Attached files
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period ended September 30, 2010; or
o 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: 000-27783
VISTA INTERNATIONAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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84-1572525
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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88 Inverness Circle East, Suite N-103, Englewood, Colorado 80112
(Address of principal executive offices, including zip code)
(303) 690-8300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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¨
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Accelerated filer
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Non-accelerated filer
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¨
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Smaller reporting company
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x
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Do not check if smaller reporting company
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Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x.
As of November 12, 2010, Vista International Technologies, Inc. had outstanding 114,083,924 shares of common stock, par value $0.001 per share.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | |||
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F-1
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F-2
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F-3
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F-4
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1
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6
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6
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| PART 2 - OTHER INFORMATION | |||
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7
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7
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7
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7
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8
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8
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9
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PART I – FINANCIAL INFORMATION
Item 1. Condensed Financial Statements - Unaudited
Vista International Technologies, Inc.
Condensed Consolidated Balance Sheets
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September 30, 2010
(Unaudited)
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December 31, 2009
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ASSETS
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Current assets
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Cash
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$ | 9,194 | $ | 20,444 | ||||
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Accounts receivable, net
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6,346 | 51,871 | ||||||
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Prepaid expenses
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14,002 | 14,791 | ||||||
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Restricted cash
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24,145 | 29,757 | ||||||
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Total current assets
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53,687 | 116,863 | ||||||
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Deposits
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13,167 | 11,431 | ||||||
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Property and equipment, net
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345,550 | 345,860 | ||||||
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Intangibles, net
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27,706 | 30,916 | ||||||
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Total assets
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$ | 440,110 | $ | 505,070 | ||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Current liabilities
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Accounts payable and accrued liabilities
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$ | 1,265,791 | $ | 1,218,697 | ||||
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Accrued compensation and payroll liabilities
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631,511 | 624,552 | ||||||
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Accrued interest
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67,404 | 153,375 | ||||||
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Current portion of Notes payable to related parties
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338,100 | 168,400 | ||||||
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Notes payable - stockholder
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592,752 | 592,752 | ||||||
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Current portion of Notes payable and capital leases
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98,154 | 102,302 | ||||||
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Total current liabilities
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2,993,712 | 2,860,078 | ||||||
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Notes payable to related parties, less current portion
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45,000 | -- | ||||||
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Notes payable and capital leases, less current portion
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12,391 | 16,713 | ||||||
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Total liabilities
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3,051,103 | 2,876,791 | ||||||
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Commitments and contingencies
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Stockholders’ deficit:
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Preferred stock, $0.001 par value: 10,000,000 shares authorized; none issued or outstanding Common stock, $0.001 par value; 200,000,000 shares authorized;
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-- | |||||||
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114,083,924 and 106,841,764 shares issued outstanding at September 30, 2010 and December 31, 2009, respectively
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114,084 | 106,844 | ||||||
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Additional paid-in capital
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62,501,146 | 62,171,362 | ||||||
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Common stock to be issued
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45,418 | 32,000 | ||||||
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Accumulated deficit
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(65,271,641 | ) | (64,681,927 | ) | ||||
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Total stockholders’ deficit
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(2,610,993 | ) | (2,371,721 | ) | ||||
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Total liabilities and stockholders' deficit
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$ | 440,110 | $ | 505,070 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
F-1
Vista International Technologies, Inc.
Condensed Consolidated Statements of Operations
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Three
Months Ended
September 30,
2010
Unaudited
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Three Months Ended
September 30,
2009
Unaudited
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Nine
Months Ended
September 30,
2010
Unaudited
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Nine
Months Ended
September 30,
2009
Unaudited
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Revenues
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$ | 114,204 | $ | 278,314 | $ | 455,752 | $ | 503,465 | ||||||||
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Cost of revenue
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76,674 | 172,200 | 293,827 | 345,143 | ||||||||||||
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Environmental remediation
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7,236 | (191,063 | ) | 12,933 | (191,063 | ) | ||||||||||
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Gross profit
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30,294 | 297,177 | 148,992 | 349,385 | ||||||||||||
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Operating expenses:
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Selling, general and administrative expense
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210,107 | 211,841 | 713,515 | 647,752 | ||||||||||||
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Litigation settlement costs
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-- | -- | 92,604 | -- | ||||||||||||
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Total operating expenses
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210,107 | 211,841 | 806,119 | 647,752 | ||||||||||||
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Income (Loss) from operations
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(179,813 | ) | 85,336 | (657,127 | ) | (298,367 | ) | |||||||||
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Other income (expense):
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Other income
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- | - | 50,361 | - | ||||||||||||
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Gain on extinguishment of liabilities
