UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
ý QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
o TRANSITION REPORT UNDER 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.
(Name of Small Business Issuer in its Charter)
Delaware | | 84-1572525 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
8001 South InterPort Blvd. Suite 260, Englewood, Colorado | | 80112 |
| (Address of principal executive offices) | | (Zip Code) |
Issuer’s telephone number: (303) 690-8300
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o No o
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer’s class of common equity, as of the latest practicable date: May 15, 2008, 97,031,893 shares of common stock, $.001 par value.
Transitional Small Business Disclosure Format (Check One) Yes o No ý
TABLE OF CONTENTS
PART I. | FINANCIAL INFORMATION | |
| | | |
| Item 1. | Financial Statements (unaudited) | |
| | | |
| | Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007 | F-1 |
| | | |
| | Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2008 and 2007 | F-2 |
| | | |
| | Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2008 and 2007 | F-3 |
| | | |
| | Notes to Condensed Consolidated Financial Statements | F-4 |
| | | |
| Item 2. | Management’s Discussion and Analysis or Plan of Operation | 1 |
| | | |
| Item 3. | Controls and Procedures | 5 |
| | | |
PART II. | OTHER INFORMATION | 6 |
| | | |
| Item 1. | Legal Proceedings | 6 |
| | | |
| Item 2. | Unregistered Sales of Equity Securities And Use of Proceeds | 6 |
| | | |
| Item 3. | Defaults Upon Senior Securities | 7 |
| | | |
| Item 4. | Submission of Matters to a Vote of Security Holders | 7 |
| | | |
| Item 5. | Other Information | 7 |
| | | |
| Item 6. | Exhibits | 7 |
| | | |
| | Signatures | 8 |
Condensed Consolidated Balance Sheet
| | March 31, | | | December 31, | |
| | | 2008 | | | 2007 | |
| ASSETS | | | | | | |
| | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | $ | -- | | $ | 9,017 | |
| Accounts receivable | | 228 | | | 586 | |
| Other assets | | 130,871 | | | 130,871 | |
| Prepaid expenses | | 26,110 | | | 58,684 | |
| | | | | | | |
| Total current assets | | 157,209 | | | 199,158 | |
| | | | | | | |
| Deposits | | 29,032 | | | 39,160 | |
| Property and equipment, net of accumulated depreciation | | 603,075 | | | 637,012 | |
| Intangibles, net of accumulated amortization | | 38,405 | | | 39,474 | |
| | | | | | | |
| Total assets | $ | 827,721 | | $ | 914,804 | |
| | | | | | | |
| LIABILITIES AND (DEFICIENCY IN) STOCKHOLDERS' EQUITY | | | | | | |
| | | | | | | |
| Current liabilities | | | | | | |
| Accounts payable and accrued liabilities | $ | 2,118,579 | | $ | 2,044,620 | |
| Accrued compensation and payroll liabilities | | 178,987 | | | 121,774 | |
| Accrued interest | | 53,778 | | | 42,591 | |
| Notes payable - stockholder | | 500,000 | | | 500,000 | |
| Notes payable and capital leases - current portion | | 137,549 | | | 152,274 | |
| | | | | | | |
| Total current liabilities | | 2,988,893 | | | 2,861,259 | |
| | | | | | | |
| Long-term portion of notes payable | | 62,389 | | | 71,351 | |
| | | | | | | |
| Total liabilities | | 3,051,282 | | | 2,932,610 | |
| | | | | | | |
| Commitments and contingencies | | -- | | | -- | |
| | | | | | | |
| Stockholders’ equity (deficit) | | | | | | |
| 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; | | | | | | |
| 91,481,596 and 90,731,596 shares issued outstanding at March 31, 2008 and December 31, 2007, respectively | | 91,481 | | | 90,731 | |
| Additional paid-in capital | | 61,432,619 | | | 61,257,476 | |
| Common stock to be issued | | 6,910 | | | 5,891 | |
| Accumulated deficit | | (63,754,571 | ) | | (63,371,904 | ) |
| Total stockholders’ equity (deficit) | | (2,223,561 | ) | | (2,017,806) | |
| | | | | | | |
| Total liabilities and stockholders' equity (deficit) | $ | 827,721 | | $ | 914,804 | |
The accompanying notes are an integral part of the financial statements.
