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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
MARK ONE
 
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period ended September 30, 2012; 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)
 
Delaware
 
84-1572525
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
5151 E 56th Ave, Suite 101, Commerce City, Colorado 80022
(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  o
 
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  o
 
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.
 
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company x
(Do not check if a smaller reporting company)      
 
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  x.
 
As of December 13, 2012, Vista International Technologies, Inc. had outstanding 12,192,399 shares of common stock, par value $0.001 per share.
 


 
 

 
VISTA INTERNATIONAL TECHNOLOGIES, INC.
 
TABLE OF CONTENTS
 
PART I – FINANCIAL INFORMATION
         
Item 1.
Condensed Financial Statements - Unaudited
     
         
 
Consolidated Balance Sheets at September 30, 2012 (unaudited) and December 31, 2011
    F-1  
           
 
Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (unaudited)
    F-2  
           
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (unaudited)
    F-3  
           
 
Notes to Unaudited Interim Consolidated Financial Statements
    F-4  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    3  
           
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    10  
           
Item 4.
Controls and Procedures
    11  
           
PART 2 - OTHER INFORMATION
           
Item 1.
Legal Proceedings
    12  
           
Item 2.
Unregistered Sales of Equity Securities And Use of Proceeds
    12  
           
Item 3.
Defaults Upon Senior Securities
    12  
           
Item 4.
Mine Safety Disclosures
    12  
           
Item 5.
Other Information
    12  
           
Item 6.
Exhibits
    13  
           
Signatures     16  
 
 
2

 

Vista International Technologies Inc.
Condensed Consolidated Balance Sheets
 
   
September 30,
2012
   
December 31,
2011
 
   
(unaudited)
       
ASSETS
           
Current assets:
           
Cash   $ 9,967     $ 36,710  
Accounts receivable, net     8,459       1,739  
Other receivables     -       1,904  
Prepaid expenses     5,341       55,410  
Total current assets
    23,767       95,763  
                 
Environmental deposit     170,000       170,000  
Deposits     1,896       1,896  
Property and equipment, net     533,326       569,258  
Intangibles, net     24,814       27,766  
                 
Total assets
  $ 753,804     $ 864,683  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities
               
   Accounts payable and accrued liabilities
  $ 1,923,583     $ 1,900,246  
   Accrued compensation and payroll liabilities
    534,805       588,087  
   Accrued interest
    324,303       200,376  
   Notes payables - related parties
    774,893       658,901  
   Notes payable - stockholder
    1,096,931       1,096,931  
   Notes payable and capital leases, current portion
    204,340       151,484  
   Convertible Notes payable net of debt discount
    -       3,709  
   Derivative liability
    -       74,192  
      Total current liabilities
    4,858,856       4,673,926  
                 
   Other long-term liabilities
    11,121       40,068  
   Notes payable and capital leases, less current portion
    -       3,898  
                 
Total liabilities
    4,869,977       4,717,892  
Commitments and contingencies
    -       -  
Stockholder's deficit:
               
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2012 and December 31, 2011
    -       -  
Common stock, $0.001 par value; 200,000,000 shares authorized; 12, 192,399 and 12,047,946  shares issued outstanding at September 30, 2012 and December 31, 2011, respectively
    12,193       12,048  
   Additional paid-in capital
    62,814,583       62,802,728  
   Common stock to be issued
    5,000       -  
   Accumulated deficit
    (66,947,949 )     (66,667,985 )
   Total stockholder's deficit
    (4,116,173 )     (3,853,209 )
                 
Total liabilities and stockholders' deficit
  $ 753,804     $ 864,683  
 
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
(unaudited)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
2012
   
September 30,
2011
   
September 30,
2012
   
September 30,
2011
 
                         
Revenues
  $ 184,700     $ 126,714     $ 505,478     $ 352,484  
                                 
Cost of revenue
    150,285       165,290       518,662       356,737  
                                 
Environmental remediation expenses
    14,513       22,800       (19,122 )     209,784  
                                 
Gross (loss) profit
    19,902       (61,376 )     5,938       (214,037 )
                                 
Operating expenses:
                               
   Selling, general and administrative expenses
    39,299       150,626       172,060       492,780  
      Total operating expenses
    39,299       150,626       172,060       492,780  
                                 
Loss from operations
    (19,397 )     (212,002 )     (166,122 )     (706,817 )
                                 
Other income (expense):
                               
   Interest expense, net
    (66,853 )     (39,836 )     (190,101 )     (115,768 )
   Gain on change in the fair value of derivative liability
    42,069       -       74,192       -  
   Finance Charges
    -       -       (822 )     -  
   Other Income
    -       44,709       2,890       50,567  
      (24,784 )     4,873       (113,841 )     (65,201 )
                                 
Loss before income taxes
    (44,181 )     (207,129 )     (279,964 )     (772,018 )
                                 
Income tax expenses
    -       -       -       -  
                                 
Net loss
  $ (44,181 )   $ (207,129 )   $ (279,964 )   $ (772,018 )
                                 
Net loss per share, basic and diluted
  $ (0.00 )   $ (0.02 )   $ (0.02 )   $ (0.07 )
                                 
Weighted average common shares outstanding
    12,192,399       11,742,306       12,104,933       11,566,000  
 
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
(Unaudited)
 
   
Nine months ended
 
   
September 30,
2012
   
September 30,
2011
 
Cash flows from operating activities:
           
    Net loss
  $ (279,964 )   $ (772,018 )
    Adjustments to reconcile net loss to net
               
    cash used in operating activities:
               
    Depreciation and amortization
    73,182       36,439  
    Operating expenses incurred by noteholder - related party
    3,392       -  
    Common stock issued for services provided
    -       93,915  
    Environmental remediation expenses
    (19,122 )     209,784  
    Gain on sale of property and equipmet
    (1,100 )     (24,232 )
    Amortization of deferred debt discount
    38,791       -  
    Gain on change in fair value of derivative liability
    (74,192 )     -  
    Changes in operating assets and liabilities:
               
        Accounts receivable, net
    (6,720 )     3,986  
        Prepaid expenses
    50,069       3,999  
        Other current assets
    1,904          
        Restricted Cash and Other Assets
    -       27,089  
        Accounts payable and accrued expenses
    84,158       171,644  
    Net cash used in operating activities
    (129,602 )     (249,394 )
                 
Cash flows from investing activities:
               
        Property and equipment and intangible asset purchases
    (1,528 )     (26,317 )
        Proceeds from Insurance Settlement
    -       30,081  
        Proceeds from Sale of Property and Equipment
    1,100       12,800  
    Net cash used in investing activities
    (428 )     16,564  
                 