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- | 71,481 | - | |||||||||||||
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Interest expense
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(22,039 | ) | (24,004 | ) | (54,429 | ) | (48,271 | ) | ||||||||
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Net (loss) income
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$ | (201,852 | ) | $ | 61,332 | $ | (589,714 | ) | $ | (346,638 | ) | |||||
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Net loss per share, basic and diluted
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$ | * | $ | * | $ | * | $ | * | ||||||||
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Weighted average common shares outstanding
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112,921,333 | 103,232,116 | 110,428,333 | 103,079,791 | ||||||||||||
* less than ($0.01) per share
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
F-2
Vista International Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
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Nine Months Ended September 30, 2010
(unaudited)
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Nine Months Ended September 30, 2009
(unaudited)
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Cash flows from operating activities:
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Net loss
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$ | (589,714 | ) | $ | (346,638 | ) | ||
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Adjustments to reconcile net loss to net
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cash used in operating activities:
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Depreciation and amortization
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101,219 | 129,265 | ||||||
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Stock issued for services
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112,167 | 63,102 | ||||||
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Bad debt expense
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2,400 | 1,748 | ||||||
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Impairment loss
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35,153 | |||||||
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Environmental remediation
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7,236 | 191,063 | ||||||
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Gain on sale of assets
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(593 | ) | ||||||
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Gain on settlement of liabilities
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(71,481 | ) | ||||||
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Other income (Note 5)
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13,176 | |||||||
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Changes in assets and liabilities:
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(Increase) decrease in assets:
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Accounts receivable
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43,125 | (64,310 | ) | |||||
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Prepaid expenses
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789 | 19,844 | ||||||
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Restricted cash and other assets
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3,876 | |||||||
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Increase (decrease) in liabilities:
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Accounts payable and accrued liabilities
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144,302 | (190,120 | ) | |||||
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Related party payables
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- | 43,466 | ||||||
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Net cash used in operating activities
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(233,498 | ) | (117,427 | ) | ||||
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Cash flows from investing activities:
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Proceeds from sale of assets
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1,500 | |||||||
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Equipment purchases
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(85,482 | ) | ||||||
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Net cash used in investing activities
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(83,982 | ) | ||||||
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Cash flows from financing activities:
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Payments on debt
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(8,470 | ) | (55,578 | ) | ||||
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Proceeds from related party notes
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224,700 | 158,383 | ||||||
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Payment on related party notes
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(10,000 | ) | ||||||
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Proceeds from common stock issued
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100,000 | 60,000 | ||||||
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Net cash provided by financing activities
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306,230 | 162,805 | ||||||
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Net (decrease) increase in cash
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(11,250 | ) | 45,378 | |||||
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Cash at beginning of period
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20,444 | 13,698 | ||||||
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Cash and at end of period
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$ | 9,194 | $ | 59,076 | ||||
| Supplemental disclosure of non-cash investing activity: | ||||||||
| Equipment purchases included in accounts payable and accrued liabilities | $ | 26,300 | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
F-3
Vista International Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2010 and 2009
(unaudited)
1. Significant Accounting Policies and Nature of Operations:
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements, which include the wholly-owned subsidiary of Vista International Technologies, Inc. (the “Company”, “we”, “our”), have been prepared by the Company in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission. This financial information has not been audited and should not be relied upon to the same extent as audited financial statements. Certain information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the Company’s financial statements and related notes contained in the Form 10-K for the year ended December 31, 2009. In the opinion of management, the interim financial statements reflect all adjustments, including normal recurring adjustments, necessary for fair presentation of the interim periods presented. The results of operations for the nine months ended September 30, 2010 are not necessarily indicative of the results of operations to be expected for the full year.
Description of Business
We are in the business of developing, commercializing and operating renewable energy and waste-to-energy technologies and projects. Our mission is to provide a clean, dependable, cost-competitive alternative energy to fossil fuels. We plan to develop projects with government, community, industry and financial partners to recover the available carbon based energy from materials previously considered “waste” and destined for disposal. The recovery of energy from waste using our Thermal Gasifier™ diverts large volumes of material from landfills and other disposal sites, while providing clean alternative energy and reducing greenhouse gas emissions. In addition to processing waste into clean energy, we also convert biomass into energy using various plant based materials. Biomass-to-energy is a highly sought after solution for generation of firm power as a renewable energy resource versus wind or solar. Usually the challenge when using biomass as the fuel to generate clean energy, is the ability to secure a long-term cost effective and reliable supply of the biomass. When we begin the development of a biomass-to-energy project we first identify the long-term biomass fuel supply. The use of biomass for the generation of energy is considered “carbon neutral” in it effects toward greenhouse gasses.
The Company is focusing its business in two areas, which is presently conducted in two separate facilities:
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tire processing and storage operations in Hutchins, Texas, and
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waste-to-energy and biomass-to-energy projects utilizing the Company’s Thermal Gasifier™ technology and corporate/administrative offices in Englewood, Colorado
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Liquidity, Going Concern, and Management’s Plan
The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company had a net loss of approximately $590,000 for the nine months ended September 30, 2010. At September 30, 2010, the Company had a working capital deficit of approximately $2,940,000, and an accumulated deficit of approximately $65,272,000.
Our continuation as a going concern is dependent upon the ability to generate sufficient cash flow or obtain equity investment or additional financing to meet obligations on a timely basis and ultimately to achieve profitable operations. There can be no assurance that additional financing will be available at rates favorable to the Company, or at all.
