------------    -----------

Phillip Levin (5). . . . . . . . . . .  2005  $             -0-  $              -0-         7,500    $30,000 (6)
President and Chief Executive Officer.  2004  $          18,000  $              -0-        33,750    $15,000 (6)
--------------------------------------  ----  -----------------  ------------------  ------------    -----------

Terry J. Logan (7) . . . . . . . . . .  2005  $             -0-  $              -0-        14,500    $73,106 (8)
President and Chief Executive Officer.  2004  $          74,087  $              -0-        16,250    $40,962 (8)
--------------------------------------  ----  -----------------  ------------------  ------------    -----------

Michael G. Nicholson . . . . . . . . .  2005  $         110,000  $              -0-           -0-    $24,283 (9)
Chief Development Officer. . . . . . .  2004  $         107,466  $              -0-        58,000    $20,598 (9)

</TABLE>

1.     The  numbers  shown  represent  the  number of shares of Common Stock for
which  options  were  granted  to the Named Executive Officers in 2004 and 2005.

2.     Mr.  Haslinger  was  appointed Chief Operating Officer effective November
2004,  and  subsequently  Chief Executive Officer effective January 1, 2005.  He
served  as  CEO  through February 13, 2006 at which time Mr. Timothy Kasmoch was
appointed  CEO.

3.     Mr.  Haslinger  is  owed  approximately  $16,000 for a commission fee due
under and pursuant to the terms of his Memorandum of Employment, entered into by
and  between  Mr.  Haslinger  and  us  in  September  2004.

4.     Mr.  Haslinger  received, through a company owned by him, $22,500 in 2004
and  $60,000  in  2005,  under  and  pursuant  to the terms of his Memorandum of
Employment,  entered into by and between Mr. Haslinger and us in September 2004.
Mr.  Haslinger  also  received,  through another company owned by him, $6,000 in
2004  for a lease termination service fee.  Mr. Haslinger also received, through
another  company  owned  by  him,  $7,000 in consulting fees.  From January 1 to
September 1, 2004, Mr. Haslinger was compensated in his role as our Director and
consultant,  and  received  $8,000 in cash and $3,000 worth of restricted common
stock in 2004, and $3,000 of restricted common stock in 2005 for these services.

5.     Mr.  Levin  was appointed Chief Executive Officer effective July 1, 2004.
He  served  as  CEO through December 31, 2004 at which time Mr. Daniel Haslinger
was  appointed  CEO.

6.     From  January 1 to July 1, 2004, Mr. Levin was compensated in his role as
our Director and consultant.  This was resumed on January 1, 2005 as a result of
Mr.  Levin  no  longer  being  our  CEO.  Mr. Levin received $12,000 in cash and
$3,000  worth of restricted common stock in 2004, and $27,000 in cash and $3,000
of  restricted  common  stock  in  2005  for  these  services.

7.     Dr.  Logan retired as Chief Executive Officer effective July 1, 2004, per
his employment agreement.  After this time, Dr. Logan received compensation from
us  in  his  capacity  as  our  consultant  under and pursuant to the terms of a
consulting  agreement entered into by and between Dr. Logan and us in July 2004.

8.     Dr.  Logan  received term life insurance premium payment benefits in 2004
of $792 for a $250,000 term policy with his spouse named as beneficiary, through
the ending date of his employment in June 2004.  Dr. Logan also received $32,670
in  2004 and $73,106 in 2005 for compensation under and pursuant to the terms of
a consulting agreement, entered into by and between Dr. Logan and us in 1999 and
July  2004,  respectively.  Dr.  Logan also received $1,500 in director fees and
$6,000  for  fees  paid to his spouse for subcontract services rendered in 2004.

9.     Mr.  Nicholson  received  term life insurance premium payment benefits in
2004  and  2005 of $1,026, for a $1,000,000 term policy with his spouse named as
beneficiary.  Mr.  Nicholson  also  received $15,947 in 2004 and $21,221 in 2005
for  the  deemed  bargain-purchase  element of stock options granted in May 2004
under  and  pursuant to his employment agreement entered into by and between Mr.
Nicholson  and  the  Company  in  June  2003  and  amended  in  September  2004,
respectively.  Mr. Nicholson also received $3,625 in 2004 and $2,036 in 2005 for
interest  and fees in connection with a credit facility agreement between us and
Monroe  Bank  +  Trust,  signed  in  February  2003.