Cash flows from financing activities:
               
    Repayments on note payable and capital lease
    (22,776 )     (6,814 )
    Proceeds for Common Stock to be Issued
    5,000       -  
    Proceeds from notes payable and capital lease
    32,750       225,000  
    Proceeds from Line of Credit
    81,213       -  
    Proceeds from related party notes
    7,100       154,000  
    Net cash provided by financing activities
    103,287       372,186  
                 
Net (decrease) increase in cash and cash equivalents
    (26,743 )     139,356  
                 
Cash and cash equivalents at beginning of period
    36,710       4,901  
                 
Cash and cash equivalents at end of period
  $ 9,967     $ 144,257  
                 
Supplemental disclosure of cash flow information:
               
Cash paid during the period for interest
  $ 5,370     $ 4,732  
Cash paid during the period for taxes
  $ -     $ -  
                 
Non-cash investing and financing activities:
               
                 
Capital lease obligation reclassified as accounts payable as the result of insurance settlement
  $ -     $ 13,219  
Insurance settlement remitted directly to vendor for equipment purchases
  $ -     $ 17,090  
Equipment purchases funded by capital lease arrangement
  $ 32,771     $ 20,750  
Notes payable-related party for equipment purchases and accounts payable
  $ -     $ 26,301  
Issuance of common stock for in exchange for settlement of convertible notes payable
  $ 12,000     $ -  
Note payable issued for direct payment made by related party for repayment of bank loan incurred for environmental deposit
  $ 75,000     $ -  
Note payable issued for direct payment made by related party for repayment of Convertible note
  $ 30,500     $  -  
 
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
Three and Nine months ended September 30, 2012 and 2011
(unaudited)
 
1. Significant Accounting Policies and Nature of Operations
 
Unaudited Interim Financial Statements
 
The accompanying unaudited interim financial statements, which include the wholly-owned subsidiaries 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. The 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 unaudited 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, 2011. In the opinion of management, the unaudited 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 three and nine months ended September 30, 2012 are not necessarily indicative of the results of operations to be expected for the full year.
 
Description of Business
 
The Company is in the business of developing, commercializing and operating renewable energy and waste-to-energy (“WTE”) technologies and projects.
 
The Company is currently conducting its business in the following areas:
 
Tire processing operation in Hutchins, Texas, and
   
Renewable energy and WTE projects utilizing the Company’s Thermal Gasifier™ technology and corporate administration at the Company’s offices in Commerce City, Colorado.
 
Discrete financial information is not presently maintained for our WTE business as it has not  generated any revenues in the past few years.  In addition, management makes investing and resource allocation decisions based on the combined results of both the processing and WTE business.  Accordingly, we only have one reportable segment.

Going Concern and Management’s Plan
 
The Company reported a net loss of approximately $280,000 and used net cash in operating activities of $129,600  for the nine months ended September 30, 2012, has a working capital deficiency of approximately $4.8  million and an accumulated deficit of approximately $66.9 million at September 30, 2012.  These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recovery of the recorded assets or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow from operations or to obtain equity investment or additional financing to meet obligations on a timely basis and ultimately achieve profitable operations.
 
During the nine months ended September 30, 2012, the Company received proceeds of $32,750 from an equipment financing transaction as well as proceeds from lines of credit totaling roughly $82,000 to help with working capital.  We expect that the Company will continue to rely on loans, including those from related parties and issuances of shares in private placements to meet its working capital needs for the foreseeable future.
 
Management plans to focus the Company’s resources in four key areas:
 
 
Thermal Gasifier™ engineering design and deployment
 
 
Maximizing value from the Hutchins, Texas tire processing and storage facility.

 
Development of project based opportunities, and
 
 
Attracting strategic investment
 
 
F-4

 
 
Vista International Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2012 and 2011
(unaudited)
 
1. Significant Accounting Policies and Nature of Operations (Continued)

Management considers the Thermal Gasifier ™ and waste-to-energy segment to be our core business. However, significant focus continues to be  placed on the improvement of the tire processing operation at our Hutchins, TX facility to increase production and reduce operating costs, and expand sales to increase revenue and cash flow. In February 2012, the Company began operation of the shredding equipment for its TDF production line.
 
We continue to develop our internal resources and implement business development activities to secure waste-to-energy and biomass-to-energy facility opportunities that will utilize our Thermal Gasifier™ technology through build-own-operate agreements or through joint-venture relationships with strategic partners. We are looking to partner with companies that produce large hydrocarbon-based waste streams and are also in need of thermal and/or electrical energy. We are targeting opportunities where there are high disposal fees and energy rates, where we can use the Thermal Gasifier™ with back end power systems to provide significant cost savings to the end user. We are reviewing the economic viability of a number of opportunities in the northeastern United States and in Colorado and are currently working towards obtaining letters of intent from these entities. Currently, the Company does not have any Thermal Gasifiers in operation.
 
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 various financing opportunities but does not have final 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 assurance that the Company will be able to secure additional financing, or obtain favorable terms on such financing if it is available.  Continued negative cash flow and lack of liquidity create significant uncertainty about the Company’s ability to fully implement its operating plan, and may result in the Company reducing the scope of its planned operations, 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 or products or to discontinue its operations entirely.

Revenue Recognition
 
We recognize revenue from our tire fuel processing and storage facility in three ways:
 
 
 
Disposal fees (“tipping fees”) for waste tires are fully earned when accepted at the facility
 
Tire Derived Fuel revenues are fully earned when the product is accepted at the purchaser’s facility.
 
 
Sales of unprocessed whole tires are recognized when delivered to the end user
 
Revenue from sales of our Thermal Gasifier™ will be recognized upon completion, delivery and customer acceptance, using the completed contract method of accounting. We have recognized no revenue from the sale of our Thermal Gasifier™ during the nine months ended September 30, 2012 and 2011.
 
Concentration of Credit Risk
 
Our two largest customers comprised approximately 29% and 18% of revenues for the nine months ended September 30, 2012, and 29% and 20% of revenues for the three months ended September 30, 2012, Our two largest customers comprised approximately 25% and 10% of revenues for the nine months ended September 30, 2011, and 25% and 9% of revenues for the three months ended September 30, 2011.

Use of Estimates
 
U.S. generally accepted accounting principles require us to make certain estimates, judgments and assumptions that we believe are reasonable, based on information available at the time they were made. These estimates, judgments and assumptions can affect the amounts reported in our unaudited condensed consolidated financial statements.
 
 
F-5

 

Vista International Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2012 and 2011
(unaudited)

1. Significant Accounting Policies and Nature of Operations (Continued)

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.
 
Reclassifications
 
Certain reclassifications to the 2011 statements of operations and cash flows have been made in order to conform it to the 2012 presentation.  