F-4
Management plans to focus the Company’s resources in four key areas:
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Thermal Gasifier™ engineering design and deployment,
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Maximizing value from the Hutchins, Texas tire processing and storage facility,
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Development of project based opportunities, and
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Attracting strategic investment
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Management considers the use of its patented Thermal Gasifier ™ technology in waste-to-energy and biomass-to-energy projects to be our core business. Over the past year, significant focus has been placed on the improvement of the tire processing operation at our Hutchins, Texas facility to increase production and reduce operating costs. Going forward the Company will further evaluate its tire processing operations to determine its value to the Company both near and long-term to formulate plans to maximize the use of these assets. It is management’s belief that this course of action will better prepare the Company to attract investors looking to enter the waste-to-energy and biomass-to-energy marketplace.
We continue to develop our internal resources and business alliances and advancing our business development activities to secure waste-to-energy and biomass-to-energy facility opportunities that utilize our Thermal Gasifier™ technology. A number of these opportunities have been discovered, and management is endeavoring to secure the rights to these projects or formulate strategic alliances with project development partners. The Company secured a Letter of Intent for a collaborative effort with Emerald Energy, a producer of proprietary high density, rapid growth biomass resources. Under the Letter of Intent, the Company will have the exclusive right to use Emerald’s MegaFlora™ tree in biomass-to-energy projects in the Western Hemisphere, as well as certain other territories. The concept for these projects would be to use Emerald’s proprietary biomass as the fuel and our patented conversion technology for the power. Before proceeding toward Definitive Agreements with Emerald Energy, the Company has been undertaking a due diligence review of that company and its proprietary product. Following the completion of this due diligence effort, we will decide whether it is in the Company’s best interest to pursue a strategic business alliance with Emerald Energy. The Company believes it will conclude its due diligence before the end of this year.
In the nine months ended September 30, 2010, the Company sold shares of common stock and received cash of $100,000. Also during the nine months ended September 30, 2010, the Company entered into loan agreements with related parties and received cash of $224,700.
In October 2010, the Company entered into an additional loan with an unrelated party and received cash of $50,000.
Management believes that current revenue levels will not be sufficient to meet our operational needs and execute the Company’s complete business plan. The Company is seeking additional funding for the activities described above. The Company is exploring numerous financing opportunities but has no agreements or commitments for funding at the present time. Future funding may be through an equity investment, debt or convertible debt. Current market conditions present uncertainty as to the Company’s ability to secure additional funds, as well as its ability to reach full profitability. There can be no assurances that the Company will be able to secure additional financing, or obtain favorable terms on such financing if it is available, or as to the Company’s ability to achieve positive earnings and cash flows from operations. Any continued negative cash flows and lack of liquidity create significant uncertainty about the Company’s ability to fully implement its operating plan, as a result of which the Company may have to reduce the scope of its planned operations. If cash resources are insufficient to satisfy the Company’s liquidity requirements, the Company will be required to scale back or discontinue its technology and project development programs, or obtain funds, if available, through strategic alliances that may require the Company to relinquish rights to certain of its technologies products or to discontinue its operations entirely.
The Company continues to advance its design and development activities on the MFG-8 Thermal Gasifier™ for the European market through its arrangements with its consultants and Hextra Group, S.r.l., in Italy, which has recently changed its name to Techxa, S.r.l., (“Techxa”). Raw materials have been ordered and fabrication of the MFG-8 Thermal Gasifier™ demonstration unit will begin in fourth quarter of this year. Once the fabrication of this gasifier is completed, it will be commissioned for demonstration, marketing and testing purposes. As part of the agreement, Techxa is fabricating the demonstration gasifier unit at its own expense. Techxa will fabricate and co-market a smaller version of the Thermal Gasifier™ to take advantage of well established markets within Italy, with an initial focus on municipal sewer sludge solids. For each gasifier placed into service, the Company will receive a license fee. It is projected that Techxa will complete fabrication by the first quarter of 2011 and introduce the small Thermal Gasifier™ to the Italian market by mid-year 2011.
On August 12, 2009, the Company engaged the services of a third party consultant to assist the Company with negotiating and settling Company liabilities, and to perform certain legal services for the Company. During the nine months ended September 30, 2010, indebtedness of approximately $161,000 was settled for approximately $90,000.
The Company entered into a Joint Development Agreement on August 16, 2010 with Mustang Consulting, LLC to further advance its proprietary technology, the Thermal Gasifier, in new waste to energy and biomass to energy projects and facilitate the development of projects in its pipeline. The two entities have worked together on a number of past initiatives, and management believes that this current agreement will allow the company to expedite the deployment of its third generation Thermal Gasifier technology across multiple vertical markets.
F-5
Revenue Recognition
The Company’s tire fuel processing and storage facility recognizes revenue from disposal fees (also known as “tipping fees”), which are received when waste tires are accepted at the facility. The revenue from tipping fees is fully earned when the waste tires are accepted at the facility.
Revenue from the sale of the Thermal Gasifiers™ is to be recognized upon completion, delivery and customer acceptance, using the completed contract method of accounting. No revenue from the sale of the Thermal Gasifiers™ was recognized during the nine months ended September 30, 2010 and 2009.