<PAGE>
                        OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>

                         Number of      Percent of Total
                         Securities      Options Granted
                         Underlying       to Employees          Exercise or
Name                  Options Granted(1) in Fiscal Year(2)  Base Price ($/share)  Market Price ($/share)   Expiration Date
--------------------  ----------------  -----------------  ---------------------  -----------------------  ---------------
<S>                   <C>               <C>                <C>                    <C>                      <C>
Daniel J. Haslinger             -0-                    -   $                   -  $                     -               -
--------------------  ----------------  -----------------  ---------------------  -----------------------  ---------------
Phillip Levin. . . .         2,500                   3.4%  $                2.45  $                  2.45        1/14/2015
                             1,250                   1.7%  $                1.65  $                  1.65        5/13/2015
                             2,500                   3.4%  $                1.82  $                  1.82        6/29/2015
                               625                   0.9%  $                1.70  $                  1.70        7/13/2015
                               625                   0.9%  $                1.65  $                  1.65       11/15/2015
--------------------  ----------------  -----------------  ---------------------  -----------------------  ---------------
Terry J. Logan . . .         1,000                   1.4%  $                1.95  $                  1.95        1/10/2010
                             2,500                   3.4%  $                2.45  $                  2.45        1/14/2010
                             1,000                   1.4%  $                2.50  $                  2.50         2/7/2010
                             1,000                   1.4%  $                2.05  $                  2.05         3/3/2010
                             1,000                   1.4%  $                2.00  $                  2.00         4/5/2010
                             1,000                   1.4%  $                2.00  $                  2.00         5/9/2010
                             1,250                   1.7%  $                1.65  $                  1.65        5/13/2010
                             1,000                   1.4%  $                1.73  $                  1.73         6/8/2010
                             2,500                   3.4%  $                1.82  $                  1.82        6/29/2010
                             1,000                   1.4%  $                1.75  $                  1.75        7/12/2010
                               625                   0.9%  $                1.70  $                  1.70        7/13/2010
                               625                   0.9%  $                1.65  $                  1.65       11/15/2010
--------------------  ----------------  -----------------  ---------------------  -----------------------  ---------------
Michael G. Nicholson            -0-                    -   $                   -  $                     -               -
</TABLE>

     (1)     Options  vest  100%  six  months  after  the  date  of  Grant.

     (2)     No  employees  or  officers were granted options in the last fiscal
year.  Grants to Messrs. Levin and Logan were given in their capacity as members
of  the  board  or  as consultants.  Messrs Levin and Logan were each CEO during
2004  and  are  shown  here  to  accompany  the  Summary  Compensation  Table.



<PAGE>
                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>

                                                               Number of Securities                    Value of Unexercised
                                                              Underlying Unexercised                       In-The-Money
                                                                 Options at Fiscal                      Options at Fiscal
                         Shares                                    Year End (#) (1)                       Year End ($) (2)
                      Acquired On      Value       ----------------------------------------------  ----------------------------
Name                  Exercise (#)  Realized ($)         Exercisable            Unexercisable       Exercisable   Unexercisable
--------------------  ------------  -------------  -----------------------  ---------------------  ------------  --------------
<S>                   <C>           <C>            <C>                      <C>                    <C>           <C>
Daniel J. Haslinger.           -0-  $         -0-                    2,100                    -0-  $      1,911  $          -0-

Phillip Levin. . . .           -0-  $         -0-                      -0-                    -0-  $        -0-  $          -0-

Terry J. Logan . . .           -0-  $         -0-                    1,000                    -0-  $        950  $          -0-

Michael G. Nicholson           -0-  $         -0-                   30,000                    -0-  $     27,000  $          -0-
</TABLE>

1.     All  options granted prior to November 1995 have been adjusted to reflect
a  one-for-four  reverse  stock  split  effective  October  31,  1995.
2.     Options are "in-the-money" only if the closing market price of the Common
Stock  on  December  31, 2005 exceeded the exercise price of the options.  There
were  33,100  options  "in-the-money"  that  were  held  by  our Named Executive
Officers  on  December 31, 2005 based upon the $1.20 per share closing price for
the  stock  on  that  date.