Condensed Consolidated Statements of Operations
| | | | For the Three Months Ended March 31, 2008 | | | For the Three Months Ended March 31, 2007 | |
| Revenues | | $ | 5,749 | | $ | 208,197 | |
| | | | | | | | |
| Cost of revenue | | | 108,244 | | | 339,227 | |
| | | | | | | | |
| Gross loss | | | (102,495 | ) | | (131,030 | ) |
| | | | | | | | |
| Operating expenses: | | | | | | | |
| Selling, general and administrative expenses | | | 333,784 | | | 361,114 | |
| Research and development | | | -- | | | 68,776 | |
| | | | | | | | |
| Total operating expenses | | | 333,784 | | | 429,890 | |
| | | | | | | | |
| Loss from operations | | | (436,279 | ) | | (560,920 | ) |
| | | | | | | | |
| Other income (expense): | | | | | | | |
| Other income | | | 66,667 | | | -- | |
| Gain on sale of fixed assets | | | -- | | | 8,181 | |
| Interest income (expense) | | | (13,055 | ) | | (3,382 | ) |
| | | | | | | | |
| Net loss | | $ | (382,667 | ) | $ | (556,121 | ) |
| | | | | | | | |
| Net loss per share, basic and diluted | | $ | (0.004 | ) | $ | (0.01 | ) |
| | | | | | | | |
| Weighted average common shares outstanding | | | 91,110,717 | | | 90,731,596 | |
The accompanying notes are an integral part of the financial statements.
Condensed Consolidated Statements of Cash Flows
| | | For the Three Months Ended March 31, 2008 | | For the Three Months Ended March 31, 2007 | |
| Cash flows from operating activities: | | | | | | | |
| Net Income (loss) | | $ | (382,667 | ) | $ | (556,121 | ) |
Adjustments to reconcile net loss to net | | | | | | | |
cash used in operating activities: | | | | | | | |
| Depreciation and amortization | | | 35,007 | | | 89,972 | |
| Consulting fees | | | 75,000 | | | -- | |
| Other income | | | (66,667 | ) | | -- | |
| Gain on sale of assets | | | -- | | | (8,181 | ) |
| Changes in assets and liabilities: | | | | | | | |
| (Increase) decrease in assets: | | | | | | | |
| Accounts receivable | | | 358 | | | 49,893 | |
| Prepaid expenses | | | 32,574 | | | 28,529 | |
| Other assets | | | 10,128 | | | (160 | ) |
| Increase (decrease) in liabilities: | | | | | | | |
| Accounts payable and accrued liabilities | | | 197,158 | | | 182,701 | |
| | | | | | | | |
Net cash used in operating activities | | | (99,109 | ) | | (213,367 | ) |
| | | | | | | | |
| Cash flows from investing activities: | | | | | | | |
| | | | | | | | |
| Proceeds from the sale of vehicle | | | -- | | | 5,963 | |
| Equipment and intangible asset purchases | | | -- | | | (3,524 | ) |
Net cash provided by investing activities | | | -- | | | 2,439 | |
| | | | | | | | |
| Cash flows from financing activities: | | | | | | | |
| Payments on debt | | | (11,820 | ) | | (29,808 | ) |
| Proceeds from common stock to be issued | | | 101,912 | | | -- | |
Net cash provided by (used in) financing activities | | | 90,092 | | | (29,808 | ) |
| | | | | | | | |
| Increase (decrease) in cash and cash equivalents | | | (9,017 | ) | | (240,736 | ) |
| | | | | | | | |
| Cash and cash equivalents at beginning of period | | | 9,017 | | | 257,868 | |
| | | | | | | | |
| Cash and cash equivalents at end of period | | $ | -- | | $ | 17,132 | |
| | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | |
| | | | | | | | |
| Cash paid during the period for: | | | | | | | |
| Interest | | $ | 1,528 | | $ | 5,365 | |
| | | | | | | | |
| Taxes | | $ | -- | | $ | 10,000 | |
| | | | | | | | |
| Non cash financing activities: | | | | | | | |
| | | | | | | | |
| Common stock issued for services | | $ | 75,000 | | $ | -- | |
The accompanying notes are an integral part of the financial statements.
Vista International Technologies, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 and 2007
(Unaudited)
1. Significant Accounting Policies and Nature of Operations:
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements, which include the Company’s wholly owned subsidiaries, have been prepared by the Company in accordance with generally accepted accounting principles pursuant to Regulation S-B of the Securities and Exchange Commission. The financial information has not been audited and should not be relied on 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 as contained in Form 10-KSB for the year ended December 31, 2007. 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 three months ended March 31, 2008 are not necessarily indicative of results of operations to be expected for the full year.