Recent Accounting Pronouncements
The Company has adopted all applicable recently issued accounting pronouncements. The adoption of the accounting pronouncements, including any not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
2. Notes Payable
At September 30, 2010, the Company had the following promissory notes outstanding:
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3.68% installment note, secured by equipment, in default
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$
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75,452
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8.56% installment note, secured by equipment, due August 2013
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18,093
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15% promissory notes payable to individuals, due on demand, in default
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17,000
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Total notes payable and capital leases:
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110,545
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Less: current maturities
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98,154
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Notes payable and capital leases
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$
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12,391
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3. Related Party Transactions
As of September 30, 2010, Notes payable to stockholder consist of notes payable of $500,000 and approximately $93,000 the Company has drawn under a line of credit. On August 11, 2009, the Company entered into a Line of Credit Agreement (the “Line”) with Mr. Richard Strain, a significant shareholder. The purpose of the Line, which is for up to $375,000, is to allow the Company to consolidate some of its outstanding debt. The Line bears interest at the rate of 9% per annum and repayment of $8,000 per month commenced in October 1, 2009. The Company has not made these scheduled payments and the Line is in default. The Line is secured by a first priority security interest in the Company’s assets and provides for certain equity redemption rights to Mr. Strain, on terms and conditions to be agreed upon. No equity redemption rights have been provided as of September 30, 2010. Interest expense on the Line was approximately $5,900 for the nine months ended September 30, 2010.
The notes of $500,000 bear interest at the annual rate of 9%, with interest payable quarterly, and were due on various dates through November 2007. The notes are secured by a first priority security interest in the Company’s assets. The notes are in default, and a default notice has been received. Mr. Strain has agreed to defer collection on the notes until December 31, 2010. Interest expense on the notes for the nine months ended September 30, 2010 and 2009 was $31,809 and $34,906, respectively. In April 2010, 2,765,493 shares of common stock were issued to Mr. Strain in satisfaction of interest accrued of $138,275.
On August 3, 2009, the Company entered into a loan agreement with Mr. Timothy D. Ruddy, a director of the Company. The purpose of the agreement was to formalize the terms related to working capital funding provided by Mr. Ruddy since the fourth quarter of 2008. As of September 30, 2010, that total was $338,100, including loans of $179,700 advanced to the Company during the nine months ended September 30, 2010 together with accrued interest at September 30, 2010 of $24,249. The loans bear interest at the rate of 8% per annum, are secured by the Company’s assets, are due on demand and are convertible into the Company’s common stock based on the quoted market price of the stock at the dates the loans were made.
F-6
During May 2010, persons related to Mr. Ruddy provided loans totaling $45,000 bearing interest at the rate of 10% per annum secured by the Company’s assets, with $25,000 due upon sale of collateral and $20,000 in May, 2012.
Included in fixed assets and capital lease obligations at September 30, 2010 is equipment valued at $20,028 leased by Mr. Ruddy on the Company’s behalf.
4. Stockholders’ Equity
Common Stock
Nine months ended September 30, 2010
During the nine months ended September 30, 2010, the Company received $100,000 in cash from various investors for 3,001,667 shares of restricted common stock. The share issuances, that were approved by the Board of Directors, were issued during the nine months ended September 30, 2010.
During the nine months ended September 30, 2010, the Company issued 725,000 shares of restricted common stock valued at $29,250 to a consultant pursuant to a consulting agreement dated June 11, 2009, and 750,000 shares of common stock to Colebrook Capital valued at $37,500, based upon the market price of $.05 per share, for services incurred during the nine months ended September 30, 2010.
Additionally during the nine months ended September 30, 2010, the Company recorded 756,965 shares of common stock to be issued valued at $45,418, based upon the market price of $.06 per share for legal expenses incurred during the nine months ended September 30, 2010.
5. Other Income
In February 2010, the production building at the Company’s tire processing and storage facility in Hutchins, Texas, collapsed from a heavy snow storm and the building was rebuilt, which was completed in July 2010. The facility was fully insured to cover the production building, equipment damages, lost production and lost revenue.
During the nine months ended September 30, 2010, the Company received cash proceeds of approximately $91,000 and recorded a gain on involuntary conversion of approximately $49,800 (which includes the building write off of approximately $13,200 and costs incurred to prepare the site for the new building of approximately $28,000) as other income on the statement of operations.
6. Commitments and Contingencies
Litigation and Claims
The Company was named in a suit by a former employee alleging that the Company reneged on its obligation to issue shares to the employee. On July 26, 2010, an amended judgment was entered against the Company for approximately $92,000 which is included in accruals at September 30, 2010.
The Company is subject to a variety of litigation and claims relating to past due payments for goods and services. The Company is in the process of negotiating settlement arrangements for these items.
Environmental Liability
The Company’s tire processing operations in Texas are subject to regulation by the Texas Commission of Environmental Quality (“TCEQ”). At September 30, 2010, the Company had approximately 6,500 tons of whole tires, partially shredded tires, tire chips and process waste stored onsite at the tire processing and storage facility. To date, we have been able to dispose of this material at a municipal landfill site that is using the material as leachate bedding and landfill cover. The municipality has expressed a long-term need for this material in their operation, if certain requirements are met. The Company is evaluating these requirements to determine if current operations can be modified to ensure compliance therewith.