                            COMPENSATION OF DIRECTORS

     Our  Board  of  Directors  has approved the payment of cash compensation to
non-employee  directors  in exchange for their service on the Board.  The amount
of  cash compensation to be received by each non-employee director is $1,000 per
regular meeting attended during each calendar year, and $500 per special meeting
attended.  Our  Board  of  Directors  generally  has  four  regular meetings per
calendar year.  The Directors are reimbursed for out-of-pocket expenses incurred
in  attending  meetings  of  the  Board  of Directors or any committees thereof.

     In  May  2004,  the  stockholders  approved  a  new stock option plan which
provides  for  the automatic grant of options to purchase 2,500 shares of Common
Stock  for each regular meeting attended, and an option to purchase 1,250 shares
of  Common  Stock  for  each  special  meeting attended, subject to a maximum of
options  to  purchase  15,000  in  any  year.  This  Plan  also provided for the
automatic grant to the non-employee Directors to replace the automatic awards of
stock options which were not granted to the non-employee directors after May 10,
2003  as  a  result  of  the termination of the 1998 Plan and the failure of the
stockholders  to  approve the 2003 Stock Option Plan at the 2003 annual meeting.

     Directors  who are our employees do not receive additional compensation for
serving  as  directors.

     See  "Compensation  Committee  Interlocks  and  Insider  Participation" and
"Certain  Relationships and Related Transactions" for additional compensation to
directors.


                              EMPLOYMENT AGREEMENTS

     On  September  27, 2004, we executed a Memorandum of Employment with Daniel
J.  Haslinger, then employed by us as a Manager, and a member of our Board.  Mr.
Haslinger  was  subsequently appointed Chief Operating Officer in November 2004,
and  then  appointed  Chief  Executive  Officer  in  December 2004, effective at
January  1,  2005.  Mr. Haslinger agreed to enter into an employment arrangement
with  us  which  was  terminable  "at will" for $1,500 per month, retroactive to
August  16,  2004.  Also  on  September  27,  2004,  we  executed a Storage Site
Agreement  with  Micro  Macro  Integrated Technologies, Inc., or MMIT, Daniel J.
Haslinger  and  his  spouse,  Rebecca  S. Haslinger, together referred to as the
Haslingers.  Mr.  Haslinger  is  Chief  Executive Officer and owner of MMIT.  We
agreed  with  MMIT  and  the Haslingers to utilize property to transfer material
produced  at  our  Toledo  Bayview  wastewater treatment facility for $5,000 per
month,  retroactive  to August 16, 2004.  At a meeting of our Board of Directors
on  February  14,  2006,  Mr.  Haslinger  was  replaced  as  President and Chief
Executive  Officer  of  the  Company  when  Timothy R. Kasmoch was appointed its
President  and  CEO and terminated both Mr. Haslinger's employment agreement and
the  agreement with MMIT and the Haslingers, and approved a consulting agreement
with  DJH  Holdings,  LLC,  a  company  owned  by Mr. Haslinger.  The consulting
agreement  was  disclosed as Exhibit 10.1 to a Form 8-K filed on March 20, 2006.

     On  June  6,  2003,  we  entered  into  an  Amended and Restated Employment
Agreement,  or the 2003 Agreement, with Michael G. Nicholson at a minimum annual
salary  of $110,000.  The agreement is for a four-year term, subject to periodic
review  and  termination  for breach.  The 2003 Agreement also provides that Mr.
Nicholson  shall  be  entitled to (i) bonuses to be payable at the discretion of
the  Board,  (ii)  other benefits, including life and health insurance, (iii) in
the case Mr. Nicholson's employment is terminated before the end of the term and
Mr.  Nicholson  incurs  legal  fees  in connection with the termination, we will
reimburse  him up to $10,000 for legal fees and related expenses, and (iv) stock
options  to  purchase 50,000 shares of our Common Stock priced as of the date of
the  execution.  At  the  date  of the 2003 Agreement, Mr. Nicholson voluntarily
agreed to reduce his minimum annual salary to $90,180 until November 1, 2003, on
which  date  his $110,000 salary level per the employment agreement was resumed.
In  May  2004, Mr. Nicholson reduced his salary by 9% to a rate of $100,100, and
in November 2004 Mr. Nicholson resumed his salary level of $110,000 per the 2003
Agreement.  In September 2004, we amended the 2003 Agreement with Mr. Nicholson,
primarily  to  revise  the grant of options to provide for an option to purchase
30,000  shares of our Common Stock at $0.90 per share, and an option to purchase
20,000  shares  of  our common stock at $1.95 per share.  All grants were priced
below  the fair market value of our stock price at the date of grant, and we are
recognizing  an  expense  over  the  four-year  period  to  reflect  this.