Description of Business
We are a renewable hydrocarbon-based waste to energy (“WTE”) company providing municipalities and industries with solutions to divert waste from landfills and clean alternative energy preferable to that of fossil fuels. Our primary focus is on our proprietary patented technology, the Thermal Gasifier™, which is a multi-stage gasification system designed to convert industrial and commercial waste, biomass, waste tires and other solid, hydrocarbon-based materials into “producer gas” that can be used to produce clean economical thermal and electrical energy, while exceeding the most stringent EPA and European Union emission regulations. We expect that our solutions will reduce air born carbon emission, claimed to contribute to global warming, that would otherwise be generated by these landfills or other fossil fuel based energy production.
Since 1999 we have operated a tire fuel processing facility in Hutchins, Texas. Under Texas State regulations we are licensed as a tire processor and tire storage facility. We are paid a tipping fee (fee paid per tire received) for accepting waste tires. We process the waste tires into tire-derived-fuel at our facility. We sell the TDF product from our tire fuel processing operation to one major user, our primary customer, Geocycle, US, a wholly owned subsidiary of a large cement company located in Texas, which uses the tire-derived-fuel for firing its kilns, thereby displacing equal amounts of coal. During the three months ended March 31, 2008, our tire fuel processing business has generated 100% of our revenue.
We plan to build energy infrastructures for certain industries that have a need to dispose of hydrocarbon-based materials and seek an independent source of energy in the form of heat, steam and/or electricity. These energy infrastructures would be built on a business’ premises (“inside the fence”) and can reduce the dependence a business has on fossil fuels and power from the local utility. In some cases, the energy infrastructures can become a business’ self sustaining utility. We plan to identify new and existing sites where we can build, own and operate hydrocarbon-based waste-to-energy plants through our own resources or in conjunction with joint venture partners.
Although we no longer provide technical assistance to the project owner of our two Thermal Gasifiers™ in Cologna Veneta, Italy, we continue to utilize the Thermal Gasifier™ units in Italy in our sales, marketing and research efforts. We also use the WTE plant in Cologna Veneta, Italy as “proof-of-process” and Thermal Gasifier™ technology demonstration in our business development activities demonstrating a lower cost, clean dependable energy alternative to fossil fuels worldwide. We have recognized no revenue from the sale or delivery of our Thermal Gasifiers™ through the period ended March 31, 2008.
Critical Accounting Policies
The financial statements include the accounts of the company and its subsidiaries. All material inter-company accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation with no effect on the net loss.
Inventory
Tire-derived-fuel (TDF) inventory is valued at its cost to produce a salable product using the first-in first-out method, but in an amount not to exceed realizable value, determined with respect to existing contractual sales prices, less costs to complete the waste tire processing. TDF inventory value at March 31, 2008 is zero.
The Thermal Gasifiers™ which are built, owned and operated are valued at cost. Thermal Gasifiers™ built as part of a joint venture arrangement are valued at cost, reduced by any contractual exposure to penalties contained in a contract which could be incurred if our Thermal Gasifiers™ do not perform in accordance with contractual specifications. The Thermal Gasifier™ inventory value at March 31, 2008 is zero.
Research and Development
Research and development expenditures, all of which relate directly to the design and development of our Thermal Gasifier™ technology, are expensed as incurred. For the three months ended March 31, 2008 and 2007, we incurred costs for third party engineering consulting and analysis and expensed $0 and $68,776, respectively.
Property, Plant and Equipment and Related Depreciation
Property, plant and equipment purchased or constructed is recorded at cost. Direct costs, such as labor and materials, and indirect costs, such as overhead used during construction are capitalized. Major units of property replacements or improvements are capitalized and minor items are expensed. Gain or loss is recorded in income for the difference between the net book value relative to proceeds received, if any, when the asset is sold or retired. Depreciation is provided for using the straight-line method. Estimated useful lives of the assets used in the computation of depreciation are as:
| Machinery and equipment | | | 5 years | |
| Buildings | | | 15 years | |
| Vehicles | | | 5 years | |
Long-Lived Assets
In accordance with the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews its long-lived assets, including intangible assets, for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. Recovery of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell. Management uses significant judgments, assumptions and estimates to calculate future cash flows expected to be generated by the assets under impairment review.
