UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2005
[ ] 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., AND SUBSIDIARIES
-------------------------------------------------------
(exact name of registrant as specified in its charter)
IDAHO 82-0230842
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
501 West Broadway, Suite 200,
Idaho Falls, Idaho 82304
(Address of principal executive offices)
(208) 529-5337
(Issuer's telephone number)
IDAHO
-----
(State or other jurisdiction of incorporation or organization)
Registrant's telephone number, including area code:
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 [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date:
170,408,769 shares of common stock, $0.005 par value per share, as of February
14, 2006.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets. . . . . . . . . . . . . . . . . . . 3
Statements of Operations. . . . . . . . . . . . . . 4
Statements of Cash Flows. . . . . . . . . . . . . . 5
Notes to Unaudited Financial Statements . . . . . . 6
Item 2. Management's Discussion and Analysis. . . . . . . . 10
Results of Operations . . . . . . . . . . . . . . . 10
Capital Requirements. . . . . . . . . . . . . . . . 11
Item 3. Controls and Procedures . . . . . . . . . . . . . . 14
Part II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . 15
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits. . . . . . . . . . . . . . . . . . . . . . 16
Signature Page. . . . . . . . . . . . . . . . . . . 17
Certifications. . . . . . . . . . . . . . . . . . . 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTREPID TECHNOLOGY AND RESOURCES, INC.
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31, June 30,
2005 2005
ASSETS (Unaudited) (Audited)
------ -------------- -----------
Current assets:
Cash $ 59,664 65,737
Accounts receivable, net 54,384 98,434
Prepaid expenses 47,500 85,639
Bond offering costs 57,542 -
Other assets 600 1,600
-------------- -----------
Total current assets 219,690 251,410
Property, plant, and equipment, net 1,252,084 952,742
-------------- -----------
Total assets $ 1,471,774 1,204,152
============== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Accounts payable $ 142,814 148,419
Accrued expenses 233,321 258,627
Related party notes payable 60,613 60,613
Current portion of long-term debt 501,731 382,948
-------------- -----------
Total current liabilities 938,479 850,607
Long-term debt 539,996 830,317
-------------- -----------
Total liabilities 1,478,475 1,680,924
-------------- -----------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $1 par value; 5,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.005 par value; 350,000,000 shares
authorized, 163,108,880 and 137,694,025 shares
issued and outstanding, respectively 815,544 688,470
Additional paid-in capital 6,184,764 4,998,505
Stock subscription receivable (16,200) (16,200)
Accumulated deficit (6,990,809) (6,147,547)
-------------- -----------
Total stockholders' deficit (6,701) (476,772)
-------------- -----------
Total liabilities and stockholders' deficit $ 1,471,774 1,204,152
============== ===========
<FN>
The accompanying notes are an integral part of these financial statements
3
INTREPID TECHNOLOGY AND RESOURCES, INC.
---------------------------------------
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- --------------------------
2005 2004 2005 2004
------------- ------------ ------------ ------------
Revenues, net $ 120,299 58,870 261,288 147,773
Costs of revenues 129,448 55,380 215,695 138,839
------------- ------------ ------------ ------------
Gross profit (9,149) 3,490 45,593 8,934
Operating expenses:
General and administrative 348,436 275,213 677,967 511,600
Research and development 25,307 - 132,546 -
------------- ------------ ------------ ------------
Loss from operations (382,892) (271,723) (764,920) (502,666)
Other income (expense):
Interest income - 323 - 993
Interest expense (27,232) (11,883) (78,342) (15,034)
Loss on investments - - - (12,744)
------------- ------------ ------------ ------------
Loss before provision for income taxes (410,124) (283,283) (843,262) (529,451)
Provision for income taxes - - - -
------------- ------------ ------------ ------------
Net loss $ (410,124) (283,283) (843,262) (529,451)
============= ============ ============ ============
Net loss per common share - basic and diluted $ - - (0.01) -
============= ============ ============ ============
Weighted average common shares - basic and diluted 156,540,000 124,409,000 149,817,000 119,716,000
============= ============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements
4
INTREPID TECHNOLOGY AND RESOURCES, INC.