     On  June  14, 1999, Dr. Terry J. Logan entered into an employment agreement
with  us  at  a  minimum  annual  salary  of $144,000.  Such agreement was for a
five-year  term,  subject  to  review  annually and termination for breach.  The
agreement  also  provided  that  Dr. Logan will be entitled to (i) bonuses to be
payable at the discretion of the Board, (ii) other benefits, including insurance
and  pension  plan, as are provided to other executive officers, and (iii) stock
options  to purchase 50,000 shares of our Common Stock.  Effective July 1, 1999,
Dr. Logan voluntarily agreed to reduce his minimum annual salary to $120,000 for
the  years  ended  December  31,  2001, 2002 and in the first month of 2003.  In
February  2003,  Dr.  Logan  further  reduced  his  salary  by  10% to a rate of
$108,000,  and  in  July  2003,  Dr.  Logan  resumed  his  salary  level per the
employment  agreement of $144,000.  In May 2004, Dr. Logan reduced his salary by
17%  to  $120,000  through the ending date of his employment.  In July 2005, Dr.
Logan rescinded the stock options portion of his consulting agreement, effective
with  services  rendered  after  June  2005.  In March 2006, we approved a First
Amendment  to the consulting agreement and extended it for an additional two (2)
years  to  June  2008.  All other terms of the existing agreement were retained,
with  the  exception  of  the  section  referring  to  Dr.  Logan's stock option
compensation,  which  has  been  deleted by the First Amendment.  Dr. Logan will
continue  to  be  compensated  at  the  same  rate.  The  First Amendment to the
Consulting  Agreement  is  effective  as  of  February  13,  2006.


           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Through May of 2005, the members of the Compensation Committee consisted of
Mr. Christopher Anderson, Mr. Brian Burns and Mr. Richard.  Messrs. Anderson and
Burns  were  no  longer  directors  after May 2005.  For the balance of the 2005
fiscal  year,  the  members consisted of Mr. Richard, Mr. DiPrete and Mr. Levin.
For  2005,  Mr.  Levin  was  paid fees of $27,000 for management consulting work
performed  outside  his  duty  as a director.  Of these fees, $3,000 was paid in
unregistered  shares  of  our  common  stock.  The  other  $24,000  was paid for
services  rendered  outside  his  duty  as  Chairman  of  the  Board.

     In  2005,  Mr.  DiPrete  was  paid  fees  of $5,000 for a consulting fee in
connection  with  the  settlement  of past legal bills with our former law firm.
Mr.  DiPrete  was  also  paid  2,500 stock options valued at $2.00 per share for
consulting  work  performed  in  2004.


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

     We  had  outstanding  3,703,059  shares of common stock, $.01 par value per
share,  or the Common Stock, on March 15, 2006, which constitutes the only class
of  our  outstanding  voting  securities.

FIVE  PERCENT  STOCKHOLDERS

     At  March  15, 2006, the following were the only persons known to us to own
beneficially  more  than  5%  of  the  outstanding  shares  of  Common  Stock:

<TABLE>
<CAPTION>

                        Name and Address of          Amount and Nature of  Percentage of Outstanding Shares
Title of Class           Beneficial Owner            Beneficial Ownership           of Common Stock
--------------  -----------------------------------  --------------------  ---------------------------------
<S>             <C>                                  <C>                   <C>

                Cooke Family Trust
                75 Secluded Drive
Common Stock .  Narragansett, RI  02882                           721,201                             18.38%

                J. Patrick Nicholson (1)
                2306 Birch Run Court
Common Stock .  Sylvania, OH   43560                              393,835                             10.64%

                N-Viro Energy Systems, Inc. (2)
                2306 Birch Run Court
Common Stock .  Sylvania, OH   43560                              289,788                              7.83%

</TABLE>

1.     The  shares  attributed  to  Mr.  Nicholson  include  54,047  shares held
directly  and  289,788  shares owned beneficially by N-Viro Energy Systems, Inc.
Also  attributed  to  Mr.  Nicholson  are  50,000  shares  owned  jointly by Mr.
Nicholson  and  three of his sons: Michael G. Nicholson, Robert F. Nicholson and
Timothy  J.  Nicholson.  Michael  is our Chief Development Officer and Director,
Timothy and Robert are former employees.  Mr. Nicholson resigned as our director
on  August  28,  2003,  and  was  terminated as our consultant on July 13, 2005.