Revenue Recognition
Our tire fuel processing facility recognizes revenue in two ways. First when waste tires are accepted at the facility we receive a disposal fee (“tipping fees”) and secondly from the sale of processed tire-derived-fuel. The revenues from tipping fees are fully earned when the waste tires are accepted at the facility and the processed tire shred revenues are recognized when the TDF is delivered to the end user. Internal quality controls are in place to ensure that the tire-derived-fuel meets the standards required in contracts for the delivery to our customers. This quality control reduces the risk of significant returns and allowances of tire-derived-fuel sold. Sales returns are reprocessed and added back to the existing production of tire-derived-fuel. Sales returns are booked based on the Company’s historical experience.
We recognize revenue from the sale of our Thermal Gasifiers™ upon completion, delivery and customer acceptance, using the completed contract method of accounting. We recognize revenue for consulting services during the period those services are provided. We have recognized no revenue from the sale of our Thermal Gasifiers™ as of March 31, 2008.
Net Income (Loss) Per Common Share
SFAS No. 128, “Earnings Per Share” requires presentation of basic (loss) or earnings per share (“Basic EPS”) and diluted (loss) or earnings per share (“Diluted EPS”).
The computation of basic loss per share is computed by dividing loss available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. The computation of diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. During the periods presented, the Company had no potentially dilutive securities outstanding.
Use of Estimates
The preparation of the Company’s financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
2. Notes Payable
At March 31, 2008, the Company had the following promissory notes outstanding:
| | | 2008 | |
| 9% promissory payable to a stockholder | | $ | 500,000 | |
| | | | | |
| 3.68% installment note, secured by equipment, monthly payments of $2,408 principal and interest | | | 86,233 | |
| | | | | |
| 3.35% installment note, secured by equipment, monthly payments of $905 principal and interest | | | 15,900 | |
| | | | | |
| 9.09% capital lease, secured by software, monthly payments of $1,716 principal and interest | | | 10,805 | |
| | | | | |
| 15% promissory notes payable to individuals, due on demand | | | 17,000 | |
| | | | | |
| Non-interest bearing unsecured promissory note due upon receipt of payments from the Cologna Veneta, Italy Thermal Gasifier ™ project owner at 20% of amount received | | | 70,000 | |
| | | | | |
| | | | | |
| Total debt: | | $ | 699,938 | |
| | | | | |
| Current portion: | | | (637,549 | ) |
| | | | | |
| Long-term portion: | | $ | 62,389 | |
On April 4, 2007 and April 16, 2007, we borrowed $100,000 and $200,000 respectively from the prior major shareholder, Mr. Richard Strain. On May 31, 2007, we borrowed an additional $200,000 from Mr. Strain. The loans bear interest at the annual rate of 9%, with interest payable quarterly. The April 4, 2007 and April 16, 2007 notes were payable on or before September 30, 2007. The May 31, 2007 note was due on or before November 30, 2007. We have obtained agreement to repay the notes from Mr. Strain at such time we have sufficient operating capital to make repayment. The loans are secured by a first priority security interest in our assets.
3. Related Party Transaction
During the three months ended March 31, 2008, the Company received $101,912 in cash from Vista International, Inc. for our operations for which we have an obligation to issue 1,019,120 shares of our common stock. These shares are classified as common stock to be issued on our March 31, 2008 consolidated balance sheet.
4. Business Segments
The Company conducts business in two separate facilities presently managed as two energy operating business segments, tire fuel processing and alternative energy. The location and use of our facilities are shown as follows:
| | · | the tire fuel processing operation in Hutchins, Texas, and |
| | · | renewable energy and waste to energy (WTE), engineering and corporate offices in Englewood, Colorado. |
For the three months ended March 31, 2008:
| | | Fuel Processing | | Renewable Energy and WTE | | Total | |
| Revenue | | $ | 5,749 | | $ | - | | $ | 5,749 | |
| Depreciation and amortization | | $ | 32,189 | | $ | 2,818 | | $ | 35,007 | |
| Net loss | | $ | (116,533 | ) | $ | (266,134 | ) | $ | (382,667 | ) |
| Capital expenditures | | $ | - | | $ | - | | $ | - | |
| Total assets as of March 31, 2008 | | $ | 428,760 | | $ | 398,961 | | $ | 827,721 | |
For the three months ended March 31, 2007:
| | | Fuel Processing | | Renewable Energy and WTE | | Total | |
| Revenue | | $ | 208,197 | | $ | - | | $ | 208,197 | |
| Depreciation and amortization | | $ | 60,092 | | $ | 29,880 | | $ | 89,972 | |
| Net loss | | $ | (151,265 | ) | $ | (404,856 | ) | $ | (556,121 | ) |
| Capital expenditures | | $ | 3,524 | | $ | -- | | $ | 3,524 | |
| Total assets as of March 31, 2007 | | $ | 989,459 | | $ | 348,769 | | $ | 1,338,228 | |
5. Stockholders’ Equity
Preferred Stock
The Company has 10,000,000 shares of preferred stock, $0.001 par value, authorized for issuance. Our board of directors is vested with the authority to provide for the issuance of and terms of the preferred shares. No preferred shares have been issued and no terms have been provided at March 31, 2008.