2. Notes Payable and Capital Lease

At September 30, 2012 and December 31, 2011, the Company had the following promissory notes outstanding:
 
   
September. 30,
2012
   
December 31,
2011
 
    Unaudited        
18% installment note, secured by equipment, due December 2013, signed personally by a related party (Note 3)
  $ 24,088     $ -  
9% installment note, secured by equipment, due October 2013, signed personally by a related party (Note 3)
    7,239          
14% installment note, secured by equipment, due July 1 2014, signed personally by a related party(Note 3)
    19,890       -  
12% line of credit payable, secured by the assets of the company, due on demand after 6/30/13.     76,213          
12% line of credit payable, secured by the assets of the company, due on demand after 6/30/13.     5,000          
12% promissory notes payable to individual, interest due monthly, secured by the assets of the Company, due on April 22, 2011 **
    50,000       50,000  
15% promissory note payable to individual, due on demand, in default
    17,000       17,000  
7.5% promissory note with bank, co-signed with related party (Note 3)
    -       75,000  
20.6% installment note, secured by equipment, due December 2012, signed personally by related party
    4,911       13,382  
Total notes payable and capital lease
    204,340       155,382  
8% convertible note, unsecured, due on September 7, 2012
    -       42,500  
Total notes payable and capital lease including convertible note
    204,340       197,882  
Less: Unamortized debt discount on convertible note
    -       (38,791 )
Total notes payable and capital lease including convertible note  net of debt discount
    204,340       159,091  
Less: current maturities, net of unamortized debt discount
    (204,340 )     (155,193 )
Notes payable and capital lease – Long-term
  $ -     $ 3,898  
 
Maturities of notes payable and capital lease at September 30, 2012 are as follows:
 
Period ending  September 30,
 
Amount ($)
 
2013
 
$
204,340
 
   
$
204,340
 

 
F-6

 

Vista International Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2012 and 2011
 (unaudited)
 
2. Notes Payable and Capital Lease (Continued)

** The 12% promissory notes were originally due April 22, 2011 but on May 19th, 2011 the repayment of principal was postponed until 5 days after the sale of the Hutchins facility. Interest continues to accrue.

Issuance of Lines of Credit

On April 18, 2012 the company was issued a line of credit for $5,000 at a rate of 12% interest, secured by the assets of the company.  Interest on the Line began to accrue from July 1, 2012, with the balance being due on demand anytime after June 30, 2013. The Company drew $5,000 against this line of credit as of September 30, 2012.

On April 26, 2012 the company was issued a line of credit for $80,000 at a rate of 12% interest, secured by the assets of the company.  Interest on the Line began to accrue on July 1, 2012, with the balance being due on demand anytime after June 30, 2013.  The Company drew $76,213 against this line of credit as of September 30, 2012.
 
Issuance of Convertible Debt

On December 7, 2011, the Company entered into a loan agreement with an investor pursuant to which the Company sold and issued a convertible promissory note in the principal amount of $42,500.  The Note is convertible into shares of common stock at a conversion price equal to 58% of the current market price of the stock, as measures by the average of the 3 lowest closes of the past 10 trading days. The Note accrues interest at a rate of 8% per annum and matures on September 7, 2012. On June 14, 2012  $12,000 note converted into 144,578 common stock.  The note was matured on September 8, 2012 the balance note amount of $30,500 and Interest of $2,350 paid by related party.
 
Embedded Derivatives
 
The Company identified embedded derivatives related to the Convertible Note entered into on December 7, 2011. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date.
 
Current Value of Derivative
 
During the nine months ended September 30, 2012, the Company amortized $38,791 of the debt discount to current operations as interest expense.
 
At September 8, 2012, note is matured and Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of $74,192 for the nine months ended September 30, 2012.
 
 
F-7

 
 
Vista International Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2012 and 2011
 (unaudited)

3. Related Party Transactions

At September 30, 2012 and December 31, 2011 notes payable - stockholder and notes payable – related parties consisted of the following:
 
   
September 30,
2012
   
December 31,
2011
 
   
(unaudited)
       
9% promissory notes payable – Richard Strain – stockholder, due on demand, secured by a first priority security interest in Company assets – default waived through June 30, 2011
  $ 500,000     $ 500,000  
9% line of credit - Richard Strain – stockholder, matures December 31, 2011,  principal payments of $8,000 per month, no prepayment penalty, secured by a first priority security interest in the Company’s assets – default waived through June 30, 2011
    146,931       146,931  
9% note payable-Richard Strain- stockholder, due on demand, secured by a first priority interest in Company assets.  Due 12/31/2011 – in default
    450,000       450,000  
              Notes payable- stockholder
  $ 1,096,931     $ 1,096,931  
                 
8% promissory notes payable - Timothy Ruddy, due on demand, secured by all of the Company’s assets, security interest is subordinated to the loans extended by Mr. Strain
  $ 729,893     $ 613,901  
12% promissory notes payable to Timothy Ruddy family members, cash interest of 10% and Company stock of 2%, secured by all of the Company’s assets, security interest is subordinated to the loans extended by Mr. Strain, interest due quarterly-default waived
    45,000       45,000  
              Notes payable-related parties
  $ 774.893     $ 658,901  
 
Notes payable – stockholder
 
The line of credit 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, 2012.  The maximum amount to be drawn under the line is $375,000. Mr. Strain indicated that no further advances will be made under the line of credit agreement. The outstanding balance as of September 30, 2012 is $146,931 .

In September through December 2011, the Company received $450,000 from a promissory note extended by Mr. Strain to be used for working capital  and to be paid directly to specified vendors for the purchase of shredding equipment to be utilized for the Company’s TDF production line. The outstanding balance as of September 30, 2012 is $450,000
 
All other debt of the Company is substantially subordinated to Mr. Strain.
 
As of September 30, 2012 and December 31, 2011, accrued interest outstanding on the loans was approximately $175,500 and $102,000, respectively.
 
Interest expense on the loans for the three and nine months ended September 30, 2012 was approximately $24,700 and $73,600 respectively.  Interest expense on the loans for the three and nine months ended September 30, 2011 was approximately $13,000 and $40,200 respectively.
 
Notes payable – related party
 
The Company has a loan agreement with Mr. Timothy D. Ruddy, a Director and Interim CEO of the Company, in which Mr. Ruddy has the option, at his discretion, to receive payment as follows:
 
 
(a)
repayment of principal and interest;
     
 
(b)
conversion of outstanding amount without accrual of interest into the Company’s common stock based on the quoted market price of the stock at the dates loans were made;
     
 
(c)
any combination of cash and stock as described in (a) and (b)
 
The outstanding balance as of September 30, 2012 is $729,893.
 