2.     N-Viro Energy Systems, Inc. was formerly the corporate general partner of
N-Viro  Energy Systems, Limited, a limited partnership that was terminated as of
December  31, 2001 and was one of the predecessor entities that combined to form
the  Company  in  October  1993.  The general partners of N-Viro Energy Systems,
Limited were J. Patrick Nicholson, N-Viro Energy Systems, Inc., a corporation of
which  Mr. Nicholson is the controlling stockholder, and four trusts established
for  the  benefit  of Mr. Nicholson's children.  N-Viro Energy Systems, Inc. has
dispositive  power  over  all  289,788  shares.

3.     The  shares  attributed  to the Cooke Family Trust include 501,201 shares
held  directly  and  220,000  in  common  stock purchase warrants exercisable to
purchase  an  equal  number of shares of common stock.  This information derived
from  the  Schedule  13D  Amendment  #1  filed  on  October  6,  2005.


<PAGE>

SECURITY  OWNERSHIP  OF  MANAGEMENT

     The  following  table  sets  forth,  as of March 15, 2006, unless otherwise
specified,  certain  information with respect to the beneficial ownership of our
shares  of  Common  Stock  by each person who is our director, a nominee for the
Board,  each of the Named Executive Officers, and by our directors and executive
officers  as  a  group.  Unless  otherwise  noted,  each  person  has voting and
investment  power, with respect to all such shares, based on 3,703,059 shares of
Common  Stock outstanding on the Record Date.  Pursuant to the rules of the SEC,
shares of Common Stock which a person has the right to acquire within 60 days of
the  date  hereof  pursuant  to  the  exercise of stock options are deemed to be
outstanding for the purpose of computing the percentage ownership of such person
but  are  not  deemed  outstanding  for  the purpose of computing the percentage
ownership  of  any  other  person.


<TABLE>
<CAPTION>

                                      Name of Beneficial                        Amount and Nature of
Title of Class                             Owner                              Beneficial Ownership (1) Percent of Class
-------------   ------------------------------------------------------------  -----------------------  -----------------
<S>             <C>                                                           <C>                      <C>
Common Stock .  R. Francis DiPrete                                                         63,840 (2)              1.70%
Common Stock .  James H. Hartung                                                                -0-                 -0-%
Common Stock .  Daniel J. Haslinger                                                       112,377 (3)              2.98%
Common Stock .  Timothy Kasmoch                                                           112,500 (4)              3.00%
Common Stock .  Phillip Levin                                                              51,737 (5)              1.38%
Common Stock .  Terry J. Logan                                                            130,962 (6)              3.42%
Common Stock .  James K. McHugh                                                            57,596 (7)              1.53%
Common Stock .  Michael G. Nicholson                                                      185,209 (8)              4.84%
Common Stock .  Carl Richard                                                               88,350 (9)              2.36%
Common Stock .  Joseph H. Scheib                                                         122,600 (10)              3.30%
Common Stock .  All directors and executive officers as a group (10 persons)             925,171 (11)             21.69%
</TABLE>

1.     Except  as otherwise indicated, all shares are directly owned with voting
and  investment  power  held  by  the  person  named.

2.     Represents  16,340  shares  of  Common  Stock owned by Mr. DiPrete, and a
total  of  47,500  shares  issuable upon exercise of options which are currently
exercisable  at  prices  ranging  from  $1.20  to  $3.05  per  share.

3.     Represents  14,027  shares of Common Stock owned by Mr. Haslinger, 36,150
shares  issuable  upon  exercise  of  options which are currently exercisable at
prices ranging from $0.91 to $5.19 per share, 32,200 shares owned by Micro Macro
Integrated Technologies, a company in which Mr. Haslinger is the owner and Chief
Executive  Officer,  and  30,000 shares issuable upon exercise of warrants which
are  currently  exercisable  at  $1.85  per  share.

4.     Represents  62,500  unregistered  shares  of  Common  Stock  owned by Mr.
Kasmoch,  and  50,000  shares  issuable  upon  exercise  of  warrants  which are
currently  exercisable  at  $1.85  per  share.