Common Stock
Three months ended March 31, 2008
On January 31, 2008, we executed an agreement with Vista International, Inc., our majority shareholder, to provide $2,000,000 of working capital in exchange for our common stock at a value of $0.10 per common share. The value of our common stock at closing on the date of the agreement was $0.12. The agreement formalized a verbal agreement with Vista International, Inc. which, through December 31, 2007, provided an investment of approximately $561,000 in cash and payment of expenses for our operations for which we have an obligation to issue 5,606,360 shares of our common stock. On April 10, 2008, 5,550,297 shares were issued and Vista International, Inc. has flied a Form 4 with the Commission.
On January 28, 2008, the company issued an aggregate of 750,000 restricted shares of its common stock to American Capital Venture, Inc. (and its affiliates) (collectively “ACV”) for an investor relations services contract. Under the contract, ACV was to plan, coordinate, establish and manage an investor relations program for the benefit of the Company. In connection with the sale of unregistered securities, the company filed a Form D with the Commission.
During the three months ended March 31, 2008, the Company received approximately $101,912 in cash from Vista International, Inc. for our operations for which we have an obligation to issue 1,019,120 shares of our common stock. These shares are classified as common stock to be issued on our March 31, 2008 consolidated balance sheet.
Three months ended March 31, 2007
On December 5, 2006, we entered into an agreement with Bailey-Jamar, LLC, under which Bailey-Jamar agreed to provide the company with $7,500,000 in capital through an equity investment by a joint venture consisting of Bailey-Jamar and a co-venturer to be identified by Bailey-Jamar in the future. Brad E. Bailey, the company’s Chief Executive Officer, at such time, was also a principal member of Bailey-Jamar. Bailey-Jamar was not able to identify a joint venture party. This agreement expired on February 28, 2007. No funds were received as a result of this agreement and no shares were issued.
6. Income Tax
On March 20, 2008, the company received notification from the Internal Revenue Service of the filing of a federal tax lien in the approximate amount of $120,000 related to late payment of federal income tax, penalty and interest on the September 30, 2005 corporate income tax return of Nathaniel Energy Oklahoma Holdings Corporation. Nathaniel Energy Oklahoma Holdings Corporation was required to file a short period federal income tax return for 2005 as the company acquired a 49% minority interest of Nathaniel Energy Oklahoma Holdings Corporation on that date from Mr. Richard Strain, the company’s majority shareholder and debt holder at that time. Nathaniel Energy Oklahoma Holdings Corporation filed a consolidated return for the remainder of the 2005 tax year with Nathaniel Energy Corporation. The short period return gave rise to a federal income tax liability of approximately $200,000. The company made installments against this tax liability of $100,000 during 2006 and an additional $10,000 during the first quarter of 2007. We are currently working with the Internal Revenue Service to resolve this matter.
7. Subsequent Events
On April 10, 2008, the Company issued an aggregate of 5,550,297 restricted shares of its common stock to Vista International, Inc., for cash and payment of expenses pursuant to a Definitive Agreement for equity investment executed on January 31, 2008. In connection with the purchase of unrestricted securities, Vista International, Inc. filed a Form 4 with the Commission.