---------------------------------------
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
Six Months Ended December 31, 2005 and 2004
-------------------------------------------
2005 2004
----------- ----------
Cash flows from operating activities:
- -------------------------------------
Net loss $ (843,262) (529,451)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Stock compensation expense 85,477 26,590
Depreciation 27,042 2,737
Interest expense on debentures 16,900 -
(Increase) decrease in:
Accounts receivable 44,050 111,285
Prepaid expenses 38,139 (20,918)
Bond offering costs (57,542) -
Other assets 1,000 -
Increase (decrease) in:
Accounts payable (2,603) (47,744)
Accrued expenses (7,300) 22,540
----------- ----------
Net cash provided by (used in) operating activities (698,099) (434,961)
----------- ----------
Cash flows from investing activities:
- -------------------------------------
Purchases of property and equipment (326,384) (580,372)
Proceeds from sale of investment - 17,794
----------- ----------
Net cash used in investing activities (326,384) (562,578)
----------- ----------
Cash flows from financing activities:
- -------------------------------------
Proceeds from long-term debt 921,033 622,476
Payments on long-term debt (859,471) (26,857)
Issuance of common stock 1,012,848 428,832
Common stock offering costs (56,000) -
Payments received from stock subscription receivable - 35,000
----------- ----------
Net cash provided by financing activities 1,018,410 1,059,451
----------- ----------
Net increase (decrease) in cash (6,073) 61,912
Cash, beginning of period 65,737 134,856
----------- ----------
Cash, end of period $ 59,664 196,768
=========== ==========
<FN>
The accompanying notes are an integral part of these financial statements
5
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with United States generally accepted accounting principles ("U.S.
GAAP") for interim financial information and with instructions to Form 10-QSB of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements. The
preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from estimates. In the opinion of management,
all adjustments, which consist of normal and recurring adjustments, necessary
for fair presentation have been included. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's 2005 Annual Report on Form 10-KSB for the year ended June 30,
2005, as filed with the Securities and Exchange Commission.
Stock-Based Compensation
- ------------------------
The Company has stock-based employee compensation, which is described more fully
in Note 12 to the audited financial statements of the Company as of June 30,
2005. The Company accounts for this compensation under the recognition and
measurement principles of APB Opinion 25, "Accounting for Stock Issued to
Employees", and related Interpretations, and has adopted the disclosure-only
provisions of SFAS 123, "Accounting for Stock-Based Compensation." Accordingly,
no compensation cost has been recognized in the financial statements, as all
options granted had an exercise price equal to or greater than the market value
of the underlying common stock on the date of grant. No new stock options were
granted during the six months ended December 31, 2005.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date consistent with the provisions of SFAS 123,
the Company's net loss would have been reduced to the pro forma amounts
indicated below:
2005 2004
---------- ---------
Net loss as reported $(843,262) (529,451)
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects - (64,205)
---------- ---------
Net loss pro forma (843,262) (593,656)
========== =========
Loss per share:
Basic and diluted - as reported $ (0.01) -
========== =========
Basic and diluted - pro forma $ (0.01) -
========== =========
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Intrepid
Technology and Resources, Inc. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Reclassifications
- -----------------
Certain accounts in the 2004 unaudited financial statements have been
reclassified to conform with the presentation in the 2005 unaudited financial
statements.
6
Note 2 - Going Concern
- ----------------------
As of December 31, 2005, the Company has a stockholders deficit, has incurred a
loss, and has negative cash flows from operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company has partially mitigated the Going Concern as a result of entering
into the agreement with Cornell Capital as discussed in the Capital Resources
and Liquidity section below and Management has engaged an investment banking
firm to obtain bond financing under a State of Idaho approved bond inducement
resolution to expand operations and production capabilities. While activities
continue on schedule for this bond financing, there can be no full assurance
that such funds will be available to the Company nor that these efforts will be
successful.
Note 3 - Supplemental Cash Flow Information
- -------------------------------------------
Actual amounts paid for interest and income taxes are approximately as follows:
2005 2004
------ ------
Interest $5,380 2,120
====== ======
Income taxes $ - -
====== ======
During the six months ended December 31, 2005, the Company:
- Issued 545,128 shares of common stock in exchange for accounts payable
and accrued expenses of $21,008.
- Issued 4,545,455 shares of common stock in exchange for long-term debt
of $250,000.
During the six months ended December 31, 2004, the Company issued common stock
in exchange for services, prepaid assets and debt of $541,590.
