UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT # 2
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For quarterly period ended December 31, 2003
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: 000-30065
INTREPID TECHNOLOGY & RESOURCES, INC.
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FKA IRON MASK MINING CO.
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(exact name of registrant as specified in its charter)
IDAHO
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(State or other jurisdiction of incorporation or organization)
501 West Broadway, Suite 200, Idaho Falls, ID 82304
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (208) 529-5337
Indicate by check mark whether the registrant: (1) has filed all reports
required 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 The number of shares of the
--- ---
Registrant's Common Stock, as of December 31, 2003: 93,612,435 shares
outstanding of a total 185,000,000 authorized.
EXPLANATION OF AMENDMENT #2
---------------------------
The Registrant, Intrepid Technology & Resources, Inc., (the "Company"), received
a subsequent comment letter from the Securities and Exchange Commission dated
February 27, 2004. The Commission made comments and requested the registrant
amend the Report on form 10-QSB/A and apply SFAS 121 Impairment of Long-Lived
Assets to the mineral rights acquired in the merger, the deficit in retained
earnings is rolled forward to the financial statements along with the changes
resulting from the merger of March 25, 2002. Amended hereto is Items 1 & 2,
notes 2 & 3, and the Management's Discussion & Analysis.
EXPLANATION OF AMENDMENT # 1
----------------------------
This amendment was to correct Item 1. Financial Statements by restating the
correct total current assets as of December 31, 2003, and the net cash used by
financing activities and the increase in cash and cash equivalents on the
statement of cash flows and was filed on February 19, 2004
OFFICERS
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Dr. Dennis D. Keiser, Chief Executive Officer & President
Dr. Jacob D. Dustin, Vice President, Secretary and Treasurer
DIRECTORS
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Dr. Dennis D. Keiser, Chief Executive Officer & President Chairman of the Board
Dr. Jacob D. Dustin, Vice President, Secretary and Treasurer
Michael F. LaFleur, Board Member
William R. Myers, Board Member
D. Lynn Smith, Board Member
COMMON STOCK
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Par value .005
185,000,000 authorized
100,910,294 issued and outstanding at February 18, 2004
Intrepid Technology & Resources, Inc.'s common stock trades on the Bulletin
Board under the symbol IESV.
FINANCIAL REPORTS
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A copy of Intrepid Technology & Resources, Inc.'s Financial Reports, filed with
the Securities and Exchange Commission, may be obtained by writing to:
Intrepid Technology & Resources, Inc.
501 West Broadway
Suite 200
Idaho Falls, Idaho 83402
www.intrepid21.com
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or at: The Securities and Exchange Commission office, Public Reference Room 450
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Fifth Street, N.W., Washington D.C. 20549 or at the SEC web site address
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(http:// www.sec.gov)
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TRANSFER AGENT
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Columbia Stock Transfer Company
PO Box 2196
Coeur d'Alene, Idaho 83816-2196
Phone: 208-664-3544
Fax: 208-664-3543
Email: columbia5183@cs.com
AUDITOR
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Balukoff, Lindstrom & Co., P.A.
877 West Main Street, Suite 805
Boise, Idaho 83702
208-344-7150
2
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . 4
Statements of Operations . . . . . . . . . . . . . . 5
Statements of Cash Flows . . . . . . . . . . . . . . 6
Notes to Unaudited Financial Statements. . . . . . . 7
Item 2. Management's Discussion and Analysis . . . . . . . . 13
Results of Operations. . . . . . . . . . . . . . . . 14
Capital Requirements . . . . . . . . . . . . . . . . 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 17
Signature Page . . . . . . . . . . . . . . . . . . . 18
Certifications . . . . . . . . . . . . . . . . . . . 19
3
INTREPID TECHNOLOGY & RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
($ IN WHOLE DOLLARS EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, June 30,
2003 2003
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UNAUDITED Audited
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ASSETS
Current Assets:
Cash $ 50,427 $ 27,175
Receivables, net of allowance for doubtful
accounts of $0 and $0 respectively 417,414 412,058
Investments -- 5,000
Other assets 9,426 3,986
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Total current assets 477,267 448,219
Equipment, net 59,998 37,177
Deferred tax asset 361,121 385,543
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Total Assets $ 898,386 $ 870,939
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 236,133 $ 245,596
Accrued liabilities 116,698 163,097
Deferred compensation 178,929 193,232
Term Loan 181,435 199,779
Long term debt - current portion 77,940 --
--------------
Total current liabilities 791,135 84,800
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886,504
Long term debt --
--------------
Total liabilities 791,135 --
------------
Commitments and contingencies 886,504
Shareholders' equity:
Preferred stock, $1 par value, 5,000,000 authorized --
Common stock, $.005 par value, 185,000,000 authorized, 93,612,435
and 91,130,584 shares issued and outstanding, respectively 468,062 455,653
Additional paid-in capital 3,693,588 3,644,060
Notes receivable - shareholders (30,000) (36,900)
Retained earnings (deficit) (4,024,399) (4,078,378)
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Total shareholders' equity 107,251 (15,565)
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Total Liabilities and Shareholders' Equity
$ 898,386 $ 870,939
============== ============
<FN>
The accompanying notes are an integral part of these financial statements.
