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 March 31, 2006
[_] 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:
216,834,980 shares of common stock, $0.005 par value per share, as of May 9,
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 . . . . . . . . 8
Results of Operations. . . . . . . . . . . . . . . . 8
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.. . . . . . . . . . . . . . . . . . . . . . 15
Signature Page . . . . . . . . . . . . . . . . . . . 16
Certifications . . . . . . . . . . . . . . . . . . . 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTREPID TECHNOLOGY & RESOURCES, INC.
-------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MARCH 31, JUNE 30,
2006 2005
(UNAUDITED) (AUDITED)
------------ -----------
ASSETS
- ------
Current Assets:
Cash $ 276,749 $ 65,737
Accounts receivable, net 39,646 98,434
Prepaid expenses 42,095 85,639
Bond offering costs 57,542 --
Other assets 945 1,600
------------ -----------
Total current assets 416,977 251,410
Property, plant, and equipment, net 1,487,672 952,742
------------ -----------
Total Assets $ 1,904,649 $1,204,152
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 136,832 $ 148,419
Accrued expenses 251,162 258,627
Related party notes payable -- 60,613
Current portion of long term debt 879,256 382,948
------------ -----------
Total current liabilities 1,267,250 850,607
Long-term debt -- 830,317
------------ -----------
Total liabilities 1,267,250 1,680,924
------------ -----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock $1par value, 5,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, $.005 par value, 350,000,000 shares
authorized, 188,805,116 and 137,694,025 shares
issued and outstanding, respectively 944,025 688,470
Additional paid-in capital 7,186,200 4,998,505
Stock subscription receivable (16,200) (16,200)
Accumulated deficit (7,476,626) (6,147547)
------------ -----------
Total stockholders' equity (deficit) 637,399 (476,772)
------------ -----------
Total Liabilities and Stockholders' Equity (Deficit)
$ 1,904,649 $1,204,152
============ ===========
<FN>
The accompanying notes are an integral part of these financial statements.
3
INTREPID TECHNOLOGY & RESOURCES, INC.
-------------------------------------
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
2006 2005 2006 2005
------------- ------------- ------------- -------------
Revenue, net $ 97,592 $ 39,287 $ 358,880 $ 187,060
Costs of revenue 73,049 46,565 288,744 185,403
------------- ------------- ------------- -------------
Gross profit (loss) 24,543 (7,278) 70,136 1,657
Operating expenses:
General and administrative 415,399 355,136 1,093,366 866,736
Research and development 74,927 -- 207,473 --
------------- ------------- ------------- -------------
Loss from operations (465,783) (362,414) (1,230,703) (865,079)
Other income (expense)
Interest income 12 1 12 993
Interest expense (20,046) (3,599) (98,388) (18,633)
Loss on investments -- -- -- (12,744)
------------- ------------- ------------- -------------
Loss before provision for income taxes (485,817) (366,012) (1,329,079) (895,463)
Provision for income taxes -- -- -- --
------------- ------------- ------------- -------------
Net loss $ (485,817) $ (366,012) $ (1,329,079) $ (895,463)
============= ============= ============= =============
Net loss per common share - basic and diluted $ -- $ -- $ (0.01) $ (0.01)
============= ============= ============= =============
Weighted average common shares - basic and diluted 172,218,000 136,622,000 157,169,000 120,280,000
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements
4
INTREPID TECHNOLOGY & RESOURCES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 2006 AND 2005
2006 2005
------------ -----------
Cash flows from operating activities:
- -------------------------------------
Net loss $(1,329,079) $ (895,463)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock compensation expense 100,144 72,023
Depreciation 42,022 23,393
Interest expense on debentures 22,781 --
Loss on investment -- 17,794
(Increase) decrease in:
Accounts receivable 58,788 145,655
Prepaid expenses 43,544 (20,757)
Bond offering costs (57,542) --
Other assets 655 --
Increase (decrease) in:
Accounts payable (8,585) 1,021
Accrued expenses 10,541 51,373
------------ -----------
Net cash used in operating activities (1,116,731) (604,961)
------------ -----------
Cash flows from investing activities:
- -------------------------------------
Purchase of property and equipment (576,952) (660,625)
------------ -----------
Net cash used in investing activities (576,952) (660,625)
------------ -----------
Cash flows from financing activities:
- -------------------------------------
Proceeds from long-term debt 1,102,681 622,476
Payments on long-term debt (1,109,471) (38,853)
Payments on related party notes payable (60,613) --
Issuance of common stock 2,087,848 522,672
Common stock offering costs (115,750) --
Payments received from stock subscription receivable -- 35,000
------------ -----------
Net cash provided by financing activities 1,904,695 1,141,295
------------ -----------
Increase (decrease) in cash 211,012 (124,291)
Cash, beginning of period 65,737 134,856
------------ -----------
Cash, end of period $ 276,749 $ 10,565
============ ===========
<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 nine months ended March 31, 2006.