Note 4 - Standby Equity Distribution Agreement
- ----------------------------------------------
On March 10, 2005, the Company entered into a Standby Equity Distribution
Agreement (SEDA) with Cornell Capital Partners, LP (Cornell). Pursuant to the
SEDA, the Company may, at its discretion, periodically sell to Cornell shares of
common stock for a total purchase price of up to $25 million. For each share of
common stock purchased under the SEDA, Cornell will pay the Company 99% of the
lowest closing bid price of the common stock on the Over-the-Counter Bulletin
Board or other principal market on which the Company's common stock is traded
for the five days immediately following the notice date. Cornell will retain 5%
of each advance under the SEDA.
7
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 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, 2005.
RESULTS OF OPERATIONS
- ---------------------
REVENUE
Revenue for the quarter ended December 31, 2005, increased 104% to $120,299
compared to $58,870 for the same period of 2004. Revenue for the six months
ended December 31, 2005, increased 77% to $261,288 compared to $147,773 for the
same six months ended December 31, 2004. This increase for both the three and
six months ended December 31, 2005 was mainly the result of increased sales of
contracted "work for others" over the corresponding periods of one year ago. The
Company intends to continue to pursue opportunities for outside contracting at
the Idaho National Laboratory and other government and private facilities to the
extent that these opportunities do not significantly interfere with and the
Company's shift to designing and building of biogas facilities. The Company's
current principal focus is on the Biogas fuels facility, for which revenue will
be minimal until the facility comes on line and is producing biofuels. For
biofuels facilities that the Company designs, constructs and operates for
others, it is anticipated that revenue will be recognized more rapidly, as such
services are provided.
In both three month periods ending December 31, 2005 and 2004, the Company's
primary customers were Idaho National Laboratory ("INL") at Idaho Falls, Idaho
and Oak Ridge Associated Universities (ORAU). INL and ORAU both provided more
than ten percent of the total revenue recognized by the Company in those
periods.
DIRECT OPERATING COSTS
Direct operating costs for the three months ending December 31, 2005 and 2004,
were $129,448 and $55,380 respectively, representing a 134% increase. For the
six months ended December 31, 2005 direct operating costs also increased to
$215,695 from $138,839 in 2004. The increase is due to the increased general
and administrative, research and development costs associated with ongoing
research and optimization activities at the Company's Whitesides Biogas Plant
and design and construction activities at its West Point Biogas Plant. The
Company continues its efforts to reduce direct costs by using less subcontracted
services, eliminating certain rental fees, making better use of supplies, and
exercising better management of direct payroll costs.
GROSS PROFIT
The Company had a gross loss of $9,149 in the quarter ended December 31, 2005
compared to a profit of $3,490 for the same quarter in 2004. For the six
months ended December 31, 2005 the Company had a gross profit of $45,593
compared to $8,934 for the same period in 2004. The overall increased profit
for the six months ending December 31, 2005 is due to increased revenue from the
sales of outside contracted work, but the net loss for the quarter is
8
reflective of the major shift of resources into construction and operation of
the Company-owned Whitesides Biogas Plant and the design and preliminary
development of the Company-owned West Point Biogas Plant.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended December 31, 2005, general and administrative
expenses were $348,436 compared to $275,213 for the same quarter ended December
31, 2004. This 27% increase was the result of increased administrative expenses
beyond those required for the previous engineering services work, adding expense
as the Company increased efforts in expanding the Biogas operations. For the
six months ended December 31, 2005, general and administrative expenses likewise
increased 33% for the same reasons to $677,967 compared to $511,600 for the same
period of 2004.
INTEREST REVENUE
For the three and six months ended December 31, 2005, the Company received no
interest income on investment capital. The Company received $323 and $993 of
interest income on investment capital for the corresponding periods in 2004.
INTEREST EXPENSE
For the three months ended December 31, 2005, the Company had interest expense
of $27,232 compared to $11,883 for the same period ending December 31, 2004.
For the six months ended December 31, 2005 the Company had interest expense of
$78,342 compared to $15,034 for the same period ending December 31, 2004. The
interest expense was for interest paid on the term loan, debentures and interest
accrued on notes payable to others and to officers and employees of the Company.
With the anticipated bond offering to finance the first two biogas facilities,
interest expense is likely to increase in future periods.