4
INTREPID TECHNOLOGY & RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN WHOLE DOLLARS EXCEPT PER SHARE AMOUNTS)
For the Three Months Ended For the Six Months Ended
December 31, December 31,
2003 2002 2003 2002
----------- ----------- ----------- -----------
UNAUDITED UNAUDITED Unaudited Unaudited
----------- ----------- ----------- -----------
Revenue $ 630,473 $ 517,390 $1,434,411 $1,162,503
Direct operating costs 350,076 378,439 844,651 951,703
----------- ----------- ----------- -----------
Gross profit 280,397 138,951 589,760 210,800
Selling, general and administrative expenses 264,227 108,475 497,173 365,969
----------- ----------- ----------- -----------
Income (loss) from operations 16,170 30,456 92,586 (155,169)
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Interest expense (7,551) (7,618) (14,186) (14,405)
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Net income (loss) before income taxes 8,619 22,858 78,397 (169,574)
Provision for income taxes (benefit) -- 8,000 24,422 (69,804)
----------- ----------- ----------- -----------
Net (loss) income $ 8,619 $ 14,858 $ 53,975 $ (99,770)
=========== =========== =========== ===========
Net income (loss) to common shareholders $ 8,619 $ 14,858 $ 53,975 $ (99,770)
=========== =========== =========== ===========
Basic earnings (loss) per share $ .0001 $ .0002 $ .001 $ (.001)
=========== =========== =========== ===========
Diluted earnings per share $ -- $ -- $ -- $ --
=========== =========== =========== ===========
Dividends paid per common share -- -- -- --
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these financial statements
5
INTREPID TECHNOLOGY & RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN WHOLE DOLLARS EXCEPT PER SHARE AMOUNTS)
For the six months Ended December 31,
2003 2002
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UNAUDITED Unaudited
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Cash flows from operating activities:
Net income (loss) $ 53,975 $ (99,770)
Adjustments to reconcile net loss to net cash provided by (used by)
operating activities:
Depreciation 4,966 4,399
Loss on the sale of assets -- 10,266
Expenses in exchange for issuance of common stock 23,934 72,747
Changes in assets and liabilities:
Accounts receivable, net (5,356) (7,215)
Prepaids and other assets (440) (3,598)
Deferred tax asset 24,422 (69,804)
Accounts payable (9,463) 101,506
Accrued liabilities (46,394) (9,979)
Deferred compensation (14,303) (28,744)
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Net cash provided by (used by) operating activities 31,341 (30,192)
Cash flows from investing activities:
Debenture sales -- 10,000
Draw on line of credit (869)
Purchase of office equipment (27,785) (3,600)
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Net cash used by investing activities (27,785) (5,531)
Cash flows from financing activities:
Common stock proceeds 27,400 25,000
Note receivable for stock collected 6,900
Payments on line of credit / term loan (18,344) (27,514)
Increase on notes payable 3,740 --
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Net cash used by financing activities 19,969 (2,514)
Increase (decrease) in cash and cash equivalents 23,252 (38,237)
Cash and cash equivalents at beginning of period 27,175 71,959
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Cash and cash equivalents at end of period $ 50,427 $ 33,722
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid $ 14,186 $ 14,405
Non cash investing and financing transactions
Conversion of debenture to common stock 10,600 --
Common stock issued for services, prepaid assets and debt
repayments 23,934 72,747
<FN>
The accompanying notes are an integral part of these financial statements
6
INTREPID TECHNOLOGY & RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the Company has prepared the accompanying unaudited financial statements of the
Company and the subsidiary Magic Valley Energy, LLC. Certain information and
footnote disclosures have been condensed or omitted pursuant to Generally
Accepted Accounting Principles ("GAAP"). In the opinion of management, all
adjustments and disclosures necessary for a fair presentation of these financial
statements have been included. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 2003 Annual Report on Form 10-KSB for the year ended June 30, 2003, as
filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
NOTE 2. MERGER. (AMENDED)
On March 25, 2002, the Company was created by merging Intrepid Engineering
Services, Inc., an Idaho corporation ("IES"), Western Technology and Management,
Inc., an Idaho corporation ("WTM"), and Iron Mask Mining Company (IMKG).
Originally the merger was reported as a business acquisition under SFAS 141
"Business Combinations," with recognition of goodwill and the reporting of
intangible assets. After consultation with the SEC and review of accounting
standards, it was determined the merger should be accounted for as a capital
transaction with IES as the accounting acquiror. The accounting for this type
of transaction is identical to a reverse merger except that no goodwill or
intangible assets are recorded. The financial statements of the 10-KSB/A have
been amended to reflect the change in the accounting of the merger. For
information regarding the historical financial statements of IES prior to the
merger please refer to the report on Form 8-K/A filed with the U.S. Securities
and Exchange Commission on February 19, 2004.
The consideration paid in connection with the merger, determined through
arms-length negotiations between executive management resulted in IMKG issuing
24,915,975 shares of its common stock for the shares of IES and WTM. As a
result of the merger WTM and IES shareholders own 25% and 6%, respectively, of
the outstanding shares of stock. Subsequent to the merger, the name was changed
to Intrepid Technology and Resources, Inc.