 
F-8

 
 
Vista International Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2012 and 2011
 (unaudited)

3. Related Party Transactions (Continued)

The 20.6% installment note (note 2) was executed by Mr. Ruddy on behalf of the Company in July 2011. At September 30, 2012, the remaining obligation was approximately $4,911 and the net book value of the equipment financed was approximately $23,000. Mr. Ruddy also paid $6,000 of the required down payment, which has been included in his outstanding loan balance. The Company is responsible for future monthly payments of $1,350, continuing through December 2012.  Interest is accrued based on the outstanding balance of the obligation.

The 18% installment note (note 2) was executed by Mr. Ruddy on behalf of the Company in February 2012. At September 30, 2012, the remaining obligation was approximately $24,088 and the net book value of the equipment financed was approximately $33,594.  The Company is responsible for future monthly payments of $1,955, continuing through December 2013.  Interest is accrued based on the outstanding balance of the obligation.

The 14% installment note (note 2) was executed by Mr. Ruddy on behalf of the Company in May 2012.  At September 30, 2012, the remaining obligation was approximately $19,890 and the net book value of the equipment financed was approximately $23,144.  The Company is responsible for future monthly payments of $1,080, continuing through July 1, 2014.  Interest is accrued based on the outstanding balance of the obligation.
 
The 8.95% installment note (note 2) was executed by Mr. Ruddy on behalf of the Company in August 2012.  At September 30, 2012, the remaining obligation was approximately $7,239 and the net book value of the equipment financed was approximately $8,458.  The Company is responsible for future monthly payments of $605, continuing through October 1, 2013.  Interest is accrued based on the outstanding balance of the obligation
 
As of September 30, 2012 and December 31, 2011, accrued interest outstanding on the loan with Mr Ruddy was approximately $112,600  and $73,300, respectively.
 
Interest expense on the loans for the three and nine months ended September 30, 2012 was approximately $ 13,900 and $39,400 respectively.  Interest expense on the loans for the three and nine months ended September 30, 2011 was approximately $10,800 and $27,600 respectively.
 
During the nine months ended September 30, 2012, the Company received additional loans from Mr. Ruddy of approximately $116,000.
  
In December 2010, Mr. Ruddy provided $150,000 of personal assets as collateral for a letter of credit utilized for part of the Company’s required financial assurance to the Texas Commission of Environmental Quality (“TCEQ”).  This letter was called by the TCEQ in December 2011.  Subsequently, Mr. Ruddy provided $75,000 in additional funding to partially cover the amount due by the bank which held the letter of credit, and the Company and Mr. Ruddy jointly executed an unsecured loan for the remaining $75,000 (See Note 3).   This loan has subsequently been paid off by Mr Ruddy.

Notes payable – related party family
 
12% promissory note payable to Timothy Ruddy family member has an outstanding balance of $45,000 as of September 30, 2012.

As of September 30, 2012, no interest payments  have been made on these notes. Default has been waived.

As of September 30, 2012 and December 31, 2011, accrued interest outstanding on the loans was approximately $13,000 and $8,950, respectively.

Interest expense on the loans for the three and nine months ended September 30, 2012 was approximately $1,400 and $4,000 respectively.  Interest expense on the loans for the three and nine months ended September 30, 2011 was approximately $1,400 and $4,000 respectively.
 
Settlement Payments

The Company was named in a suit in the Colorado District Court for the 18th District (Arapahoe County) by a former employee alleging that the Company did not meet its obligation to issue shares to the employee.  On July 12, 2011 the Court granted a motion to enforce a settlement dated September 16, 2010. In accordance with the terms of the court order, the Company is obligated to make payments totaling approximately $104,700, including annual 6% interest.   An initial payment of $15,455 was made on July 22, 2011 and monthly payments of $3,000, including interest are due through December 2013.  A final payment of approximately $5,200 will be due in December 2013. As of September 30, 2012, the Company has accrued the short term portion of this settlement of approximately $48,000 under accounts payable and accrued liabilities, and has listed the long term portion of this settlement of $11,100 under other long term liabilities on its balance sheet. Through September 30, 2012, $26,500 has been paid toward the settlement, with no additional payments having been paid in the subsequent period, as of December 11, 2012.
 
 
F-9

 
 
Vista International Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2012 and 2011
 (unaudited)
 
4. Stockholders’ Equity
 
As of September 30, 2012, the Company has an obligation to issue approximately 10,000 shares of its restricted common stock to an investor. The accompanying unaudited condensed consolidated financial statements reflect an accrual of approximately $5,000 for these unissued shares as of September 30, 2012.

As of September 30, 2012 and December 31, 2011, there were 12,192,399 and 12,047,946 shares of common stock issued and outstanding respectively.

Reverse Stock Split
 
On September 27, 2012, the company’s Board of Directors approved a 1:10 reverse split of the Company’s common shares.  The split was declared effective November 21, 2012. All references in the accompanying unaudited condensed consolidated financial statement and notes thereto have been retroactively adjusted to reflect the stock split.
 
5. Commitments and Contingencies
   
Encumbrance on Company Assets
 
On September 13, 2011 the Company entered into an agreement with the Internal Revenue Service (“IRS”) to pay a delinquent payroll tax obligation of approximately $88,700, including penalties and interest, at the rate of $5,000 per month.  The IRS has filed a tax lien against the Company in connection with this obligation. The Company expects to use revenues from TDF production at its industrial site in Hutchins Texas to satisfy the remainder of this obligation (See Note 1).

Mechanic’s lien filed by a contractor for approximately $86,000 for services provided October, 2007 through April, 2008. Lien expired in August 2011 under statute of limitations for such liens in Texas. The liability for this judgment is still included in accounts payable and accrued liabilities in the consolidated balance sheets.

Litigation and Claims

In accordance with the terms of a court order, the Company is obligated to make payments totaling approximately $104,700, including 6% interest, to a former employee. An initial payment of $15,455 was made in July 2011 and monthly payments of $3,000, including interest are due through December 2013. At September 30, 2012, liabilities for approximately $48,000 and $11,100 has been included in accounts payable and accrued liabilities and other liabilities, respectively, related to this matter.