NET LOSS
For the three months ended December 31, 2005, the Company had a net loss of
$410,124 compared to a net loss of $283,283 for the same period ended December
31, 2004. For the six months ended December 31, 2005 the Company had a net loss
of $843,262 compared to a net loss of $529,451 for the same period ended
December 31, 2004. In 2004, the loss was due to a significant drop in
engineering contract revenue, while the transition to the biofuels business was
starting up. For 2005, the transition to the new biofuels business accelerated,
but revenue will not be received until the first facility is online and biogas
can be delivered to the customer.
MANAGEMENT'S PLAN OF OPERATION
- ------------------------------
Providing engineering and technical services has been the primary source of
revenue, and hence the primary business focuses, in the past. The Company
expects to continue providing such services in the future, but with decreased
emphasis. In fiscal year 2006, the Company will continue its emphasis on
becoming a significant producer and distributor of biogas products and
facilities. The following discussion provides an overview of our progress in
making the transition from being primarily a provider of engineering services.
The fundamental aspects of the Company's business model are:
- Utilize cutting edge, but established, technology for the production
of biogas from large animal operations
- Utilize off-the-shelf equipment for clean-up of the biogas to meet
pipeline-quality specifications and produce liquid products
- Maintain equity positions on all biogas projects
- Begin operations in known territory (Idaho), and expand into other
western states as resources allow
- Maximize the utilization of our public company status in the financing
of our projects
- Market biogas products to local gas utilities, industrial users, and
transportation users
- Team with experienced companies for the marketing and distribution of
biogas products
9
DEVELOPMENT PLAN
Over the next four years, the Company plans to place 250,000 head of dairy and
beef cattle into biogas production. The Company will design, construct and
operate these facilities consistent with the business model parameters described
above.
The centerpiece of this development plan is an exclusive geographic and
case-by-case national use and marketing agreement for a proprietary anaerobic
digestion technology with several distinct and unique operational advantages
when applied in agricultural settings and that has a successful 5+ year
operational history with both cow and swine waste.
Our goal is to become the premier fully integrated biogas developer in the
United States. Our approach is to use superior technology and know-how to
convert manure waste from dairy and feedlot operations into high BTU biogas that
can be further processed to produce (1) pipeline quality gas for sale to a gas
utility; (2) combustion gas to fuel boilers for processing materials; (3) liquid
natural gas for transportation fuel, peaking, and/or remote community service;
and, eventually, (4) hydrogen to energize fuel cells for transportation and
distributed or non-distributed energy sources. Our range of services includes:
- designing, building, and operating biofuels facilities
- performing value-added processing of raw biogas and residual
products of digestion for various applications
- marketing, transportation and sales of processed gas
ITR currently has an operational biogas production plant in Rupert, Idaho that
processes manure waste from 1000 cows. This plant is a commercial prototype
facility that can be employed to demonstrate the economic viability of the four
product lines listed above. It has been designed and built with a 4x scale-up
capacity to accommodate planned expansion of the dairy on which it is located.
Expansion of the plant will parallel expansion of the dairy and within a year
will accommodate 4500 cows. The primary current focus at the plant is on
producing clean gas for sale to a local gas utility and for providing combustion
gas for heating water for dairy operations. Efforts are also underway to
demonstrate use of biogas to provide process heat for a small-scale biodiesel
facility with the objective of allowing for penetration into the biodiesel
market.
The Development Plan involves discrete projects that will ultimately bring
250,000 Magic Valley dairy cows under production to create the "Magic Valley
Biogas Field" in the Magic Valley area of south-central Idaho. The first
project will provide facilities and infrastructure to process manure from 50,000
dairy cows and will be executed in two distinct phases:
Phase I consists of 10,500 cows located on 2 different dairies and
establishes the west anchor point to the Magic Valley Westside field
as well as expands the Rupert plant to full capacity. Construction
began in CY 2005 and will be complete in CY 2006.
Phase II consists of 40,000 cows located on 3-5 different dairies
(depending on outcomes of individual dairymen's current consolidation
and expansion plans). Design will be initiated in CY 2006 and
construction is anticipated to begin in CY-2007.