F-7
The Company’s registration with the TCEQ requires the Company to provide financial assurance in the form of letters of credit and a certificate of deposit (approximately $174,000 at September 30, 2010) for remediation in the event the Company liquidates and the facility closes. These letters of credit expire on November 23, 2010 and December 10, 2010. Included in the financial assurance of $174,000 at September 30, 2010 is a certificate of deposit for $150,000 owned by Mr. Ruddy, a director of the Company. The Company has no other asset retirement obligations. At September 30, 2010, we have accrued approximately $154,700 for the cost of disposing of this material.
6. Subsequent Events
On October 26, 2010 the Company entered into a consulting agreement with two unrelated parties to aid the Company in securing waste to energy projects in the Northeastern United States through their contacts and expertise in the recycling industry. The terms of the agreement provide for the consultants to receive a combined 250,000 shares of restricted common stock in the Company upon the successful closing of a transaction using the Company’s technology and an additional combined 250,000 restricted common shares upon successful start-up of the technology in the project.
F-8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD LOOKING STATEMENTS
Certain information contained in this report may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created by that act. The safe harbor created by the Securities Litigation Reform Act will not apply to certain “forward looking statements” because we issued “penny stock” (as defined in Section 3(a)(51) of the Securities Exchange Act of 1934 and Rule 3a51-1 under the Exchange Act) during the three year period preceding the date(s) on which those forward looking statements were first made, except to the extent otherwise specifically provided by rule, regulation or order of the Securities and Exchange Commission. We caution readers that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to have been made in this Report or which are otherwise made by or on behalf of us. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “explore”, “consider”, “anticipate”, “intend”, “could”, “estimate”, “plan”, or “continue” or “hope” or the negative variations of those words or comparable terminology are intended to identify forward-looking statements.
The Management’s Discussion and Analysis is intended to help stockholders and other readers understand the dynamics of the Company’s business and the key factors underlying its financial results. It explains trends in the Company’s financial condition and results of operations for the period ended September 30, 2010, compared with the operating results for the period ended September 30, 2009.
Company Overview
Our mission is to provide a clean, dependable, cost-competitive energy alternative to fossil fuels worldwide. We will focus on our business model of building, owning and operating waste-to-energy and biomass-to-energy plants using our Thermal Gasifier™ technology-building, either on our own or with joint venture partners, or providing “turn-key” plants for licensed end-users. Our tire fuel processing operation generated 100% of revenue, or $455,752 and $503,465 during the nine months ended September 30, 2010 and 2009, respectively. We recognized no revenue from our Thermal Gasifier™ business during 2010 or 2009. Our long-term goal is to produce the majority of our revenue and cash flow from the commercialization of our Thermal Gasifier™ technology. With the design of the next generation gasifier complete, the Company plans to focus the majority of its resources on the deployment of the technology in waste-to-energy and biomass-to energy projects.
Worldwide, industries and municipalities seek lower cost and clean energy alternatives to fossil fuels. Demand for these energy alternatives is expected to grow. A key to our success will be wisely choosing among project opportunities and focusing resources on projects with the greatest chance of success and returns for stockholders.
We are developing our internal resources and business alliances and advancing our business development activities to secure waste-to-energy and biomass-to-energy facility opportunities that utilize our Thermal Gasifier™ technology. A number of these opportunities have been discovered, and management is endeavoring to secure the rights to these projects or formulate strategic alliances with project development partners. To this end, the Company has been successful in securing a Letter of Intent for a collaborative effort with Emerald Energy, a producer of proprietary high density, rapid growth biomass resources. Under the Letter of Intent, the Company will have the exclusive right to use Emerald’s MegaFlora™ tree in biomass-to-energy projects in the Western Hemisphere, as well as certain other territories. The concept for these projects would be to use Emerald’s proprietary biomass as the fuel and our patented conversion technology for the power. Before proceeding toward Definitive Agreements with Emerald Energy, the Company has been undertaking a due diligence review of that company and its proprietary product. Following the completion of this due diligence effort, we will decide whether it is in the Company’s best interest to pursue a strategic business alliance with Emerald Energy. The Company believes it will conclude its due diligence before the end of this year.
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We are also engaged in ongoing discussions with potential waste-to-energy projects in the northeastern United States and Colorado. The Company is working toward letters of intent with the owners of these potential projects that will utilize our next generation Thermal Gasifier™ design. We plan to diversify the technology into several vertical markets that include the organic fractions from Municipal Solid Waste and Municipal Sewer Sludge, in addition to Animal Waste, Agricultural Waste and other forms of biomass.
To continue to advance the Company, it is important that we attract and gain access to new capital. To identify and facilitate necessary funding to further the Company’s business plan, we continue to work on fund raising activities in multiple areas. Aside from funds contributed by private investors, we have entered into an agreement with Colebrooke Capital, LLC an investment advisory firm based in New York City. The basis of the agreement with Colebrooke is to re-capitalize the Company, so it can complete the deployment of the next generation Thermal Gasifier™ technology and initiate project development for its commercialization. Additionally, the Company will seek project funding, in some cases with joint venture partners that will be based on the size, configuration and business structure of a given project.
We anticipate that the time frame from identification of a project to completion will be 18 to 24 months, provided we obtain the requisite project financing and appropriate environmental permits.