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 for the nine months ended March 31, 2006 would have been
reduced to the pro forma amounts indicated below:
2006 2005
------------ -----------
Net loss as reported $(1,329,079) (895,463)
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects - (195,988)
------------ -----------
Net loss pro forma $(1,329,079) (1,091,451)
============ ===========
Loss per share:
Basic and diluted - as reported $ (0.01) (0.01
============ ===========
Basic and diluted - pro forma $ (0.01) (0.01)
============ ===========
Effective July 1, 2006 (the beginning of the Company's next fiscal year), the
Company will be required to adopt SFAS 123R to account for its stock based
compensation. The Company plans to adopt the "modified prospective method" of
SFAS 123R. The impact of the adoption of this standard will depend on the amount
of stock options that the Company issues in the future, however, it is not
expected to have a significant effect on operations.
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
- -----------------
6
Certain accounts in the 2005 unaudited financial statements have been
reclassified to conform to the presentation in the 2006 unaudited financial
statements.
Note 2 - Going Concern
- ----------------------
As of March 31, 2006, 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 Note 4 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:
2006 2005
------- ---------
Interest $ 26,469 1,834
======== ========
Income taxes $ - -
======== ========
During the nine months ended March 31, 2006, the Company:
- Issued 545,128 shares of common stock in exchange for accounts payable
and accrued expenses of $21,008.
- Issued 6,363,637 shares of common stock in exchange for long-term debt
of $350,000.
During the nine months ended March 31, 2005, the Company issued common stock in
exchange for services, prepaid assets and debt of $587,023.
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 March 31, 2006, increased 148% to $97,592 compared
to $39,287 for the same period of 2005. Revenue for the nine months ended
March 31, 2006, was $358,880 compared to $187,060 for the same nine months ended
March 31, 2005. This increase for both the three and nine months ended March
31, 2006 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 March 31, 2006 and 2005, 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 March 31, 2006 and 2005, were
$73,049 and $46,565 respectively, representing a 57% increase. For the nine
months ended March 31, 2006 direct operating costs also increased to $288,744
from $185,403 in 2005. 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 profit of $24,543 in the quarter ended March 31, 2006
compared to a loss of $7,278 for the same quarter in 2005. For the nine months
ended March 31, 2006 the Company had a gross profit of $70,136 compared to
$1,657 for the same period in 2005. The overall increased profit for the nine
months ending March 31, 2006 is due to increased revenue from the sales of
outside contracted work.
8
GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended March 31, 2006, general and administrative expenses
were $415,399 compared to $355,136 for the same quarter ended March 31, 2005.
This 17% increase was the result of increased administrative expenses beyond
those required for the previous engineering services work, and adding expense as
the Company increased efforts in expanding the Biogas operations. For the nine
months ended March 31, 2006, general and administrative expenses likewise
increased 26% for the same reasons to $1,093,366 compared to $866,736 for the
same period of 2005.
INTEREST INCOME
For the three and nine months ended March 31, 2006, the Company received $12 and
$12 respectively on investment capital. The Company received $1 and $993 of
interest income on investment capital for the corresponding periods in 2005.
INTEREST EXPENSE
For the three months ended March 31, 2006, the Company had interest expense of
$20,046 compared to $3,599 for the same period ending March 31, 2005. For the
nine months ended March 31, 2006 the Company had interest expense of $98,388
compared to $18,633 for the same period ending March 31, 2005. The interest
expense was for interest paid on the term loan, debentures and 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 March 31, 2006, the Company had a net loss of
$485,817 compared to a net loss of $366,012 for the same period ended March 31,
2005. For the nine months ended March 31, 2006 the Company had a net loss of
$1,329,079 compared to a net loss of $895,463 for the same period ended March
31, 2005. In 2005, the loss was due to a significant drop in engineering
contract revenue, while the transition to the biofuels business was starting up.
For 2006, 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.