Environmental Liability
 
Our tire operations in Texas are subject to regulation by the TCEQ.  At September 30, 2012, the Company had approximately 14,900 tons of whole tires, partially shredded tires, tire chips and process waste stored onsite at the tire processing and storage facility. Through January 2011, we were able to dispose of this material at a municipal landfill site with minimal disposal and transportation costs. In February, 2011, the landfill transitioned to a project-based system where tire shreds are requested as  needed, and the Company is now required to pay transportation and disposal costs in order to reduce its tire shred inventory. Consequently, the Company has since installed a tire derived fuel (TDF) line to create additional revenue from disposal of the tires and has been selling TDF since February 2012. Based on these new circumstances, the Company has estimated a disposal cost of approximately $383,300  at September 30, 2012.  This amount has been included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets, and reflects a decrease of approximately $19,122 compared to December 31, 2011.  This amount has been recorded as environmental remediation expense in the accompanying unaudited condensed consolidated statements of operations.

The Company’s registration with the TCEQ requires the Company to provide financial assurance (approximately $170,000 at September 30, 2012) for remediation in the event the Company liquidates and the facility closes. The Company currently has $170,000 on deposit with the TCEQ, Consisting of $20,000 in cash provided by the company, and $150,000 in cash provided by Mr. Ruddy, The Company has no other asset retirement obligations. 

 
F-10

 
 
Vista International Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2012 and 2011
 (unaudited)
 
6. Fair Value of Financial Instruments

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
 
Level 1 - Quoted prices in active markets for identical assets or liabilities.
 
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
 
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
 
Items recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements consisted of the following items as of September 30, 2012:
 
   
September 30,
2012
   
Fair Value Measurements at September 30, 2012 using:
 
       
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Liabilities:
                       
Debt Derivative liabilities
 
$
-
     
-
     
-
   
$
-
 
 
The debt derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy.
 
 
F-11

 
 
Vista International Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2012 and 2011
 (unaudited)
 
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2012:
 
   
Debt Derivative 
Liability
 
Balance, January 1, 2012
  $ 74,192  
Initial fair value of debt derivatives at note issuances
    -  
Mark-to-market at September 30, 2012:
       
- Embedded debt derivatives
    (74,192 )
Balance, September 30, 2012
  $ -  
         
Net gain for the period included in earnings relating to the liabilities held at September 30, 2012
  $ 74,192  
 
7. Subsequent Events
 
On October 24, 2012 the Company received $30,000 loan in the form of promissory note.  The note is due within 6 months from October 24, 2012 together with interest @10% per annum in cash.
 
 
F-12

 
 
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” relating to our business or operations 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). 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, 2012, compared with the operating results for the period ended September 30, 2011.
 
Business Overview and Presentation
 
Our financial results were impacted by several significant trends, which are listed below. We expect that these trends will continue to affect our results of operations, cash flows and financial position.

·  
Inability to attract adequate debt or equity funding to implement our business plan
·  
Delay in successfully demonstrating the next generation of our Thermal Gasifier™ technology
·  
Ongoing operating losses
 
Description of Business
  
The Company is in the business of developing, commercializing and operating renewable energy and waste-to-energy (“WTE”) technologies and projects.
  
The Company is currently conducting its business in the following areas:
 
●  
Tire processing operation in Hutchins, Texas, and
   
●  
Renewable energy and WTE projects utilizing the Company’s Thermal Gasifier™ technology and corporate administration at the Company’s offices in Commerce City, Colorado.
 
Discrete financial information is not presently maintained for our WTE business as it has not  generated any revenues in the past 5 years.  In addition, management makes investing and resource allocation decisions based on the combined results of both the processing and WTE business.  Accordingly, we only have one reportable segment.

 
3

 
 
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™ is expected to divert 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, our technology has the capability to convert biomass into energy using various plant based materials.   

Environmental Liability

Our tire processing operations are subject to regulation by the Texas Commission on Environmental Quality (TCEQ). We are registered with the TCEQ, which allows us to receive, store, transport and process waste tires.  Our registration was renewed on April 23, 2010 and our permit was granted through April 25, 2015.
 
At September 30, 2012, the Company had approximately 14,900 tons of whole tires, partially shredded tires, tire chips and process waste stored onsite at the tire processing and storage facility. Through January 2011, we were able to dispose of this material at a municipal landfill site with minimal disposal and transportation costs. In February, 2011, the landfill transitioned to a project based system where tire shreds are requested as needed and the Company is now required to pay transportation and disposal costs in order to reduce its tire shred inventory.  Consequently, the Company has since installed a tire derived fuel (TDF) line to create additional revenue from disposal of the tires and has been selling TDF since February 2012,  Based on these circumstances, the Company has estimated a disposal cost of approximately $383,300 at September 30, 2012.
 
Going Concern
 
The Report of our Independent Registered Public Accounting Firm on the Company’s consolidated financial statements as of and for the year ended December 31, 2011, includes a “going concern” explanatory paragraph which means that the auditors stated that conditions existed that raise substantial doubt about the Company’s ability to continue as a going concern.

The Company reported a net loss of approximately $280,000 and used net cash in operating activities of $129,600 for the nine months ended September 30, 2012, has a working capital deficiency of approximately $4.8 million and an accumulated deficit of approximately $66.9 million at September 30, 2012.  These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments related to the recovery of the recorded assets or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow from operations or obtain equity investment or additional financing to meet obligations on a timely basis and ultimately achieve profitable operations.
 
Management’s Plan
 
During the nine months ended September 30, 2012, the Company received proceeds of $32,750 from an equipment financing transaction as well as proceeds from lines of credit totaling roughly $82,000 to help with working capital.  We expect that the Company will continue to rely on loans, including those from related parties and issuances of shares in private placements to meet its working capital needs for the foreseeable future.

 
4

 
 
Management plans to focus the Company’s resources in four key areas:
 
 
Thermal Gasifier™ engineering design and deployment
 
 
Maximizing value from the Hutchins, Texas tire processing and storage facility, including the operation of a tire derived fuel (“TDF”) production facility.
 
 
Development of project based opportunities, and
 
 
Attracting strategic investment
 
TDF Production

Management considers the Thermal Gasifier ™ and waste-to-energy segment to be our core business. However, significant focus is also being placed on the improvement of the tire processing operation at our Hutchins, TX facility to increase production and reduce operating costs, and expand sales to include TDF to increase revenue and cash flow. In February 2012, the Company began operation of the shredding equipment for its TDF production line. Management expects positive cash flow from production in the fourth quarter of 2012.
 
Thermal Gasifier™ technology

We continue to develop our internal resources and implement business development activities to secure waste-to-energy and biomass-to-energy facility opportunities that will utilize our Thermal Gasifier™ technology through build-own-operate agreements or through joint-venture relationships with strategic partners. We are looking to partner with companies that produce large hydrocarbon-based waste streams and are also in need of thermal and/or electrical energy. We are targeting opportunities where there are high disposal fees and energy rates, where we can use the Thermal Gasifier™ with back end power systems to provide significant cost savings to the end user.  We are reviewing the economic viability of a number of opportunities in the northeastern United States and in Colorado and are currently working towards obtaining letters of intent from these entities. Currently, the Company does not have any Thermal Gasifiers in operation.
 