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. Factors that may affect our results include, but are not limited to, the risks and uncertainties associated with:
| · | Our ability to raise capital necessary to implement our business plan. |
| · | Our ability to finance and complete planned projects and facilities upgrades. |
| · | Our ability to execute our business plan and commercialize the Thermal Gasifier™ technology, including building Thermal Gasifiers™ that meet customers’ specifications and that meet local regulatory environmental and permit requirements. |
| · | Risks related to dependency on a small number of customers. |
| · | Our ability to satisfy our customers’ expectations. |
| · | Our ability to employ and retain qualified management and employees. |
| · | Changes in government regulations which are applicable to our business including rules related to use of TDF under the Clean Air Act as well as the new Energy Independence and Security Act 2007. |
| · | The availability of a consistent, economically viable, and sustainable waste stream supply to fuel the Thermal Gasifier™ operations. |
| · | Changes in the demand for our products and services, including the impact from changes in governmental regulation and funding for alternative energy. |
| · | The degree and nature of our competition, including the reliability and pricing of traditional energy sources, economic viability of other alternative energy sources such as wind and solar power. |
| · | Changes in domestic and global regulation related to greenhouse gas and carbon emissions. |
| · | Our ability to pay debt service on loans as they come due. |
| · | Our ability to generate sufficient cash to pay our creditors. |
| · | Disruption in the economic and financial conditions primarily from the impact of terrorist attacks in the United States and overseas, threats of future attacks, police and military activities and other disruptive worldwide political events. |
We are also subject to other risks detailed from time to time in other Securities and Exchange Commission filings and elsewhere in this report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
Company Overview
Our mission is to provide a lower cost, clean dependable energy alternative to fossil fuels worldwide. We plan to focus on two major business models in the commercialization of our Thermal Gasifier™ technology: building, owning and operating waste-to-energy plants either on our own or with joint venture partners. The tire fuel processing operation generated 100% of revenue from continuing operations, or $5,749 during the first quarter 2008. We recognized no revenue from our Thermal Gasifier™ business segment during the first quarter of 2008. Our long term goal is to produce the majority of our revenue and cash flow from the commercialization of our Thermal Gasifier™ technology. As a result, the majority of our resources are focused on this business segment.
Historically, we have not had difficulty finding potential project opportunities. 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, business alliances and advancing our business development activities to secure energy infrastructure and waste-to-energy facility opportunities that utilize our Thermal Gasifier™ technology. Additionally, we will seek project funding in some cases with joint venture partners that will be based on the size, configuration and business structure of the project. We are also developing our business alliances with other companies to convert our producer gas into high grade alcohols for use as transportation fuels or other chemical products.
We anticipate that the timeframe from identification of a project to completion will be 18 to 24 months, provided we obtain the requisite project financing and appropriate environmental permits.
We are actively involved in ongoing business development activities. Currently the company is in the process of evaluating certain project opportunities and providing detailed proposals for selected qualified projects. We are currently in the process of completing a number of feasibility studies for several WTE projects in China. We expect to build, own and operate these projects. The total waste material handled daily is expected to range from 500 to more than 1,600 tons per day during the first phase of deployment. These projects have multiple phases with total waste material handled expected as high as 5,000 tons per day from various sources of waste.
Due to the extremely poor financial state of the company at the time that new management was appointed and the undercapitalization that has plagued the company for years it has taken considerable time and resources to refocus the company and commence implementing its new business strategy. The company has been working diligently to overcome the financial and operating issues resulting from several management changes over the last several years and insure the company’s intellectual property was protected.
We plan to continue to improve operations at our tire fuel processing facility in Hutchins, Texas during 2008. 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. During 2006, subsequent to the completion of our equipment installation and site improvements we increased the production and the volume of waste tires we process. The improvements enabled us to continue to increase revenue and cash flow from this operation through the first quarter of 2007. During the second quarter of 2007, the facility was closed for cleanup and site improvement. During July 2007, the facility reopened and commenced accepting waste tires and producing TDF.
During August 2007, our tire processing equipment accidentally jammed, damaging one major piece of equipment and causing the processing line and the tire processing facility to shut down. The equipment failure and resulting business interruption were believed to be covered by insurance; however, the equipment insurance policy had been cancelled. Management was advised by the issuer that the policy had been cancelled in July 2007 for nonpayment of premiums. As a result of the insurance cancellation, we could not claim an estimated $110,000 of repair and business interruption costs. We subsequently obtained adequate equipment insurance from another carrier during the period.
At that time, management decided to purchase new tire processing equipment as the cost of new equipment was not significantly more than the cost of repairing the damaged equipment. We expect to place orders for new tire shredding equipment during the second quarter of 2008 with expected delivery in the third quarter of 2008. As a result of the long lead time on this new equipment and additional time to install, we do not expect the tire processing facility to be fully operational until the third quarter of 2008.
Our tire fuel processing operation in Texas is subject to regulation by the Texas Commission of Environmental Quality (TCEQ). We are registered with the Texas Commission on Environmental Quality which allows us to receive, store, transport and process waste tires. Our registration expired December 20, 2007 but a permit renewal has been submitted and is in process for approval allowing for continued operation. We continue to maintain our fuel processing facility to meet the requirements of the Texas Commission of Environmental Quality’s regulations, however, should we be unable to continue to fund our compliance, we could lose our permit to operate the facility. The company has submitted a request to the TCEQ to extend the period of time to complete the work necessary for the permit renewal. We have been advised that the TCEQ will issue a notification extending the time within which to complete the permit renewal.