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 1,000 cows. This plant is a commercial prototype
facility that can be employed to demonstrate the economic viability of the four
product lines listed above. The plant is currently undergoing a 5-fold
expansion to keep pace with the parallel expansion of the dairy and will be
complete by the fall of 2006. 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.
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 is expected to 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 financed through a combination of debt and equity with the
debt portion coming through the sale of bonds and the equity from a combination
of capital obtained through the Standby Equity Distribution Agreement (see Note
4 above), outside equity investment and from profits on future revenues.
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 its 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 ready available access to
sell the gas production into the market place. The Company is also in the final
stages of divesting its interests in the mining and mineral rights in the
Garnett mine in Montana. The terms of the proposed Agreement provide the
Company with a 1st lien on any minerals mined from the property until the amount
owed to the Company is paid in full. Any proceeds realized as a result of this
Agreement will be used to provide additional working capital. 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 $7 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 March
31, 2006 with cash available of $276,749 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 March 31, 2006, the Company had negative working capital of $850,273
compared to a deficit of $599,197 as of June 30, 2005. The current ratio at
March 31, 2006 was: 0.33:1 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 had a fixed rate of
8.00% and was paid in full on March 3, 2006. 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 were paid in full on March 28, 2006. The Company also
paid off its unsecured shareholder notes payable from certain officers,
employees or directors on March 28, 2006. The first shareholder creditor, Mr.
Kenoyer, made two loans to the company. The first loan accrued interest at the
rate of 10 percent and the second at 7 percent. The combined principle and
interest for both loans was $24,774. The second shareholder creditor, Mr.
Dustin, also made two loans to the company. The first accrued interest at 10
percent and the second at 7 percent. The combined principle and interest for
both of Mr. Dustin's loans was $47,426. Payment of these obligations has
significantly reduced the Company's long term debt.
During the nine months ended March 31, 2006, the Company used net cash of
$1,116,731 for operating activities, compared to $604,961 of net cash used in
operating activities for the 2005 period. The increase of cash used by
operating activities is mainly the result of increased general and
administrative and research and development expenses, and bond offering costs
for construction projects.
11
During the nine months ended March 31, 2006, the Company used $576,952 in
investing activities, primarily in biogas generating facility construction
costs, compared to $660,625 used in the year earlier period.
During the nine months ended March 31, 2006, financing activities provided
$1,904,695 in net cash, consisting of $2,087,848 net of costs from the issuance
of common stock, offset in part by payments on long-term debt of $1,109,471, on
related party notes payable of $60,613, and common stock offering costs of
$115,750. In the comparable period for 2005, the Company had $1,141,295 of net
cash provided by financing activities, which consisted of $522,672 in proceeds
from stock sales, $35,000 from the net change of stock subscriptions, and
$622,476 net of costs from debenture sales, offset by payments on long-term debt
of $38,853.
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 March 31, 2006 $350,000 of the debenture had been
converted. On April 13, 2006 Cornell converted an additional $200,000 and on
April 18, they converted the remaining $200,000 balance thus liquidating that
debt.
Standby Equity Distribution Agreement.
- ----------------------------------------
The Company has a Standby Equity Distribution Agreement (SEDA) with Cornell
Capital Partners LP. As of March 31, 2006 the Company has issued 41,559,383
shares under this agreement, 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
March 31, 2006 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 2005, the FASB issued SFAS 123 (revised 2005), "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 the Company's fiscal
year beginning July 1, 2006, 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.
12
RISK FACTORS
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 biogas field concept and generate gas and fiber co-products
for sale. 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
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all. If adequate funds were not available or were not available on acceptable
terms, our ability to fund our 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.
None
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 May 9, 2006
- --------------------------------------------------------------------------------------------------------------
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
by Vice-President, Secretary and Treasurer May 9, 2006
- --------------------------------------------------------------------------------------------------------------
32 Certification pursuant to 18 U.S.C. SECTION 1350 by Chairman and
Chief Executive Officer and Vice-President, Secretary and Treasurer May 9, 2006
- --------------------------------------------------------------------------------------------------------------
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: May 9, 2006 By: /s/ Dr. Dennis D. Keiser,
-------------------------
Chief Executive Officer &
-------------------------
President & Acting Chief
------------------------
Financial Officer
-----------------
Date: May 9, 2006 By: /s/ Dr. Jacob D. Dustin,
------------------------
Vice President, Secretary,
--------------------------
and Treasurer
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16