NOTE 3. INTANGIBLE ASSETS. (AMENDED)
The Company acquired certain mineral and mining rights related to the Garnet and
Copper Cliff properties through the merger with Iron Mask Mining Company
("IMKG"), at a value of $3,723,456. The value of the mineral rights was based
on a mineral property valuation of $3,273,456 performed by a certified
professional geologist. An agreement was written between the parties for
$3,273,456 and additional mining or surface rights were valued and agreed upon
for a price of $450,000. SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, requires an evaluation of
assets if a significant event or changes in circumstances occur. The merger
constituted such an event, thus triggering the need for another valuation of the
mineral rights. Upon further review of the mineral property valuation report it
was noted that the study did not meet the requirements of the SEC's Industry
Guide 7. As of June 30, 2002 no final feasibility study had been performed on
the Garnet and Copper Cliff properties therefore, sufficient quality and
quantity of mineral reserves could not be adequately determined in estimating a
fair value of the mineral rights. Based on this conclusion the Company has
impaired the mineral and mining rights in accordance with SFAS 121 declaring the
rights to have no fair value and has written the asset down. For the year ended
June 30, 2002 a write down of the assets of $3,723,456 was recorded and is
included in loss from operations.
7
In the first quarter of 2002, IMKG recorded a mineral rights option for a price
of $150,000 with a corresponding note payable of $150,000. The note was to be
paid within a specified amount of time after IMKG had exercised the option for
the mineral rights. The options should not have been recorded as an asset with
the corresponding liability until the options were exercised. The Company
therefore removed the options and the liability at the time of the merger as of
March 25, 2002. The effect of writing down the asset on the June 30, 2002
income statement was in increase in the deficit to retained earnings, which is
carried forward as shown on the balance sheet for the quarter ending September
30, 2003. (See footnote d below)
NOTE 4. DESCRIPTION OF BUSINESS
Intrepid Technology & Resources, Inc., ("The Company"), (an Idaho Corporation)
is a biofuels renewable and alternative energy development and operating company
with strengths in engineering and technology. While the Company's primary
source of current revenue is the sale of engineering services to a variety of
clients, it is posturing itself for a primary business purpose of developing,
constructing, and operating a portfolio of projects in the Renewable and
Alternative Energy sector, with a special emphasis on production of biofuels -
particularly, biogas (methane), biodiesel, ethanol and, eventually, hydrogen.
The Company's strategy is to provide the overall technical and integration
management for planning, coordinating, developing, operating and implementing
such projects. The Company's initial emphasis is on establishing several
geographically dispersed complexes in the Southern Idaho region and then
expanding to other locations within Idaho and the Western United States. The
Company provides credit in the normal course of business to its customers and
performs ongoing credit evaluations of those customers. It maintains allowances
for doubtful accounts based on factors surrounding the credit risk of specific
customers, historical trends, and other information. Credit losses, when
realized, have been within the range of the Company's expectations and,
historically, have not been significant.
8
The following table reports the Company's condensed and consolidated balance
sheet information as originally reported and amended showing the adjustments for
the merger ($ in whole dollars):
DECEMBER 31, DECEMBER 31,
2003 2003
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ORIGINAL ADJUSTMENT RESTATED
-------------- ----------- --------------
ASSETS
Current Assets:
Cash $ 50,427 $ 50,427
Receivables, net of allowance 417,414 417,414
Other receivables -- --
Other current assets 9,426 9,426
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Total current assets 477,267 477,267
Equipment, net 59,998 59,998
Goodwill 538,947 (538,947) a --
Mining rights 3,273,456 (3,273,456) b --
Deferred tax asset 361,121 361,121
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Total Assets $ 4,710,789 $ 898,386
============== ==============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 236,133 $ 236,133
Accrued liabilities 116,698 116,698
Deferred compensation 178,929 178,929
Line of credit 181,435 181,435
Long term debt - current portion 77,940 77,940
-------------- --------------
Total current liabilities 791,135 791,135
Long term debt -- --
Commitments and contingencies
Common stock, $.005 par value 468,062 468,062
Additional paid-in capital 12,119,918 (8,426,330) c 3,693,588
Notes receivable - shareholders (30,000) (30,000)
Retained earnings (deficit) (8,638,326) 4,613,927 d (4,024,399)
-------------- --------------
Total shareholders' equity 3,919,654 107,251
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Total Liabilities and Shareholders'
Equity
$ 4,710,789 $ 898,386
============== ==============
- -------------------------------
a As a result of the merger no goodwill or intangible assets are to be recorded
b To eliminate all value(s) associated with the Garnett and Copper Cliff
properties in Montana
c As a result of the merger the equity of the Company is reduced by the amount
of the mining rights and intangible assets that were eliminated
d This item is amended to adjust for the mining rights being charged as an
expense when impaired in the statement of operations for the year end June 30,
2002 which increases the accumulated deficit
9
NOTE 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The significant accounting policies applied in the annual financial statements
of the Company as of June 30, 2003, are applied consistently in these financial
statements. In addition, the following accounting policy is applied:
The accompanying unaudited financial statements for the three months ended
December 31, 2003 reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
period. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of the financial condition
and results of operations, contained in the Company Annual Report on Form 10-KSB
for the fiscal year ended June 30, 2003. The results of operations for the three
months ended December 31, 2003 are not necessarily indicative of future results.