5.     Represents  12,487 shares of Common Stock owned by Mr. Levin, and a total
of  39,250  shares  issuable  upon  exercise  of  options  which  are  currently
exercisable  at  prices  ranging  from  $1.65  to  $3.05  per  share.

6.     Represents  812 shares of Common Stock owned by Dr. Logan, and a total of
130,150 shares issuable upon exercise of options which are currently exercisable
at  prices  ranging  from  $0.95  to  $5.00  per  share.

7.     Represents 796 shares of Common Stock owned by Mr. McHugh, and a total of
56,800  shares issuable upon exercise of options which are currently exercisable
at  prices  ranging  from  $1.50  to  $5.00  per  share.

8.     Represents  15,009 shares of Common Stock owned by Mr. Nicholson, 120,200
shares  issuable  upon  exercise  of  options which are currently exercisable at
prices ranging from $0.90 to $5.00 per share, and 50,000 shares owned jointly by
Mr.  Nicholson,  his  father,  J. Patrick Nicholson, and his brothers, Robert F.
Nicholson  and  Timothy  J.  Nicholson.  J. Patrick is a more than 5% beneficial
owner  and  former  consultant  to  us, Timothy and Robert are former employees.

9.     Represents  51,000  shares  of  Common  Stock owned by Mr. Richard, 8,750
shares  issuable  upon  exercise  of  options which are currently exercisable at
prices  ranging  from $1.65 to $2.45 per share, 2,500 shares owned by members of
Mr.  Richard's family and 26,100 shares issuable upon exercise of warrants which
are  currently  exercisable  at  $1.85  per  share.

10.     Represents  105,500  shares  of Common Stock owned by Mr. Scheib, 12,500
shares  issuable  upon  exercise  of  options which are currently exercisable at
prices  ranging  from  $1.65  to  $2.45  per share, 600 shares owned by a family
member  and  4,000 shares issuable upon exercise of warrants which are currently
exercisable  at  $1.85  per  share.

11.     Represents  278,471  shares  of  Common Stock owned by the Directors and
Officers,  85,300 shares owned indirectly, 451,300 shares issuable upon exercise
of options which are currently exercisable at prices ranging from $0.90 to $5.19
per  share  and a total of 110,100 unregistered shares issuable upon exercise of
warrants  which  are  currently  exercisable  at  $1.85  per  share.



                      EQUITY COMPENSATION PLAN INFORMATION

<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 . . . .               692,575  $                2.33                       627,225

Equity compensation plans
    not approved by security holders (1)               713,351  $                1.85                           -0-
---------------------------------------   --------------------  ---------------------  ----------------------------
Total. . . . . . . . . . . . . . . . . .             1,405,926  $                2.09                       627,225
</TABLE>

1.     Represents  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 warrants to purchase our Common
Stock,  issued  to  SAMI  in  2005 as part of an agreement to provide consulting
services,  issued  at  $1.84  per  share.



ITEM  12.          CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     J.  Patrick  Nicholson,  a  former  consultant  and  father  of  Michael G.
Nicholson, one of our directors, received fees of $41,726 in 2005 and $86,565 in
2004  for  consulting  services  pursuant to the terms of a Consulting Agreement
dated  August  28,  2003.  Mr. Nicholson also received benefits of approximately
$10,414  in  2005  and  $19,423  in  2004,  including life insurance and medical
benefit  payments,  pursuant  to  the  terms  of  the  aforementioned Consulting
Agreement.  In  addition,  expenses totaling $17,000 in 2004 were offset against
the  receivable due from N-Viro Energy Systems, Inc., a corporation of which Mr.
Nicholson  is  the controlling stockholder, decreasing the balance owed to us to
$-0-.  Mr. Nicholson also received fees for attending board meetings as a member
of  the  Company's  Board  of  $11,340  in  2004.  The  fees  paid were in 5,040
unregistered  shares of our common stock, and were for meetings attended in 2002
and  2003.  Also,  loan  fees  and  the  cost  of  warrants paid pursuant to the
agreement  to  provide  additional  collateral  to  secure  the  Company's  bank
financing  amounted  to  $2,462  in 2005 and $3,625 in 2004.  And, Mr. Nicholson
exercised  non-qualified  stock options and recognized income of $8,188 in 2004.
In  July 2005, we terminated the 2003 Agreement with Mr. Nicholson, as disclosed
in  a  Form  8-K  filed  July  14,  2005.