The Company has utilized considerable resources to improve operations at our tire fuel processing facility in Hutchins, Texas during 2010. The tire fuel processing facility is currently the only waste tire storage and processing facility licensed by the State of Texas to operate in the Dallas Metro area. More recently, the Company has enlisted Colliers International, a leading global commercial real estate firm, to aid the Company in exploring the current value of the facility. The Company will then use this value, along with other metrics including future revenue and growth prospects to determine the proper future course of action with regard to the facility. Among the options being considered are:
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Continued investment into the facility, for the purpose of :
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Implementation of procedures to further limit both operating costs and future liabilities, and
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Diversification of end products that can be sold to produce new revenues and maximize the existing assets while increasing cash flow
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Potential sale of the facility to eliminate the Company’s debt and provide additional resources for Thermal Gasifier™ deployment and project development.
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During 2010, the Company has not been producing any tire derived fuel due to an economic downturn that has caused the major tire derived fuel customers to cut back on their alternative fuel usage. Instead of purchasing new equipment to produce tire derived fuel, the Company has been working with the City of Dallas landfill to provide partially shredded tires as a leachate material and for landfill cover. The landfill allows the Company to dispose of the partially shredded tires at a zero disposal cost. The only cost associated with this program is the cost of hauling the material, which is within ten miles of the tire processing facility. This arrangement with the landfill allows the Company to increase its throughput due to only partially shredding the waste tires, which enables the facility to accept more incoming waste tires, thereby increasing the tipping fee revenue significantly. Recently, this landfill has indicated that to use the partially shredded materials as “landfill cover”, we must be able to provide a 6” minus material versus a quartered tire. The Company is evaluating the re-circulation of the quartered tires through its primary shredder to facilitate this request. If the Company is unable to re-circulate the quartered tires and produce a 6” minus material, it may have to pay a disposal fee to the landfill to dispose of these partially shredded tires. This would result in an increase in disposal costs to the Company.
Our tire processing operation in Texas is subject to regulation by the TCEQ. We are registered with the TCEQ, which allows us to receive, store, transport and process waste tires. The Company’s permit renewal was approved by the TCEQ on April 30, 2010 for another five (5) year period.
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We continue to maintain our tire processing facility to meet the requirements of the TCEQ’s regulations, however, should we be unable to continue to fund our assurance to maintain compliance, we could lose our permit to operate the facility.
We commenced receiving and partially processing waste tires in August 2008, and have seen volumes of waste tires that we accept fluctuate monthly between approximately 750 to 1,000 tons per month. Management recognizes that these volumes are subject to seasonal fluctuations, and will seek to maintain established minimum volumes, so as to guarantee steady revenue streams going forward.
Results of Operations for the Three Months Ended September 30, 2010 and 2009
Revenue
For the three months ended September 30, 2010, revenue was $114,204 compared to $278,314 for the three months ended September 30, 2009, a decrease of $164,110 or approximately 59%. Weather conditions and the general market economic decline attributed to a decrease in revenue along with a major customer installing their own shredder.
Cost of revenue
Cost of revenue was $76,674 for the three months ended September 30, 2010, compared to $172,200 for the three months ended September 30, 2009, a decrease of $94,626 or approximately 55%. The decrease in cost of revenue was due to a decrease in operations and related operating expenses at the facility. In particular, a decrease in outside service of approximately $16,000 for decreased tire hauling cost related to our TCEQ permit compliance, a decrease in property taxes of approximately $17,000, a decrease in repair and maintenance of approximately $14,000, a decrease in depreciation expense of approximately $17,000, a decrease in salaries, wages of approximately $25,000 and a decrease in rental and operational supplies of approximately $13,000.
Environmental remediation
During the three months ended September 30, 2010, environmental remediation costs of approximately $7,200 were accrued for as an estimate of additional cleanup costs due to increased inventory levels. During the tree months ended September 30, 2009, environmental remediation costs was reduced by approximately $193,000 due to lower estimated landfill disposal costs.
Selling, general, and administrative expenses
Selling, general, and administrative expenses were $210,107 for the three months ended September 30, 2010, compared to $211,841 for the three months ended September 30, 2009, a decrease of $1,734 or approximately 1%. The decrease in selling, general and administrative expenses is due primarily to a decrease in consulting and legal expense of approximately $92,000, a decrease of $35,000 in computer software expense, offset by an increase in professional accounting of $16,000 and an increase to outside service costs of $40,500. In addition, a decrease in interest and penalties resulted in lower selling, general and administrative expenses of approximately $73,000 in the three months ended September 30, 2009.
Interest expense
Interest expense was $22,039, during the three months ended September 30, 2010, compared to $24,004 during the three months ended September 30, 2009, a decrease of 8%.
Net loss
For the reasons above, net loss for the three months ended September 30, 2010 was $201,852, a decrease of $263,184 compared to the net profit of $61,332 for the three months ended September 30, 2009.
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Results of Operations for the Nine Months Ended September 30, 2010 and 2009
Revenue
For the nine months ended September 30, 2010, revenue was $455,752, compared to $503,465 for the nine months ended September 30, 2009, a decrease of $47,713 or approximately 9%. Weather condistions and the general market ecomomic decline attributed to a decrease in revenue.