STOCK BASE COMPENSATION
At December 31, 2002, the Company approved a stock-based employee compensation
plan. The stock option plan, which allows officers, directors, employees and
consultants of the company to receive non-qualified and incentive stock options
for a total of 25 million shares. The Company awarded 300,000 stock options to
directors during the quarter ended December 31, 2002 with an exercise price of
$.01. During the quarter ended December 31, 2002, the Company awarded 10,340,000
stock options with an exercise price of $.01 to employees. These options are
vested at 100 percent and expire in five years from the grant date. During the
4th quarter 1,000,000 options with an exercise price of $.01 was issued to an
employee. A total of 13,385,000 options were available for future option grants
as of December 31, 2003.
The Company accounts for employee stock-based compensation using the intrinsic
value method for each period presented under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. No compensation cost is reflected in net income for
options granted to employees, as all options granted under those plans had an
exercise price equal to the fair market value of the underlying common stock on
the date of grant. The Company accounts for stock options granted to
non-employees using the fair value method under SFAS No. 123, "Accounting for
Stock-Based Compensation."
The following table illustrates the effect on net income (loss) and earnings
(loss) per share as if the fair value method had been applied to all outstanding
and unvested awards in each period:
Quarter Ended Six Months Ended
--------------------- --------------------------
September 30, September 30,
--------------------- --------------------------
2003 2002 2003 2002
-------- ----------- ----------- -------------
Net income / (loss) $ 8,619 $ 14,858 $ 53,975 $ (99,770)
Deduct: Stock based employee
Compensation expense determined
under fair value based method, net
of tax -- (81,656) -- (81,656)
-------- ----------- ----------- -------------
Pro forma net income / (loss) $ 8,619 $ (66,798) $ 53,975 $ (181,426)
Basic earnings per share as recorded .0001 .0002 $ .0006 $ (.0011)
======== =========== =========== =============
Basic earnings per share pro forma .0001 (.0009) $ .0006 $ (.0020)
======== =========== =========== =============
of the results for the entire fiscal year ending June 30, 2004.
10
Principles of Consolidation. The accompanying financial statements are prepared
- ----------------------------
on a consolidated basis. The consolidated financial statements include the
accounts of the Company after the elimination of all significant inter-company
balances and transactions. The Company's fiscal year-end is June 30.
Cash and Cash Equivalents. For the purpose of the statement of cash flows, the
- ---------------------------
Company considers all highly liquid debt instruments with maturity of three
months or less to be cash equivalents.
Accounts Receivable. Accounts receivable is recorded net of an allowance for
- ---------------------
expected losses. The allowance is estimated from historical performances and
projections of trends. These projections for doubtful accounts have been
recorded based on previous history of charge offs, which have been
insignificant. The Company contracts with federal governmental agencies for
engineering, which have not been delinquent and management does not believe
there is a collectability issue with these contracts. Therefore, no allowance
has been recorded as of December 31, 2003 and June 30, 2003. The unbilled amount
as of December 31, 2003 and June 30, 2003 was $12,874 and $38,178, respectively.
Notes Payable. The Company has various notes payable to individuals and
- --------------
officers. The Company has exchanged a portion of the notes for issuance of the
Company's common stock. The Company has incurred additional expenses with
outside consultants and has paid a portion of those obligations with the
issuance of common stock under the rules provided for S-8 issuances.
Revenue Recognition. The Company's revenue is derived mainly from contracts for
- --------------------
its engineering consulting and other services. Revenue from these contracts is
recognized as services are performed. The Company has recorded revenue for work
performed but not billed as of December 31, 2003.
Equipment. Property and equipment are recorded at cost and depreciated on
- ---------
straight-line and declining balance methods over estimated useful lives.
Replacements and major repairs of property and equipment are capitalized and
retirements are made when the useful life has been exhausted.
Use of Estimates. The preparation of financial statements in conformity with
- ------------------
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenue and expenses during the
reporting period. The Company used significant estimates in the accompanying
consolidated financial statements primarily related to the valuation of mining
rights and the valuation allowance for deferred taxes. It is reasonably
possible that these estimates may change from time to time and actual results
could differ from those estimates.
Major Customers. At present, Company revenue is derived from "work-for-others"
- ----------------
by the Engineering Services Division, with any profits being used to develop the
Biofuels business line. In 2003, the Company managed several engineering
services agreements with Idaho National Engineering and Environmental Laboratory
("INEEL") at Idaho Falls, Idaho, which constituted the majority of the Company's
revenue. In 2003, only INEEL provided more than ten percent of the total.
Development Activities. The primary purpose of the Company is to obtain, permit
- ----------------------
and develop favorable properties for alternative and renewable energy production
and provide the associated engineering design and construction management
services required to support the construction and operation of the related
facilities. Secondarily, the Company will continue to expand its engineering
services "work for others" base to generate additional revenue to augment
working capital requirements in support of its alternative and renewable energy
efforts. The realization of profits are dependent upon successful execution of
that business model and inducing larger companies or private investors to
purchase these "turn-key" alternative/renewable energy generation/production
facilities; increasing the number and value of "work for others" services
contracts; and the sale of mineral assets.