Results of Operations
Revenue
For the three months ended March 31, 2008, revenue from continuing operations declined to $5,749 compared to $208,197 during the three months ended March 31, 2007, a decrease of $202,448 or approximately 97%. This decrease was due to the reduction in operations at the Hutchins, TX tire processing facility since August 2007 due to accidental damage to certain tire shredding equipment. The cost of repairing the damaged equipment approximated the cost of new shredding equipment. Management decided to purchase new equipment; however, the company was not able to place the order in 2007 due to financial constraints. As a result, the facility has operated on a limited basis since August 2007.
Cost of goods sold
Cost of goods sold was $108,244 for the three months ended March 31, 2008, compared to $339,227 during the three months ended March 31, 2007, a decrease of $230,983 or 68%. The decrease was primarily due to reduction in headcount and related salary and employee benefit expense of approximately $40,000, a decrease in repair and maintenance and operating supplies expense due to limited operations of approximately $111,000, a decrease in equipment rental expense of approximately $36,000 and a decrease in depreciation expense of approximately $28,000.
Sales, general, and administrative expenses
Sales, general, and administrative expenses were $333,784 for the three months ended March 31, 2008, compared to $361,114 for the three months ended March 31, 2007, a decrease of $27,330 or approximately 8%. This decrease was due primarily to the reduction in amortization expense of approximately $25,000 related to engineering drawings and blueprints on the design of our Thermal Gasifier™, which were impaired during the third quarter of 2007.
Research and development expense
For the three months ended March 31, 2008 and 2007, research and development expense was $0 and $68,776, respectively.
Interest expense
Interest expense, net of interest income, was $13,055 during the three months ended March 31, 2008, compared to interest expense of $3,382 during the three months ended March 31, 2007. This increase was due to interest incurred on average outstanding indebtedness which increased approximately $530,000 from the three months ended March 31, 2007 to the three months ended March 31, 2008.
Other income
Other income for the three months ended March 31, 2008 and 2007 was $66,667 and $0 respectively. Other income represents a reduction in a reserve for payment for certain assets which management believes is no longer an obligation.
Net Income (Loss)
For the reasons stated above, net loss for the three months ended March 31, 2008 was $382,667, or ($0.004) per basic and diluted share, compared with the net loss of $556,121, or ($0.01) per basic and diluted share, for the three months ended March 31, 2007.
Liquidity and Capital Resources
As of March 31, 2008, we have a negative working capital of $2,831,684 and a cash balance of $0. The company’s negative working capital balance is due primarily to the reduction in operations and related cash flows at our tire fuel processing facility in Hutchins, Texas and inclusion of a liability of $779,000 for clean up costs at the Hutchins facility.
For the period ended March 31, 2008, net cash used in operating activities of $99,109 consists primarily of the net loss of $382,667, decreased by non cash depreciation expense of $35,007 and consulting fees of $75,000 and increased by other income related to release of liabilities of $66,667 and by changes in the components of working capital primarily due to an increase in accounts payable and accruals of $197,158.
For the period ended March 31, 2007, net cash used by operating activities of $213,367 consists primarily of the net loss of $556,121, offset by changes in the components of working capital in the amount of $257,581 and depreciation and amortization expense of $89,972.
For the period ended March 31, 2007, net cash provided by investing activities of $2,439 consisted of proceeds from the sale of assets of $5,963 offset by capital expenditures of $3,524.
Net cash provided by financing activities of $90,092 for the period ended March 31, 2008 includes proceeds from common stock to be issued of $101,912 decreased by payment on indebtedness of $11,820.
Net cash used in financing activities of $29,808 for the period ended March 31, 2007 consisted of payment of indebtedness.
We received interim funding in cash of $101,912 for our operations as an equity investment from Vista International, Inc. during the first quarter of 2008 in exchange for common stock to be issued. . In addition, Vista International, Inc. incurred expenses on behalf of the company during the first quarter of 2008 for sales and market development efforts in China, Mexico, South Eastern Europe and the US. Those expenses consist primarily of travel and marketing related expenses in pursuit of projects for the deployment of our thermal gasification technology. Vista International, Inc. has obtained a number of letters of intent to use our thermal gasification technology for waste to energy projects and expects to convert those into contracts in the future. The expenses incurred on our behalf have not been recorded as equity contributions to the company at this time. The company expects to negotiate a compensation agreement on a project by project basis to include an equity interest in the projects that result from Vista International, Inc.’s efforts .We expect that Vista International, Inc. will provide additional capital either as debt or as an equity contribution to us during the remainder of 2008 for the purpose of funding ongoing operations, investing in new equipment for our tire fuel processing operations and commercializing and deploying our Thermal Gasifiers™. We also expect to use this funding to identify and integrate other technologies that will improve the operation and forecasted profitability of our Thermal Gasifier™.