Summary

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.

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 assurance that the Company will be able to secure additional financing, or obtain favorable terms on such financing if it is available.  Continued negative cash flow and lack of liquidity create significant uncertainty about the Company’s ability to fully implement its operating plan, and may result in the Company reducing the scope of its planned operations, 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 or products or to discontinue its operations entirely.
 
 
5

 
 
Results of Operations
 
Overview:

The following table summarizes our results of operations for  the Three and Nine months ended September 30, 2012 and 2011.

   
Three Months Ended
   
Increase (Decrease)
   
Nine Months Ended
   
Increase (Decrease)
 
   
Sept. 30,
2012
   
Sept. 30,
2011
   
$
Chg
   
%
Chg
   
Sept. 30,
2012
   
Sept. 30,
2011
   
$
Chg
   
%
Chg
 
                                                 
Revenues
  $ 184,700     $ 126,714     $ 57,986       45.8%     $ 505,478     $ 352,484     $ 152,994       43.4%  
                                                                 
Cost of revenue
    150,285       165,290       (15,005)       -9.1%       518,662       356,737       161,925       45.4%  
                                                                 
Environmental remediation expenses
    14,513       22,800       (8,287)       -36.3%       (19,122)       209,784       (228,906)       -109.1%  
                                                                 
Gross profit (loss)
    19,902       (61,376)       81,278       -132.4%       5,938       (214,037)       219,975       -102.8%  
                                                                 
Operating expenses:
                                                               
Selling, general and administrative expenses
    39,299       150,626       (111,327)       -73.9%       172,060       492,780       (320,720)       -65.1%  
Total operating expenses
    39,299       150,626       (111,327)       -73.9%       172,060       492,780       (320,720)       -65.1%  
                                                                 
Loss from operations
    (19,397)       (212,002)       192,605       -90.9%       (166,122)       (706,817)       540,695       -76.5%  
                                                                 
Other income (expense):
                                                               
Interest expense, net
    (66,853)       (39,836)       (27,017)       67.8%       (190,101)       (115,768)       (74,333)       64.2%  
Gain on change in the fair value of derivative liability
    42,069       -       42,069       N/A       74,192       -       74,192       N/A  
Finance Charges
    -       -       -       N/A       (822)       -       (822       N/A  
Other Income
    -       44,709       (44,709)       -100.0%       2,890       50,567       (47,677)       -94.3%  
                                                                 
Other expense
    (24,784)       4,873       (29,657)       -608.6%       (113,841)       (65,201)       (48,640)       74.6%  
                                                                 
Loss before income taxes
    (44,181)       (207,129)       162,948       -78.7%       (279,964)       (772,018)       492,054       -63.7%  
                                                                 
Income tax expenses
    -       -       -             -                    
                                                                 
Net loss
  $ (44,181)     $ (207,129)     $ 162,948       -78.7%     $ (279,964)     $ (772,018)     $ 492,054       -63.7%  
 
 
6

 
 
Results of Operations for the Three Months Ended September 30, 2012 and 2011.
 
Revenue
 
Revenue, which consists primarily of tipping fees received for acceptance of whole passenger and truck tires and revenue from sales of TDF (tire derived fuel) rose 45.8%, or roughly $ 58,000  as compared with the three months ended September 30, 2011. The majority of the increase is due to the sale of TDF, which began in February 2012 and is not reflected in the 2011 numbers.  The Company’s customer list in 2012  is roughly consistent with its customer list in 2011.
 
Two customers comprised approximately 29% and 20% of revenues for the three months ended September 30, 2012 and 25% and 9% of revenues for the three months ended September 30, 2011.

Cost of Revenue
 
Cost of revenue for our tire processing operations decreased roughly $15,000 from the year earlier period due mainly to a decrease in outside services of approximately $42,000 which represents the effects of clearing material from the site in 2011in expectation of the planned sale of the facility. This was offset by increases of approximately $18,000 in equipment repair costs and maintnenace costs, mainly due to the TDF line operation, and an increase in the cost of electricity roughly $10,000 due  to the demand from the new production line.

Management expects the cost of revenue to remain roughly constant at this level due to continued operation of the TDF production line.

Environmental remediation expense

Our tire operations in Texas are subject to regulation by the TCEQ. At September 30, 2012, the Company had approximately 14,900 tons of whole tires, partially shredded tires, tire chips and process waste stored onsite at the tire processing and storage facility. Through January 2011, we had been able to dispose of this material at a municipal landfill site with minimal disposal and transportation costs. In February 2011, the landfill transitioned to a project based system where tire shreds were requested as needed and the Company was required to pay transportation and disposal costs in order to reduce its tire shred inventory. Consequently, the company installed a tire derived fuel(TDF) production line, starting production in February 2012 to allow the company to generate revenue from the offtake of material from the site Based on these new circumstances, the Company has estimated a disposal cost of approximately $383,300 at September 30, 2012, resulting in an expense of $14,500 for the three months ended September 30, 2012 as compared to an expense of approximately $22,800 in the comparable prior period. Management believes that the cost of disposal will decrease in the future as the tire inventory is reduced over future periods due to TDF production exceeding incoming tonnage.
 
 
7

 
 
The Company’s registration with the TCEQ requires the Company to provide financial assurance in the form of letters of credit (approximately $170,000 at June 30, 2011) for remediation in the event the Company liquidates and the facility closes. The amount of assurance that would be required (computed utilizing TCEQ regulations) is approximately $262,000 as of September 30, 2012.  Accordingly, our assurance is deficient by approximately $92,000 as of September 30, 2012.
 
Selling, General, and Administrative Expenses
 
Selling, general, and administrative expenses decreased approximately $111,300, or 74% for the three months ended September 30, 2012 as compared to the year ago period. The decrease was due primarily to a decrease of  $14,000 in accounting charges  and $35,600 in legal expenses. These significant changes were due to comparisons to costs incurred during 2011 when the company was attempting a sale/leaseback of  its Hutchins tire facility and were therefore not necessary in 2012.  Labor costs also decreased roughly $40,200 as a result of the company streamlining its corporate operations in early 2012. Overall, this quarter also reflects the continuation of a trend toward significant decreases in salaries and legal/accounting expenses due to lack of liquidity.  Management anticipates that these expenses will continue to be minimized until liquidity is sufficient to allow us to begin adding resources to manage the business.
 
Interest Expense
 
Interest expense increased roughly $27,000 in the three months ended September 30, 2012, due to an increase in related party borrowings during the second half of 2011 and continuing into 2012 for working capital and to fund the purchase and installation of the TDF production line.