Credit Risk Concentration. The Company maintains most of its cash with US Bank
- ---------------------------
in Idaho Falls, Idaho. Substantially all of the cash balances are insured and
are not collateral for other obligations. Concentrations of credit risk with
respect to accounts receivable are believed to be limited due to the number,
diversification and character of the obligors and the Company's credit
evaluation process. Typically, the Company has not required customers to provide
collateral for such obligations.
11
Commitments. The Company has various commitments for notes payable to
- -----------
shareholders and officers of the Company, and a term loan with US Bank, all of
which the Company believes it has properly accounted for or has made proper
accruals to meet these obligations in the future.
Notes Receivable. As of December 31, 2003, the Company has non-interest bearing
- ----------------
notes receivable from employees totaling $30,000 for the purchase of the
Company's common shares and is recorded in the equity section of the balance
sheet. The notes are from employees:
Gary Mecham $6,900 Don Dustin $6,900
David Roth $6,900 Lynn Higgins $2,400
Scott Francis $6,900
NOTE 6. EARNING PER COMMON SHARE
Basic earnings per share are computed based on net income and the weighted
average number of common shares outstanding. The Company does not have any
securities that would cause diluted earnings per share.
(000's except per share amounts) (000's except per share amounts)
Three Months Ended December 31, Six Months Ended December 31,
---------------------------------------- -----------------------------------------
2003 2002 2003 2002
------------------- ------------------- ------------------- --------------------
Net income / (loss) $ 8 $ 15 $ 54 $ (100)
Weighted average shares outstanding-
Common shares 91,530,584 84,100,530 91,530,584 84,539,207
Basic earnings per share $ .0001 $ .0002 $ .001 $ (.001)
=================== =================== =================== ====================
Diluted earnings per share $ -- $ -- $ -- $ --
=================== =================== =================== ====================
NOTE 7. EQUIPMENT.
Equipment consists of the following as of December 31, 2003:
Computers and software $ 41,446
Furniture 15,488
Other Equipment 1,525
Vehicles 3,000
Anaerobic Digester 25,380
---------
Subtotal 86,839
Less accumulated depreciation (26,841)
---------
Total Equipment, net $ 59,998
=========
During the second quarter ended December 31, 2003 the Company began work on
certain alternative energy projects. In the process of moving forward the
Company has developed the technical and functional requirements and completed
the conceptual design of a flagship anaerobic digester at a 4000 cattle head
dairy north of Rupert, Idaho. This digester will be used as the prototype
facility to generate natural gas for sale as a renewable energy source of heat
and/or power. From this prototype digester more information will become
available for optimization of sizing, and equipment specification and selection
to generate the maximum energy value. This will better enable the Company to
determine the most effective business model for utilizing the gas produced -
i.e. direct conversion to electricity and sale to local power company or direct
distribution and sale as natural gas to local commercial/industrial users. As of
31 December, the design was approximately 25% complete.
12
NOTE 8. LINE OF CREDIT AND TERM LOAN.
The Company had a line of credit of $200,000. As of September 25, 2003 the
Company converted this line of credit to a term loan at the same interest rate
of prime plus two percent. The Company makes monthly payments of $5,000 with
final payment due on March 15, 2004. The loan is secured by all business assets
and personally guaranteed by the principals of the Company. The following
employees of the Company have given unlimited personal guarantees for the line
of credit: Dennis Keiser (President), Jacob Dustin (Vice President), Donald
Kenoyer, S. Scott Francis, and Gary Mecham.
Shareholder Notes - The following shareholders who are also officers, employees
- ------------------
or directors have personally lent money to the Company. The notes are unsecured
demand notes. It is not anticipated by the Company that the notes will be called
in the next year. The following are shareholder creditors to the Company: The
loans from Mr. Kenoyer of $22,415 and Mr. Dustin of $44,811 accrue interest at
an annual rate of 10 percent payable on demand.
NOTE 10. NEW ACCOUNTING PRONOUNCEMENTS
In April 2003 the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards Statement No. 149 Amendment of Statement 133
on Derivative Instruments and Hedging Activities. Statement 149 is effective
for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The Company does not expect
Statement 149 to have a material effect on the financial statements.
In May 2003 the FASB issued Statement of Financial Accounting Standards
Statement No. 150 Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. Statement 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The Company does not expect Statement 150 to have a material effect
on the financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve known
and unknown risks and uncertainties which may cause actual results in future
periods to differ materially from those indicated herein as a result of a number
of factors, including, but not limited to, those set forth under "Factors That
May Affect Future Results," Notes to the Consolidated Financial Statements, Part
I, Item 1., Legal Proceedings, and the discussion below. When the Company uses
words like "may," "believes," "expects," "anticipates," "should," "estimate,"
"project," "plan," their opposites and similar expressions, the Company is
making forward-looking statements. These expressions are most often used in
statements relating to business plans, strategies, anticipated benefits or
projections about the anticipated revenues, earnings or other aspects of our
operating results. We make these statements in an effort to keep stockholders
and the public informed about our business and have based them on our current
expectations about future events. Such statements should be viewed with caution.