We expect that our current cash on hand and revenues will not be sufficient to sustain our current. The company believes it will need to secure several million dollars of investment capital within the next one to two months in order to continue development of the next generation Thermal Gasifier™ and fund ongoing operations.
The independent auditors report on our December 31, 2007 financial statements states that our recurring losses raise substantial doubts about our ability to continue as a going concern.
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) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) 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 are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, based on management’s evaluation, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, to allow timely decisions regarding required disclosures.
Management’s 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) of the Securities Exchange Act of 1934. 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 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 reason able assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on the 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 December 31, 2007, 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 weakness in internal control over financial reporting as of December 31, 2007.
The Company lacks sufficient accounting controls and procedures to ensure that expenditures are properly allocated between the Company and its majority shareholder, Vista International, Inc., which is a company also engaged in the renewable energy business.
We determined that the aforementioned deficiency constitutes a material weakness in our internal control over financial reporting as of December 31, 2007. Due solely to this material weakness, we concluded that we did not maintain effective internal control over financial reporting as of December 31, 2007.
Remediation of Internal Control Weakness:
Management has commenced procedures to remediate the aforementioned deficiency in our internal control over financial reporting whereby allocated expenditures between the Company and its majority shareholder, Vista International, Inc. are determined on a timely basis for financial reporting and are reviewed and approved by the Company’s Board of Directors.
PART 2: OTHER INFORMATION
Item 1. Legal Proceedings.
We are involved in routine litigation which is incidental to our business, none of which is anticipated to have a material adverse effect on our financial condition, operations or prospects.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On January 28, 2008, the Company issued an aggregate of 750,000 restricted shares of its common stock to American Capital Venture, Inc. (and its affiliates) (collectively "ACV") for an investor relations' services contract. Under the contract, ACV was to plan, coordinate, establish, and manage an investor relations program, for the benefit of the Company, through one or more nationally recognized news and information mediums. In connection with the sale of unregistered securities, the Company filed a Form D with the Commission.
On April 10, 2008, the Company issued an aggregate of 5,550,297 restricted shares of its common stock to Vista International, Inc., for cash and payment of expenses pursuant to a Definitive Agreement for equity investment executed on January 31, 2008. In connection with the purchase of unrestricted securities, Vista International, Inc. filed a Form 4 with the Commission.
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
(a) Exhibits.
| 2.1 | Stock Exchange Agreement, dated as of December 31, 2002, by and between Nathaniel Energy Corporation, and MNS Eagle Equity Group, Inc. and the shareholders of MNS Equity Group, Inc.* |
| 2.2 | Stock Purchase Agreement, dated August 26, 2002 but effective as of June 30, 2002, by and between MCNIC Pipeline & Processing Company and Nathaniel Energy Corporation* |
| 3(i).1 | Certificate of Incorporation** |
| 3(i).2 | Articles of Amendment to 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 to Certificate of Incorporation filed on October 12, 2005** |
| 3(ii).1 | Amended and Restated By-Laws*** |
| 10.2 | Stock Purchase Agreement dated September 29, 2005 between Nathaniel Energy Oklahoma Holdings, Corporation (“NEHOC”) and Richard Strain** |
| 10.3 | Purchase and Sale Agreement dated September 30, 2005 between Nathaniel Energy Corporation, NEOHC, MCNIC Rodeo Gathering, Inc. and Midstream Energy Services** |
| 10.4 | Nathaniel Energy Corporation 2005 Equity Participation Plan** |
| 10.6 | Agreement dated December 5, 2006 between Nathaniel Energy Corporation and Bailey-Jamar, LLC. **** |
| 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)*** |
| 31. | Certification of Chief Executive Officer and Principal 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 Chief Executive Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* 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 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 31, 2002 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, 2006 and incorporated herein by reference.
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VISTA INTERNATIONAL TECHNOLOGIES, INC.
(Registrant)
| Date: May 16, 2008 | By: | /s/ Barry J. Kemble |
| | |
Barry J. Kemble Chief Executive Officer Vista International Technologies, Inc. |