Cost of revenue
Cost of revenue was $293,828 for the nine months ended September 30, 2010, compared to $345,143 for the nine months ended September 30, 2009, a decrease of $51,315 or approximately 15%. The decrease in cost of revenue was due to a decrease in operations and related operating expenses at the facility. In particular, a decrease in property taxes of approximately $13,000, a decrease in depreciation expense of approximately $31,000, a decrease in salaries and wages of approximately $36,000, offset by an increase in outside service of approximately $31,000 for increased tire hauling cost during the first six months of 2010 versus the first six months of 2009.
Environmental remediation
During the nine months ended September 30, 2010, environmental remediation costs of approximately $12,933 was accrued based on our estimate of additional cleanup costs as a result of increased inventory to approximately 6,500 tons. During the nine months ended September 30, 2009, enviromental remediation costs was reduced by $193,000 due to lower estimated landfill disposal costs.
Selling, general, and administrative expenses
Selling, general, and administrative expenses were $713,515 for the nine months ended September 30, 2010, compared to $647,752 for the nine months ended September 30, 2009, an increase of $65,763 or approximately 10%. The increase in selling, general and administrative expenses is due primarily to an increase in consulting and legal expense of approximately $70,000, an increase in outside service costs of $68,000, offset by a decrease of $35,000 in computer software expense, a decrease in professional accounting of $16,000, a decrease in officer wages and benefits of $62,000, and a decrease in office rent of $18,000. In addition, a decrease in interest and penalties resulted in lower selling, general and administrative expenses of approximately $56,000 in the nine months ended September 30, 2009.
Litigation settlement costs
The Company was named in a suit by a former employee alleging that the Company reneged on its obligation to issue shares to the employee. On July 26, 2010, an amended judgment was entered against the Company for approximately $92,000 which was charged to expense during the nine months ended at September 30, 2010.
Other income
Other income of approximately $50,000 is comprised of insurance proceeds net of initial costs to demolish and prepare the site to rebuild the tire processing production building in Hutchins, Texas that suffered snow damage in February, 2010. The Company filed an insurance claim for damages and received initial proceeds of approximately $91,000. The Company is finalizing claim with insurance representative for additional costs incurred through September 30, 2010.
Gain on extinguishment of liabilities
During the nine months ended September 30, 2010, gain on settlement of liabilities of approximately $71,000 was comprised of indebtedness of approximately $161,000 that was settled for approximately $90,000.
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Interest expense
Interest expense was $54,429, during the nine months ended September 30, 2010, compared to $48,271 during the nine months ended September 30, 2009, an increase of $6,158 or 13%. There was an increase in related party notes during the nine months ended September 30, 2010.
Net loss
For the reasons above, net loss for the nine months ended September 30, 2010 was $589,714, an increase of $243,076 or approximately 70%, compared to the net loss of $346,638 for the nine months ended September 30, 2009.
Liquidity and Capital Resources
Going Concern
Our consolidated financial statements for the quarter ended September 30, 2010 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The report of our Independent Registered Public Accounting Firm as of and for the year ended December 31, 2009 includes an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. We have a net loss of approximately $589,700 and net cash used in operations of approximately $233,500 for the nine months ended September 30, 2010, an accumulated deficit of approximately $65,272,000 and a total stockholders’ deficit of approximately $2,611,000 at September 30, 2010.
Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow or obtain equity investment or additional financing to meet obligations on a timely basis and ultimately to achieve profitable operations.
At September 30, 2010, the Company had a working capital deficiency of approximately $2,940,000 and a cash balance of $9,194. The Company’s working capital deficiency balance is due primarily to the curtailment of its full operations and consequential reduction in cash flows at its tire fuel processing and storage facility in Hutchins, Texas, the inclusion of a liability of approximately $154,800 for cleanup costs at the Hutchins, Texas facility, and the current liability classification of its notes payable due to default.
For the nine months ended September 30, 2010, the net cash used in operating activities of $233,500 consisted primarily of the net loss of $589,714 and an increase in accounts receivable of $43,124, non-cash depreciation and amortization expense of $101,219, increase in accounts payable and accrued liabilities of $151,537, stock issued for services of $112,168, and gain on extinguishment of liabilities of $71,481.
For the nine months ended September 30, 2010, the net cash used in investing activities consisted primarily of $85,981 for purchases of assets.
Net cash provided by financing activities was $306,230 for the nine months ended September 30, 2010, and it consisted primarily of $100,000 of proceeds from the issuance of common stock and $214,700 in loans from related parties (net of a repayment of $10,000) offset by payments on debt of $8,470. These notes may be prepaid in whole or inpart without premium or penalty if the company has sold its Tire Processing Facility. All prepayments shall first be applied to interest, and then to principal payments in the order of their maturity.
We are exploring financing options with investors and lenders that we expect will provide additional capital, either as debt or as an equity contribution, to us during the remainder of 2010 for the purpose of funding ongoing operations, maintaining a competitive position in our tire fuel processing operations, advancing our Thermal Gasifier™ technology and project development activities. However, we have not reached any terms for financing and we cannot assume that we will be able to secure financing at all, and if we are able to do so, we cannot predict what the terms of financing will be.