Gain on Change in Fair Value of Derivative Liability

During the three months ended September 30, 2012,  the company recorded a gain of approximately $42,000 due to the change in fair value of the derivative portion of a convertible note signed in December, 2011,   There was no comparable event  in the period ending September 30, 2011.

Results of Operations for the Nine Months Ended September 30, 2012 and 2011
 
Revenue
 
Revenue, which consists primarily of tipping fees received for acceptance of whole passenger and truck tires and revenue from the sale of tire derived fuel(TDF), increased by  43.4%, or roughly $153,000 during the nine months ended September 30, 2012  as compared to the nine months ended September 30, 2011 due to the sale of tire derived fuel in 2012. Tipping fee revenue remained roughly constant year over year.
 
Two customers comprised approximately 29% and 18% of revenues for the nine months ended September 30, 2012 and approximately 25% and 10% of revenues for the nine months ended September 30, 2011.

 
8

 
 
Cost of Revenue
 
Cost of revenue for our tire processing operations increased by roughly $162,000 due to added cost to operate the TDF production line. This resulted mainly from an increase of $94,000  in equipment repair and maintenance from the added costs of maintaining the additional shredding machines, an increase of $58,000  in labor costs, and an increase of roughly $28,600  in electricity costs.
 
Management expects the cost of revenue to remain roughly constant at this higher level due to continued operation of the TDF production line.

Environmental remediation expense

Our tire operations in Texas are subject to regulation by the TCEQ.  At September 30, 2012, the Company had approximately 14,900 tons of whole tires, partially shredded tires, tire chips and process waste stored onsite at the tire processing and storage facility. Through January 2011, we had been able to dispose of this material at a municipal landfill site with minimal disposal and transportation costs. In February, 2011, the landfill transitioned to a project based system where tire shreds were requested as needed and the Company was now required to pay transportation and disposal costs in order to reduce its tire shred inventory.   Consequently, the company installed a tire derived fuel(TDF) production line, starting production in February 2012 to allow the company to generate revenue from the offtake of material from the site Based on these new circumstances, the Company has estimated a disposal cost of approximately $383,300 at September 30, 2012, resulting in income of $19,100 for the current period as compared to an expense of approximately $209,800 in the comparable prior period. Management believes that the cost of disposal will decrease as the tire inventory is reduced over future periods due to TDF production.
 
The Company’s registration with the TCEQ requires the Company to provide financial assurance in the form of letters of credit (approximately $170,000 at June 30, 2011) for remediation in the event the Company liquidates and the facility closes.  The amount of assurance that would be required (computed utilizing TCEQ regulations) is approximately $262,000 as of September 30, 2012. Accordingly, our assurance is deficient by approximately $ 92,000 as of September 30, 2012.

Selling, General, and Administrative Expenses
 
Selling, general, and administrative expenses decreased approximately $320,700 in the nine months ended September 30, 2012.
 
This was primarily due to decreases of $103,000 in Legal expenses, $62,500 in Consulting services, and $49,600 in accounting expenses.  These costs were directly related to the attempted sale leaseback transaction in 2011.  Also contributing to the decrease in expenses was a decrease in labor costs of $92,800 due to streamlining of corporate operations in early 2012.

The results for the nine month period reflect a continuation of a trend toward significant decreases in salaries and consulting expenses due to lack of liquidity.  Management anticipates that these expenses will continue to be minimized until liquidity is sufficient to allow us to begin adding resources to manage the business.

Interest Expense
 
Interest expense increased approximately $74,300  in the period ended September 30, 2012 due to an increase in stockholder and  related party borrowings during the second half of 2011 and continuing into 2012 which were utilized for working capital and to purchase and install the TDF line.
 
Gain on Change in Fair Value of Derivative Liability

During the nine months ended September 30, 2012, the company recorded a gain of approximately $74,200 due to the change in fair value of the derivative portion of a convertible note signed in December, 2011, There was no comparable event in 2011.

 
9

 

Liquidity and Capital Resources
 
The Company had a cash balance of approximately $10,000 as of September 30, 2012.  Our cash balance decreased approximately $26,700 as compared to December 31, 2011 due primarily to the timing of payment on the Company’s TDF contracts.  The TDF purchaser generally has 30 days or longer to pay for the TDF product, so receivables increased with a decrease in the cash balance.

We expect that our current cash on hand and expected revenues will not be sufficient to sustain our current operations.  The Company is exploring all available funding sources, including the sale of its assets, and additional debt and equity funding. In the near future we are relying on funding from principal shareholders and related parties to provide cash to fund operations in the forseeable future as described in more detail under the heading “Management’s Plans” above.  If we are unable to obtain additional funding or increase revenues, we may be required to scale back or suspend operations or revise our business plan.

As of September 30, 2012, we had a working capital deficiency of approximately $4.8 million, which includes notes payable to a stockholder of roughly $1.1 million (notes currently in default), notes payable to a related party of approximately $775,000, a liability of approximately $ 383,300 for waste tire shred removal and cleanup costs at the tire processing and storage facility, and an unpaid payroll liability to former officers of the Company of approximately $535,000.
 
As of September 30, 2012, we owed approximately $ 31,400 to the Internal Revenue Service in delinquent payroll taxes and penalties.  Monthly payments of $5,000 have been made to the Internal Revenue Service since December 28, 2010.
 
During the nine months ended September 30, 2012, the Company received proceeds of $32,750 from an equipment financing transaction and roughly $82,000 from lines of credit to help with working capital needs.
 
Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
None.

 
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Item 4.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures.
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Limitations on the Effectiveness of Disclosure Controls. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Evaluation of Disclosure Controls and Procedures. As of September 30, 2012, the end of the fiscal quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Interim Chief Executive Officer, who is our principal executive and principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Interim Chief Executive Officer (principal executive officer and principal financial and accounting officer) concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of September 30, 2012. Our disclosure controls and procedures were not effective because of certain “material weaknesses” described in the “Management’s Annual Report on Internal Control over Financial Reporting” section in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. As of September 30, 2012, we had not completed the remediation of these material weaknesses.

Changes in Internal Control over Financial Reporting.
 
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2012  that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
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PART II: OTHER INFORMATION
 
Item 1.  Legal Proceedings.
 