These statements are not guarantees of future performance or events. As noted
elsewhere in this report, all phases of our business are subject to
uncertainties, risks and other influences, many of which the Company has no
control over. Additionally, any of these factors, either alone or taken
together, could have a material adverse effect on the Company and could change
whether any forward-looking statement ultimately turns out to be true. The
Company undertakes no obligation to publicly release updates or revisions to
these statements. The following discussion should be read in conjunction with
audited consolidated financial statements and the notes filed thereto on Form
10-KSB with the U.S. Securities and Exchange Commission for the year ending June
30, 2003.
13
RESULTS OF OPERATIONS (AMENDED)
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The Company's revenue result primarily from contracts, which are substantially
short term, with the U.S. Government, commercial customers, state and local
governments, or from subcontracts with other contractors engaged in work with
such customers. The Company performs under a variety of contracts, some of which
provide for reimbursement of costs plus fees, and others, which are fixed-price
or time-and-materials, type contracts. Revenue and fees on the reimbursement of
costs plus fees and time-and-material contracts are recognized using the
percentage-of-completion method of accounting, primarily based on contract costs
incurred to date compared with total estimated costs at completion. Revenues and
fees on the fixed price contracts are recognized based on contract benchmarks
obtained as of the end of the period. Cost-reimbursement contracts provide for
the reimbursement of direct costs and allowable indirect costs, plus a fee or
profit component. Time-and-materials contracts typically provide for the
payment of negotiated fixed hourly rates for labor hours incurred plus
reimbursement of other allowable direct costs at actual cost plus allocable
indirect costs. Firm fixed-price contracts require us to provide stipulated
services for a fixed price.
REVENUE
Revenue for the second quarter of the fiscal year 2004 ended December 31, 2003
increased 21.9% to $630,473 compared to $517,390 for the three months ended
December 31, 2002. The total revenue for six months ended December 31, 2003
also increased 23.39% to $1,434,411 compared to $1,162,503 in 2002. This
increase was mainly attributed to additional engineering contracts performed
during this three and six month period.
Throughout calendar year 2003 and 2002, the Company has managed an engineering
services agreement with Idaho National Engineering and Environmental Laboratory
("INEEL") at Idaho Falls, Idaho, which constituted the majority of the Company's
revenue. The Company's other primary customers were: Fluor Federal Services,
Inc., Duratek, Argonne National Laboratory West, the Bureau of Land Management
and the State of Idaho. Only INEEL provided more than ten percent of the total
revenue recognized by the Company in 2003.
DIRECT OPERATING COSTS
Direct operating costs for the three months ending December 31, 2003 and 2002,
were $350,076 and $378,439 respectively, representing a 7.5% decrease. For the
six months ended December 31, 2003 direct operating costs also declined 11.2% to
$844,651 from $951,703 in 2002. The Company made many efforts to reduce direct
costs by using less subcontracted services, eliminating certain rental fees,
closing the Montana and Washington offices, making better use of supplies, and
exercising better management of direct payroll costs.
GROSS PROFIT
The Company had gross profit of $280,397 in the second quarter ended December
31, 2003 compared to $138,951 for the same quarter in 2002, representing a
101.8% increase. Similarly, for the six months ended December 31, 2003 gross
profit increased by 180% to $589,760 compared to $210,800 for the same period in
2002. This increase in gross profit is a mark of increased sales and better
management and utilization of available resources.
GENERAL SELLING AND ADMINISTRATIVE EXPENSES
For the three months ended December 31, 2003 general selling and administrative
expenses were $264,227 compared to $108,475 for the same quarter ended December
31, 2002. This 144% increase was the result of increased sales and certain
expenses increased significantly over the prior year due to an effort to as the
Company continues to expand its operations. During the second quarter of the
prior year some deferred compensation was reversed thereby reducing the total
general selling and administrative expenses in that period.
For the six months ended December 31, 2003, general selling and administrative
expenses increased 35.9% to $497,173 compared to $365,969 for the same period of
2002.
14
WRITE-DOWN OF ASSETS (AMENDED)
As a result of the comment letter received from the U.S. Securities and Exchange
Commission dated February 27, 2004 the Company has applied SFAS 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, to the mining and mineral rights acquired in the merger with Iron Mask
Mining Company ("IMKG"). These mining rights relate to the Garnet and Copper
Cliff properties and were recorded by IMKG at a value of $3,723,456. The value
of the mineral rights was based on a mineral property valuation of $3,273,456
performed by a certified professional geologist for and the mining rights were
valued at an agreed upon price of $450,000. SFAS 121 requires an evaluation of
assets at the time of a significant event or if changes in circumstances occur.