     In  February 2003 we closed on an $845,000 credit facility with Monroe Bank
+  Trust,  or  the Bank.  To secure the credit facility, we were required by the
Bank  to obtain additional collateral of $100,000, or the Additional Collateral,
which  was  obtained  via a real estate mortgage from a third party.  Messrs. J.
Patrick  Nicholson,  our  former  Chairman  of  the Board and former Consultant;
Michael  G.  Nicholson,  our  Chief  Development Officer, Director and son of J.
Patrick  Nicholson;  Robert  F.  Nicholson  and Timothy J. Nicholson, our former
employees,  collectively  referred to as the Nicholsons, provided the Additional
Collateral.  In  exchange  for  their  commitment,  we  agreed  to  provide  the
Nicholsons  the  following:  (1)  an annual fee in an amount equal to $2,000 per
annum;  (2)  interest  at  an  annual  rate  of  5% of the $100,000 value of the
Additional  Collateral beginning on the first anniversary date of the closing of
the  credit facility, and (3) a warrant to acquire an aggregate of 50,000 shares
of our voting common stock at a purchase price of $0.90 per share, which was the
closing  market  price  of  our  common  stock  on the prior business day to the
closing  of  the  credit  facility.  The warrant was exercisable, in whole or in
part,  at  any time and from time to time until February, 2006.  In addition, we
granted  to  the  Nicholsons  a  lien  on our inventory and accounts receivable,
subordinated to both existing liens on our assets and all liens granted by us in
favor  of the financial institution providing the credit facility.  In February,
2004,  the  Nicholsons  exercised  the warrant and acquired 50,000 shares of our
common stock at a purchase price of $0.90 per share.  In February 2005, the Bank
amended  the  facility  and released the Additional Collateral, which terminated
the  security  interest  in  the  lien  of  the  Nicholsons.

     In  2005,  Mr.  R.  Francis  DiPrete,  a  director,  received  $5,000 for a
consulting  fee  in  connection with the settlement of past legal bills with our
former  law  firm.  Mr.  DiPrete  was also paid for consulting work performed in
2004  with  2,500 stock options valued at $2.00 per share.  In 2004, Mr. DiPrete
received  5,040  unregistered  shares  of  our  common  stock for board meetings
attended  in  2002  and  2003.

     In  2005  and  2004,  we  issued  a  total  of  10,000  and  16,100 shares,
respectively,  of  unregistered  common  stock to Carl Richard, a director, in a
private placement.  These shares were issued at $1.25 per share, with associated
warrants  to  purchase  additional  shares  at  $1.85  per  share.

     In 2004, we issued a total of 30,000 shares of unregistered common stock to
Micro  Macro  Integrated  Technologies,  a  company owned by Daniel Haslinger, a
director,  in a private placement.  These shares were issued at $1.25 per share,
with  associated  warrants  to  purchase  additional  shares at $1.85 per share.

     In  2005,  Mr.  Joseph Scheib, a director, received $2,500 for a consulting
fee  in  connection  with  settlement  and  reporting issues with Mr. J. Patrick
Nicholson,  and our stock option plan.  In 2004, we issued Mr. Scheib a total of
4,000  shares of unregistered common stock in a private placement.  These shares
were  issued at $1.25 per share, with associated warrants to purchase additional
shares  at  $1.85  per  share.

     In  2004,  we issued a total of 100,001 shares of unregistered common stock
to  the  Cooke Family Trust in a private placement.  These shares were issued at
$1.25 per share, with associated warrants to purchase additional shares at $1.85
per  share.

     In  2005,  we  issued  958 and 1,358 shares of unregistered common stock to
Phillip  Levin  and  Daniel Haslinger, respectively, both directors, in exchange
for  management consulting work performed outside their duties as directors from
January  to  April  2004,  for  $3,000  and  $4,000, respectively, or a total of
$7,000.

     In  2004, we issued 31,200 shares of unregistered common stock to Strategic
Asset  Management  Inc.,  or  SAMI, in a private placement.  Robert Cooke is the
President of SAMI as stated by its most recent filing of Schedule 13D, Amendment
No. 5.  These shares were issued at $1.25 per share, with associated warrants to
purchase additional shares at $1.85 per share.  The shares were used to pay debt
of  ours for fees due SAMI for their expenses relating to stockholder derivative
litigation  initiated  in  2003.