This project will be debt financed through the sale of bonds. Capital cost will
be approximately $35 million, the first phase of which will be just over $10
million. These funds will provide for anaerobic digester plants constructed at
participating dairies, gas conditioning clean-up equipment for processing the
raw biogas to pipeline quality standards, and a supporting gas line gathering
system to transport the clean gas to the gas utility distribution system. A
majority of the costs (approximately 70%) is for construction of the digesters.
This project will provide over 1 billion cubic feet of biogas annually, which,
in turn, will yield over 1 million mcf of clean gas for sale to a local gas
utility.
10
ADDITIONAL INFORMATION
The Company also plans to increase sales and expand its engineering and
scientific services base via new customer contracts. Revenue generated will be
used to meet cash flow requirements with any excess being used to support and
develop the Company's biofuels production initiatives.
At the present time the Company does not anticipate paying dividends, cash or
otherwise, on it's Common Stock in the foreseeable future. Future dividends will
depend on earnings, if any, of the Company, its financial requirements and other
factors. The Company's main focus is now in the biofuels market, specifically
the production of biogas. The Company has made two acquisitions for the vertical
integration of the business and the ability to have a ready available access to
sell the gas production into the market place. The Company believes that it has
also taken the proper steps to sell certain assets including the mining and
mineral rights of the Garnett mine in Montana to provide working capital to see
the production through to completion. The Company is currently seeking other
investment capital to support the existing and ongoing operations of the Company
and these projects.
CAPITAL RESOURCES AND LIQUIDITY
As the Company expands into the biofuels business, it will face continuing
challenges to finance this growth. This is particularly true of Phase I of the
Magic Valley development projects described above. To obtain the funds necessary
to complete these capital assets, the Company is in the process of obtaining
bond financing. It is anticipated that approximately $10 million will be made
available for these design and construction efforts. This debt will be payable
over a 15 year period, starting after the anticipated commencement of full
operations at these two facilities. Management believes that these funds will be
adequate to complete these facilities.
In addition to the capital expenditures for these first facilities, financing
resources are needed to support operations. The Company has made reasonable
efforts to meet cash flow demands from ongoing operations but the Company still
may not always be able to obtain funds under the Standby Equity Distribution
Agreement (SEDA) or obtain sufficient amounts to satisfy the Company's working
capital or other capital needs. The Company finished the quarter ended December
31,2005 with cash available of $59,664 compared to $65,737 at June 30, 2005 The
Company believes that it will be necessary to continue to supplement the cash
flow from operations with the use of outside resources such as investment
capital by issuance of debenture notes and stock. The Company plans to use any
additional funding to assist in the Biogas production facility that is
considered construction in progress, a component of Property, plant and
equipment, net, on the balance sheet.
As of December 31, 2005, the Company had negative working capital of $718,789
compared to a deficit of $599,197 as of June 30, 2005. The current ratio at
December 31, 2005 was: 0.23:1 and 0.30:1 at June 30, 2005. This increased
deficit is due primarily to long-term debt related to construction expenses on
the WestPoint Biogas Plant.
On November 30, 2005, the Company signed an unsecured Promissory Note with Zions
First National Bank in the amount of $100,000. The note has a fixed rate of
8.00% and matures on March 5, 2006. A portion of the proceeds of this note were
used to pay off the Company's existing US Bank term loan balance of $91,338.52.
As of December 31, 2005, the Promissory Note was in good standing. The Company
also signed Promissory Notes in the amount of $75,000 each with two private
individuals on October 31, 2005. These 8% APR notes are secured by the
equipment owned by the Company at its Whitesides Biogas Facility and mature on
March 1, 2006. In addition, the Company 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: Mr. Kenoyer has
made two loans to the company and as of December 31, 2005, the total balance due
him was $25,911. The first loan accrues interest at the rate of 10 percent and
has a balance of $438. The second accrues interest at the rate of 7 percent and
has a balance of $24,373. Mr. Dustin has also made two loans to the company and
as of December 31, 2005, the total balance due him was $49,509. The first loan
accrues interest at the rate of 10 percent and has a balance of $16,835. The
second accrues interest at the rate of 7 percent and has a balance of $32,118.
During the six months ended December 31, 2005, the Company used net cash of
$698,099 for operating activities, compared to $434,962 of net cash used in
operating activities for the 2004 period. The increase of cash used by
11
operating activities is mainly the result of increased general and
administrative and research and development expenses, and bond offering costs
for construction projects.