The merger constituted such an event, thus triggering the need for another
valuation of the mineral rights. Upon further review of the mineral property
valuation report it was noted that the study did not meet the requirements of
the SEC's Industry Guide 7. As of June 30, 2002 no final feasibility study had
been performed on the Garnet and Copper Cliff properties therefore, sufficient
quality and quantity of mineral reserves could not be adequately determined in
estimating a fair value of the mineral rights. Based on this conclusion the
Company has impaired the mineral and mining rights in accordance with SFAS 121
declaring the rights to have no fair value and has written the asset down. For
the year ended June 30, 2002 a write down of the assets of $3,723,456 was
recorded and was included in loss from operations. The effect of writing down
the asset on the June 30, 2002 income statement was in increase in the deficit
to retained earnings, which is carried forward as shown on the balance sheet for
the quarter ending December 31, 2003.
INTEREST EXPENSE
For the three months ended December 31, 2003 the Company had interest expense of
$7,551 compared to $7,618 for the same period ending December 31, 2002. For the
six months ended December 31, 2003 the Company had interest expense of $14,186
compared to $14,405 for the same period ending December 31, 2002. The
interest expense was for interest paid on the bank line of credit and term loan
with the 10% interest accrued on notes payable to officers and directors of the
Company.
INCOME TAXES
The Company has established a valuation allowance for the deferred tax asset due
to realization of uncertainties inherent with the limitations on utilization of
acquired net operating loss carry forwards for tax purposes. The net change to
the valuation allowance for 2003 was $0. The net operating loss carry forward
was approximately $1,800,000 at December 31, 2003, and begins to expire in the
year 2008. The amount of net operating loss carry forward expires $66,000 in
2008, $21,000 in 2018, $7,000 in 2019, $89,000 in 2020, $77,000 in 2021, and
$1,371,000 in 2022 and $169,000 in 2023.
NET INCOME (LOSS)
For the three months ended December 31, 2003 the Company had a net income of
$8,619 compared to $14,858 for the same period ended December 31, 2002. For the
six months ended December 31, 2003 the Company had a net income of $53,975
compared to a loss of $99,770 for the same period ended December 31, 2002. In
2002, the majority of the loss was attributed to the ongoing merger costs and
heavy general and administrative costs, which totaled $262,033. The revision of
the report on Form 10-KSB/A for the year ended June 30, 2003 has since removed
all goodwill and intangible assets, and therefore no other merger costs remain
on the balance sheet to be amortized over future periods.
CAPITAL RESOURCES AND LIQUIDITY
The Company has made reasonable efforts to meet cash flow demands from ongoing
operations and has improved its capital position over that of one year ago. The
Company finished the second quarter ending December 31, 2003 with cash available
of $50,427 compared to $33,722 for the same period of 2002. The Company
believes that it will still be necessary to continue to supplement the cash flow
from operations with the use of outside resources such as additional loans and
possibly investment capital by issuance of debenture notes and preferred stock.
As of December 31, 2003, the Company had a working capital deficit of $333,868
15
compared to a deficit of $356,018 for the same period ending December 31, 2002.
The current ratio at December 31, 2003 was: .58:1 and .51:1 at December 31,
2002.
The Company has had ongoing capital-intensive engineering projects and continues
to search for new investment capital through private preferred stock and
debenture bonds to fund the start up of renewable energy projects. The Company
believes that with new engineering and technical services contracts and
prospects for bringing these renewable energy projects on line that it will be
able to meet obligations as they become due. The Company is also continuing its
aggressive collection of its accounts receivable. No receivables appear to be
uncollectible.
The Company had an available line of credit of $200,000 of which $190,000 was
converted to a term loan as of September 25, 2003. The term loan or note
payable bears interest at the prime rate plus two percent and is secured by all
business assets and personally guaranteed by the officers and key employees of
the Company. As of December 31, 2003, the loan was in good standing. The
Company also has shareholder notes payable from certain officers, employees or
directors. The notes are unsecured demand notes. It is not anticipated by the
Company that the notes will be called in the next year. The following are
shareholder creditors to the company: The loans from Mr. Kenoyer of $22,415 and
Mr. Dustin of $44,811 accrue interest at an annual rate of 10 percent payable on
demand.
Access to Capital - Over the next twelve months the Company believes that it
- -------------------
will be necessary to supplement the cash flow from operations with the use of
outside resources such as additional loans and possibly investment capital by
issuance of debenture notes or preferred stock.
Material Commitments for Capital Expenditures - The Company has no outstanding
- -----------------------------------------------
commitments at this time, though it anticipates purchase of engineering design
hardware and software, additional computers, and office furniture to expand its
operations. The Company also intends to purchase a proprietary process design
for ethanol production. Source of funding for office-related expenses will come
from ongoing operations generated by engineering services. The source of
funding for proprietary design and potential acquisitions will be made by
outside capital resources.
Seasonal Changes - The Company's operating revenue is generally not affected by
- -----------------
seasonal changes.