     In  2005  we  also issued to SAMI, pursuant to a Financial Public Relations
Agreement,  120,000 shares of unregistered common stock and 120,000 common stock
purchase  warrants  to purchase an equal number of shares of our common stock at
an  exercise  price of $1.84 per share.  The shares and the warrants were issued
in  a  private  transaction  pursuant  to an exemption under Section 4(2) of the
Securities Act of 1933.  The transaction was disclosed as Exhibits 10.1 and 10.2
to  a  Form  8-K  filed  October  12,  2005.

     In  2005,  pursuant to a Stock Subscription Agreement, we issued to Timothy
Kasmoch  50,000  shares  of  unregistered  common  stock and 50,000 common stock
purchase  warrants  at an exercise price of $1.85 per share and with an exercise
period not to exceed five years from the date of the Agreement.  Payment for the
securities  was  made  in  kind, by the provision of trucking services valued at
$62,500.  The  trucking  services  were provided from February 2005 to September
2005.  The  shares and warrants were issued in a private transaction pursuant to
an exemption under Section 4(2) of the Securities Act of 1933.  At the time, Mr.
Kasmoch  was  not  our  officer  or  director  and was not related to any of our
officers or directors, and was not a more than 5% beneficial owner of our stock.
In  February  2006,  Mr. Kasmoch was appointed our President and Chief Executive
Officer.  The  Stock  Subscription  Agreement  was disclosed on a Form 8-K filed
October 12, 2005, and the appointment of Mr. Kasmoch as our CEO was disclosed on
a  Form  8-K  filed  February  21,  2006.


<PAGE>


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     Consulting Agreement between DJH Holdings, LLC and N-Viro International
Corporation,  effective  February 13, 2006 (incorporated by reference to Exhibit
10.1  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     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).*

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.

               ##     To  be  filed  as  an  exhibit  to  the  definitive  proxy
statement  of  the  Company  for  the  2006  Annual  Meeting  of  Stockholders.

               *     Indicates  a  management  contract  or compensatory plan or
arrangement.


Item  14.          Principal  Accountant  Fees  and  Services

     The  firm  of  UHY  LLP, or UHY, served as our independent auditors for the
year  ended  December 31, 2005 and 2004, and has been selected by us to serve as
our  independent  auditors  for  the  year  ending  December  31, 2006.  UHY was
approved  as  our  independent  auditors  by  the  Board  on  October  19, 2004.

Audit  Fees

     Audit services of UHY included the audit of our annual financial statements
for  2005  and  2004,  and  services  related  to quarterly filings with the SEC
through  the reporting period ended September 30, 2005.  Fees for these services
totaled  approximately  $53,500  for  2005  and  $52,000  for  2004.

Audit  Related  Fees

     There  were  no  fees  billed  for  the  years  ended December 31, 2005 and
December  31, 2004 for assurance and related services by UHY that are reasonably
related  to  the performance of the audit or review of our financial statements.

Tax  Fees

     There  were  no  fees  billed  for  the  years  ended December 31, 2005 and
December  31, 2004 for professional services rendered by UHY for tax compliance,
tax  advice,  and  tax  planning.

All  Other  Fees

     UHY  did  not  provide any consultation or assistance on accounting related
matters  for  the  years  ended  December  31,  2005  and  December  31,  2004.

     Although  the  Audit  Committee Charter does not explicitly require it, the
Audit  Committee approves all engagements of outside auditors before any work is
begun  on  the  engagement.


<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:  March  31,  2006

     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:  March  31,  2006


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


                                                            /s/  Phillip  Levin*
----------------------------------                          --------------------
Michael  G. Nicholson, Chief Development Officer     Phillip Levin, Director and
                                                        Chairman  of  the  Board
                                                                   and  Director


/s/  Terry  J.  Logan*
----------------------                                --------------------------
Terry  J.  Logan,  Director                      R.  Francis  DiPrete,  Director


/s/  Daniel  J.  Haslinger*
---------------------------                            -------------------------
Daniel  J.  Haslinger,  Director                       Joseph  Scheib,  Director


/s/  Carl  Richard*                                     /s/  James H. Hartung*
-------------------                                     ------------------------
Carl  Richard,  Director                           James  H.  Hartung,  Director


<PAGE>