During the six months ended December 31, 2005, the Company used $326,384 in
investing activities, primarily in adding equipment for the initial biogas
generating facility, compared to $562,578 used in the year earlier period.
During the six months ended December 31, 2005, financing activities provided
$1,018,410 in net cash, consisting of $1,012,848 net of costs from the issuance
of common stock, plus $921,033 additional long-term debt, offset in part by
payments on long-term debt of $859,471. In the comparable period for 2004, the
Company had $1,059,451 of net cash provided by financing activities, which
consisted of $428,832 in proceeds from stock sales and $622,476 additional
long-term debt, offset in part by $26,857 payments on long-term debt.
Debenture Debt
- ---------------
The Company issued convertible debentures to Cornell Capital Partners, LP in the
original principal amount of $750,000 in October 2004. The debentures are
convertible at the holder's option any time up to maturity at a fixed conversion
price of $.055 per share. The debentures are secured by the assets of the
Company. The debentures have a three-year term and accrue interest at 5% per
year. At maturity, October 14, 2007, if not repaid, the debentures will
automatically convert into shares of common stock at a fixed conversion price of
$.055 per share. As of December 31, 2005 $250,000 of the debenture has been
converted.
Standby Equity Distribution Agreement.
- ----------------------------------------
The Company has a Standby Equity Distribution Agreement (SEDA) with Cornell
Capital Partners LP. Under this agreement, the Company has issued 22,517,955
shares, plus an initial issuance of $500,000 worth of the Company's stock as a
commitment fee for this commitment. Under this agreement, the Company may issue
stock worth up to $25,000,000, through March 2007. As of December 31, 2005, an
additional $23,000,000 was potentially available under this agreement. It is
the Company's intent to utilize this relationship only to the extent necessary
to finance the transition of the Company's operations to the biofuels business.
Seasonal Changes - The Company's operating revenue is generally not affected by
- -----------------
seasonal changes.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs -
an amendment of ARB No. 43, Chapter 4", SFAS No. 152, "Accounting for Real
Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and
67", SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB
Opinion No 29", and SFAS No. 154, "Accounting Changes and Error Corrections - a
replacement of APB Opinion No. 20 and FASB Statement No. 3", were recently
issued. SFAS No 151, 152, 153, and 154 have no current applicability to the
Company or their effect on the financial statements would not have been
significant.
In December 2004, the FASB issued SFAS 123 (revised 2004), "Accounting for Stock
Based Compensation." This statement supersedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees." This revised statement establishes standards
for the accounting of transactions in which an entity exchanges its equity
instruments for goods and services, including the grant of stock options to
employees and directors. The Statement is effective for periods beginning after
June 15, 2005, and will require the Company to recognize compensation cost based
on the grant date fair value of the equity instruments its awards. The Company
currently accounts for those instruments under the recognition and measurement
principles of APB Opinion 25, including the disclosure-only provisions of the
original SFAS 123. Accordingly, no compensation cost from issuing equity
instruments has been recognized in the Company's financial statements. The
Company estimates that the required adoption of SFAS 123 (R) will not have a
negative impact on its consolidated financial statements.
RISK FACTORS
12
The Company's current and 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 and implementation of the digester
project 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 may not be successful in these efforts.
Our operating results are difficult to predict in advance and may fluctuate
significantly, and a failure to meet the expectations of analysts or our
stockholders would likely result in a substantial decline in our stock price.
Factors that are likely to cause our results to fluctuate include the following:
- - the amount and timing of our operating expenses and capital expenditures;
- - the success or failure of the alternative energy and biofuels projects
currently underway;
- - the timing, rescheduling or cancellation of engineering customer's work
orders;
- - our ability to specify, develop, complete, introduce and market biofuels and
bring them to volume production in a timely manner;
- - the rate of adoption and acceptance of new industry standards in our target
markets;
- - any other unforeseen activities or issues.
There is a limited public market for our common stock. Our common stock is
listed on the OTC Bulletin Board, and there is a limited volume of sales, thus
providing a limited liquidity into the market for our shares. As a result of the
foregoing, stockholders may be unable to liquidate their shares.
We are subject to various risks associated with the development of the biofuels
and alternative energy market place and if we do not succeed our business will
be adversely affected.