RISK FACTORS
The Company's primary focus is obtaining permits and developing favorable
properties for alternative and renewable energy production, and providing the
associated engineering design and construction management services required to
support the construction and operation of related facilities, and cannot provide
any guarantees of profitability at this time. The Company will continue to
expand its engineering services base, "work for others" to generate additional
revenue to augment working capital requirements in support of its alternative
and renewable energy efforts. The realization of profits is dependent upon
successful execution of new business opportunities and the development of
prototype digester models for renewable energy. The Company is dependent upon
inducing larger companies or private investors to purchase these "turn-key"
alternative renewable energy generation and production facilities. These
projects when developed and depending on their success will be the future of the
Company. The Company cannot give any reasonable assurance to their success.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Secretary, Treasurer and acting Chief
Financial Officer evaluated the disclosure controls and procedures (pursuant to
Exchange Act Rule 13a-15) of the Company as of the end of the period covered by
this report and have determined that such controls and procedures are effective.
16
PART II OTHER INFORMATION
-------------------------
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits
(b) Two exhibits are filed as part of this report.
(c) The Company filed no reports on Form 8-K in the second quarter of 2003
1. Exhibits
- ----------------------------------------------------------------------------------------------------------------------
Exhibit Description Incorporated by Reference from
No. Registrant's
- ------- ---------------------------------------------------------------------- -------------------------------------
3.1 Articles of Incorporation. Form 10SB Registration March 22, 2000
- ------- ---------------------------------------------------------------------- -------------------------------------
3.2 Bylaws. Form 10SB Registration March 22, 2000
- ------- ---------------------------------------------------------------------- -------------------------------------
3.3 Amended Articles of Incorporation. Form 10SB Registration March 22, 2000
- ------- ---------------------------------------------------------------------- -------------------------------------
3.4 Amended Articles of Incorporation. Form 10SB Registration March 22, 2000
- ------- ---------------------------------------------------------------------- -------------------------------------
4.1 Specimen Stock Certificate. Form 10SB Registration March 22, 2000
- ------- ---------------------------------------------------------------------- -------------------------------------
10.1 Yellow Pines Resources Agreement. Form 10SB Registration March 22, 2000
- ------- ---------------------------------------------------------------------- -------------------------------------
10.2 American Diatomite Agreement. Form 10SB Registration March 22, 2000
- ------- ---------------------------------------------------------------------- -------------------------------------
10.3 American Diatomite Agreement. Form 10-KSB October 20, 2000
- ------- ---------------------------------------------------------------------- -------------------------------------
10.4 Agreement to Sell and Purchase Mineral Reserves, Real Property and
Shares of Common Stock Form 10-KSB October 15, 2001
---------------------------------------------------------------------- -------------------------------------
10.5 Addendum to Agreement to Sell and Purchase Mineral Reserves, Real
Property and Shares of Common Stock Form 10-KSB October 15, 2001
---------------------------------------------------------------------- -------------------------------------
10.7 2003 Stock Option Plan Form 14(a) October 24, 2002
- ------- ---------------------------------------------------------------------- -------------------------------------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
- ------- ---------------------------------------------------------------------- -------------------------------------
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
by Vice-President, Secretary and Treasurer
- ------- ---------------------------------------------------------------------- -------------------------------------
32 Certification pursuant to 18 U.S.C. SECTION 1350 by Chairman and
Chief Executive Officer and Vice-President, Secretary and Treasurer
- ----------------------------------------------------------------------------------------------------------------------
REPORTS ON FORM 8-K
- ----------------------------------------------------------------------------------------------------------------------
10.6 Iron Mask Mining Company merger agreement with Intrepid
Engineering Company and Western Technology and Management, Inc. Form 8-K April 8, 2002
- ------- ---------------------------------------------------------------------- -------------------------------------
Intrepid Technology and Resources, Inc. change of certifying
accountants Form 8-K May 24, 2002
- ------- ---------------------------------------------------------------------- -------------------------------------
Amendment to report pro forma financial information on merger filed
on Form 8-K April 8, 2002 Form 8-K/A June 11, 2002
- ------- ---------------------------------------------------------------------- -------------------------------------
Amendment, Item 7. Letter from accountant and Company Form 8-K/A June 20, 2002
correspondence
- ------- ---------------------------------------------------------------------- -------------------------------------
Resignation of Registrant's Directors and change in management Form 8-K July 8, 2002
- ------- ---------------------------------------------------------------------- -------------------------------------
Resignation of Registrant's Directors Form 8-K August 21, 2002
- ------- ---------------------------------------------------------------------- -------------------------------------
Amendment to Form 8-K filed on May 24, 2002 for change of
certifying accountants. Correction letter of predecessor accountant. Form 8-K/A September 10, 2002
- ------- ---------------------------------------------------------------------- -------------------------------------
Election of Lynn Smith to the Board of Directors and Chairman of the
Audit Committee Form 8-K September 13, 2002
- ------- ---------------------------------------------------------------------- -------------------------------------
Letters of Notice to Cure a Default whereby a deed was not transferred
for mineral rights purchased in the Iron Mask Mining Company merger Form 8-K February 6, 2003
- ----------------------------------------------------------------------------------------------------------------------
17
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.
INTREPID TECHNOLOGY & RESOURCES, INC.
(Registrant)
Date: April 23, 2004 By: /s/ Dr. Dennis D. Keiser, Chief Executive
-----------------------------------------
Officer & President
-------------------
Date: April 23, 2004 By: /s/ Dr. Jacob D. Dustin, Vice President,
-----------------------------------------
Secretary, and Treasurer
------------------------
18