The Company was named in a suit in the Colorado District Court for the 18th District (Arapahoe County) by a former employee alleging that the Company did not meet its obligation to issue shares to the employee.  On July 12, 2011 the Court granted a motion to enforce a settlement dated September 16, 2010. In accordance with the terms of a court order, the Company is obligated to make payments totaling approximately $104,700, including 6% interest, to a former employee.  An initial payment of $15,455 was made in July 2011 and monthly payments of $3,000, including interest are due through November 2013.  A final payment of approximately $5,200 will be Due December 2013.  At September 30, 2012, liabilities for approximately $48,000 and $11,100 has been included in accounts payable and accrued liabilities and other liabilities, respectively, related to this matter.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
 
As of September 30, 2012, the Company has an obligation to issue approximately 100,000 shares of its restricted common stock to an investor.  The accompanying unaudited condensed consolidated balance sheets reflect an accrual of approximately $5,000 for these unissued shares as of September 30, 2012.
  
The above sales were exempt 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.  Mine Safety Disclosures.
 
None

Item 5.  Other Information.
 
Not Applicable.

 
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Item 6.  Exhibits and Financial Statement Schedules
 
2.1 Industrial Site Purchase and Sale Agreement dated February 14, 2011 by and between Vista International Technologies, Inc. and Brown-Lewisville Railroad Family First Limited Partnership Δ
   
3(i).1 Certificate of Incorporation*
   
3(i).2 Articles of Amendment to the Articles of Incorporation, as amended on August 6, 1999*
   
3(i).3 Certificate of Amendment of Certificate of Incorporation, as amended on April 24, 2002*
   
3(i).4 Certificate of Amendment of the Certificate of Incorporation, filed on October 12, 2005*
   
3(i).5 Certificate of Amendment to Certificate of Incorporation, as amended on November 8, 2007**
   
3(ii).1 Amended and Restated By-Laws***
   
10.1 Strategic Alliance and Supply Agreement, dated December 29, 2009 by and between Vista International Technologies, Inc. and Liberty Tire Recycling, LLC ****
   
10.2 Consulting Agreement dated August 3, 2009 by and between Vista International Technologies, Inc and Ing. Gianfranco Licursi*****
   
10.3 Vista International Technologies, Inc. Equity Participation Plan*
   
10.4 Investment Agreement dated August 3, 2009 between Vista International Technologies, Inc. and Timothy Ruddy ****
   
10.5 Security Agreement dated August 3, 2009 by and between Vista International Technologies, Inc. and Timothy Ruddy ****
   
10.6 Promissory Note (Line of Credit) dated August 11, 2009 by and between Vista International Technologies, Inc. and Richard Strain****
   
10.7 Security Agreement dated August 11, 2009 by and between Vista International Technologies, Inc. and Richard Strain Δ
   
10.8 Promissory Note dated April 4, 2007 by and between Nathaniel Energy Corporation and Richard Strain Δ
   
10.9 Security Agreement dated April 4, 2007 by and between Nathaniel Energy Corporation and Richard Strain Δ
 
 
13

 
 
10.10 Promissory Note dated April 16, 2007 by and between Nathaniel Energy Corporation and Richard Strain Δ
   
10.11 Security Agreement dated April 16, 2007 by and between Nathaniel Energy Corporation and Richard Strain Δ
   
10.12 Promissory Note dated May 31, 2007 by and between Nathaniel Energy Corporation and Richard Strain Δ
   
10.13 Security Agreement dated May 31, 2007 by and between Nathaniel Energy Corporation and Richard Strain Δ
   
10.14 Engagement Letter dated April 15, 2010 by and between Vista International Technologies, Inc. and Colebrooke Capital, Inc. +
   
10.15 Joint Development Agreement dated October 16, 2010 by and between Vista International Technologies, Inc. and Mustang Consulting, LLC ++
   
10.16 Amendment to Engagement Agreement dated August 30, 2010 by and between Vista International Technologies, Inc. and Colebrooke Capital, Inc. ++
   
10.17 Consulting Agreement dated October 26, 2010 by and between Vista International Technologies, Inc. and Steven R. Kowalsky and Edward L. Kowalsky. ++
   
10.18 Consulting and Services Agreement dated June 11, 2009 by and between Vista International Technologies, Inc. and Mustang Consulting, LLC (“Consulting and Services Agreement”) Δ
   
10.19 Continuation of Consulting and Services Agreement effective January 4, 2010 Δ
   
10.20 Exclusive Listing Agreement dated July 1, 2010 by and between Vista International Technologies, Inc. and CCBN Texas Limited Partnership d/b/a Colliers International Δ
   
10.21 Alternative Fuel Purchase Agreement, dated January 2nd, 2012, between Vista International Technologies, Inc, And Geocycle, LLC.++++
   
10.22 Release of Contract, dated January 18, 2012, between Vista International Technologies, Inc. and Brown-Lewisville Railroad Family First Limited Partnership++++
   
10.23 Alternative Fuel Purchase Agreement, dated January 1, 2012, between Vista International Technologies, Inc. and Trident Environmental Resource Consulting, LLC++++
   
10.24 Convertible Note dated December 7, 2011 between Vista International Technologies, Inc. and Asher Enterprises, Inc.++++
   
10.25 Lease Agreement dated March 1, 2012 between Vista International Technologies, Inc, and Electric Power Equipment Company.++++
   
10.26 Equipment Financing Agreement, dated February 15, 2012, between Vista International Technologies, Inc (Timothy Ruddy) and REO Holdings.++++
   
14.1 Code of Business Conduct and Ethics for Officers (Vice President and Senior) and Directors (effective March 8, 2004)+++
   
14.2 Code of Business Conduct and Ethics for Employees and Officers (other than Vice President and Senior) (effective March 8, 2004)+++
 
 
14

 
 
21 Subsidiaries****
   
31. Certification of Interim Chief Executive Officer (principal executive officer and principal financial and accounting officer) pursuant to Rule 13a-14(a)or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32. Certification of Interim Chief Executive Officer (principal executive officer and principal financial and accounting officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS **
XBRL Instance Document
   
101.SCH **
XBRL Taxonomy Extension Schema Document
   
101.CAL **
XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF **
XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB **
XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE **
XBRL Taxonomy Extension Presentation Linkbase Document
 
__________
* 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 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 September 30, 2009 and incorporated herein by reference.

Δ Denotes document filed as an exhibit to our Annual Report on Form 10-K/A Amendment No. 1 for the year ended December 31, 2010 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.

+++ Denotes document filed as an exhibit to our Annual Report on Form 10-KSB for the year ended December 31, 2003 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, 2011 and incorporated herein by reference.
 
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 
15

 

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
VISTA INTERNATIONAL TECHNOLOGIES, INC.
 
     
Date: December 13, 2012
By:
/s/ Timothy D. Ruddy
 
   
Timothy D. Ruddy
 
   
Interim Chief Executive Officer  (principal executive officer and
principal financial and accounting officer)
 
 
 
 
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