Our performance will largely depend on our ability to develop and implement the
anaerobic digester and generate energy and gas to sell. We intend to respond to
technological advances and emerging industry standards and practices on a timely
and cost-effective basis however, we cannot predict if we will be effective or
succeed in the development of the biofuels and alternative energy markets. If
we are unable, for technical, legal, financial or other reasons, to adapt in a
timely manner to develop and operate in the biofuels market, our business,
results of operations and financial condition could be materially adversely
affected.
If we need additional financing, we may not be able to raise further financing
or it may only be available on terms unfavorable to us or to our stockholders.
Available cash resources may not be sufficient to meet our anticipated working
capital and capital expenditure requirements, if the anaerobic digester does not
produce revenue for at least 12 months. It may become necessary to raise
additional funds to respond to business contingencies, which could include the
need to:
- - fund additional project expansion for the biofuels production;
- - fund additional marketing expenditures;
- - develop additional alternative energy projects or enhance the WOBF gas
products;
- - enhance our operating infrastructure;
- - hire additional personnel;
- - acquire other complementary businesses or technologies.
If we raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders would be reduced, and
these newly issued securities might have rights, preferences or privileges
senior to those of existing stockholders. Additional financing might not be
available on terms favorable to us, or at all. If adequate funds were not
available or were not available on acceptable terms, our ability to fund our
13
operations, take advantage of unanticipated opportunities, develop or enhance
our products or otherwise respond to competitive pressures would be
significantly limited.
ITEM 3. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-14(c) promulgated 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 principal executive officer and
principal financial officer concluded that enhancements could be made to improve
our disclosure controls and procedures to provide more effective alerting on a
timely basis to material information relating to our Company (including its
consolidated subsidiaries) required to be included in our reports filed or
submitted under the Exchange Act. Accordingly, management has implemented and
continues to implement procedural changes to improve internal controls.
(b) These changes (including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal controls over financial
reporting are not considered so significant as to be materially affected or that
could materially affect these internal controls over financial reporting.
14
PART II OTHER INFORMATION
-------------------------
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on December 2, 2005. On the
record date of October 7, 2005, there were 151,809,530 shares of common voting
stock. At the meeting, Jacob D. Dustin, Dennis D. Keiser, William R. Myers,
Michael W. Parker, D. Lynn Smith, and Steven Whitesides were elected to serve as
directors of the Company for the next year, and the appointment of Jones Simkins
PC as independent auditors for the year ending June 30, 2006 was ratified.
The voting on such items was as follows:
Election of Directors
DIRECTOR'S NAME FOR AGAINST WITHHELD AUTHORITY
- ------------------ ---------- ------- ------------------
Dennis D. Keiser 20,414,142 361,915 29,417
Jacob D. Dustin 16,780,951 423,563 9,574
Michael F. LaFleur 12,375,107 520,986 71,685
William R. Myers 14,474,384 580,947 65,185
D. Lynn Smith 15,148,697 493,447 56,335
Steven Whitesides 18,652,372 364,934 14,339
John W. Brockage 9,323,704 730,897 144,168
Michael W. Parker 19,472,818 547,512 121,985
(2) Ratify Appointment of Independent Auditors of Jones Simkins PC.
FOR AGAINST WITHHELD AUTHORITY
----------- ------- ------------------
130,495,970 0 940,711
Approximately 87% of the total voting shares were voted.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS
- --------------------------------------------------------------------------------------------------------------
Exhibit Description Incorporated by Reference from
No. Registrant's
- --------------------------------------------------------------------------------------------------------------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer March 10, 2005
- --------------------------------------------------------------------------------------------------------------
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
by Vice-President, Secretary and Treasurer March 10, 2005
- --------------------------------------------------------------------------------------------------------------
32 Certification pursuant to 18 U.S.C. SECTION 1350 by Chairman and
Chief Executive Officer and Vice-President, Secretary and Treasurer March 10, 2005
- --------------------------------------------------------------------------------------------------------------
15
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTREPID TECHNOLOGY & RESOURCES, INC.
(Registrant)
Date: February 14, 2006 By: /s/ Dr. Dennis D. Keiser,
-------------------------
Chief Executive Officer & President
-----------------------------------
& Acting Chief Financial Officer
--------------------------------
Date: February 14, 2006 By: /s/ Dr. Jacob D. Dustin,
------------------------
Vice President, Secretary, and Treasurer
----------------------------------------
16