We expect that our current revenue levels will not be sufficient to sustain our present level of operations for the foreseeable future. The Company believes it will need to secure additional investment capital within the next few months to continue development of the next generation Thermal Gasifier ™ and provide adequate funds to execute the current business plan. Toward that end, the Company has retained Colebrooke Capital, LLC, an investment advisory firm located in New York City to assist the Company is identifying, structuring and raising additional capital for the Company.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
None.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Principal Accounting Officer, has evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our management has concluded that our disclosure controls and procedures were not effective.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statement will not be prevented or detected. As of September 30, 2010, management assessed our internal control over financial reporting in relation to criteria described in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, we identified the following material weaknesses in our internal control over financial reporting as of September 30, 2010:
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While there were internal controls and procedures in place that relate to financial reporting and the prevention of material misstatements, these controls did not meet the required documentation and effectiveness requirements under the Sarbanes-Oxley Act and, therefore, management could not certify that these controls were properly implemented. As a result, it was management’s opinion that the lack of documentation warranted a material weakness in the financial reporting process.
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The Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed in our Exchange Act reports was accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosures. Inadequate controls include the lack of procedures used for identifying, determining, and calculating required disclosures and other supplementary information requirements.
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Due to the nature and size of the Company’s current operations, there is lack of segregation of duties in financial reporting. This weakness was due to our lack of working capital to hire additional staff during the period covered by this report.
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Changes in Internal Control over Financial Reporting.
The Company hired a full time Vice President of Finance/Controller on January 18, 2010.
There was no other change in our internal control over financial reporting during the nine months ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
The Company entered into a termination agreement with a former employee dated February 10, 2004 for services that were performed prior to termination. The Company was required to issue to the employee 285,000 shares of common stock, upon the Company effectuating a stock split. To date, the stock split has not taken place. The Company was named in a suit by the former employee alleging that the Company reneged on its obligation to issue shares to the employee seeking $405,000 in damages and costs. On July 26, 2010, the courts reduced the original judgment being sought against the Company from $405,000 to $59,850 plus accrued interest. Accordingly the $59,850 plus $32,754 in interest has been accrued in relation to this matter as of September 30, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the nine months ended September, 2010, the Company received $100,000 in payments from private individuals for 2,466,667 shares of common stock. The proceeds from these sales were used for payment of corporate overhead and expenses. During the nine months ended September 30, 2010, the Company authorized the issuance of the stock certificates for 3,001,667 shares (which includes the 2,466,667 above and 535,000 shares purchased in December 2009).
The foregoing issuances were made pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. We did not use any underwriter or placement agent in these transactions and did not pay anyone commission or other compensation in connection with these issuances. These issuances were made directly by us to persons with whom our management had direct contact and a pre-existing relationship.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Reserved.
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Item 5. Other Information.
None.
Item 6. Exhibits.
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Certificate of Incorporation*
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3(i).2
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Articles of Amendment to the Articles of Incorporation, filed on August 6, 1999*
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3(i).3
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Certificate of Amendment of Certificate of Incorporation, filed on April 24, 2002*
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3(i).4
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Certificate of Amendment of the Certificate of Incorporation, filed on October 12, 2005*
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3 (i).5
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Certificate of Amendment to Certificate of Incorporation, filed on November 13, 2007**
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3(ii).1
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Amended and Restated By-Laws***
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10.1
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Strategic Alliance and Supply Agreement, dated December 29, 2009 by and between Vista International Technologies, Inc. and Liberty Tire Recycling, LLC.*****
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10.2
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Consulting Agreement dated August 3, 2009 by and between Vista International Technologies, Inc. and Ing. Gianfranco Licursi****
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10.3
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Nathaniel Energy Corporation 2005 Equity Participation Plan*
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10.4
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Security Agreement dated August 3, 2009 by and between Vista International Technologies, Inc. and Mr. Timothy Ruddy*****
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10.5
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Promissory Note (Line of Credit) dated August 11, 2009 by and between Vista International Technologies, Inc. and Mr. Richard Strain*****
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10.6
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Engagement Letter dated April 15, 2010 by and between Vista International Technologies, Inc. and Colebrooke Capital, Inc.*****
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* Denotes document filed as an exhibit to our Quarterly Report on Form 10-QSB for the period ended September 30, 2005 and incorporated herein by reference.
** Denotes document filed as an exhibit to our Current Report on Form 8-K for an event dated December 21, 2007 and incorporated herein by reference.
*** Denotes document filed as an exhibit to our Current Report on Form 8-K for an event dated June 6, 2005.
**** Denotes document filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended September 30, 2009 and incorporated herein by reference.
***** Denotes document filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
***** Denotes document filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended June 30, 2010 and incorporated herein by reference.
****** Denotes document filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended September 30, 2010 and incorporated herein by reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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VISTA INTERNATIONAL TECHNOLOGIES, INC.
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(Registrant)
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Date: November 16, 2010
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By:
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/s/ Thomas P. Pfisterer
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Thomas P. Pfisterer
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Chief Executive Officer and Principal Accounting Officer
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