<PAGE>
Page 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT No. TWO
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from January 1, 1996 to September 30,
1996
Commission File No. 0-19260
RENTECH, INC.
(Name of small business issuer in its charter)
Colorado 84-0957421
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1331 17th Street, Suite 720
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 298-8008
Securities registered under Section 12(b) of the Exchange
Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of Class)
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 / /.
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. / X /
The issuer's revenues for its most recent fiscal year were
$295,176.
The aggregate market value of voting stock held by nonaffiliates
of the registrant as of October 21, 1997 was $44,720,670 based upon
the average bid and asked prices of such stock on that date.
The number of shares outstanding of each of the issuer's classes
of common equity, as of October 21, 1997 - common stock - 29,208,268.
This amendment adds, as part of Part III, Item 13, a
continuation of Note 6 to the financial statements as well as
exhibits.
Transitional Small Business Disclosure Format. Yes / /
No / X /
This report consists of 22 pages, including one page
constituting the cover page.<PAGE>
<PAGE>
Page 2
Part III, Item 13, Exhibits and Reports on Form 8-K.
(a) The following financial statements, as amended, are filed as
a part of this report:
Financial Statements for the Periods Ended September 30, 1996
and December 31, 1995:
Report of Independent Certified Public Accountants
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Summary of Accounting Policies
Notes to Financial Statements, as amended in Note 6
Signatures
In accordance with the requirements of Section 13 or 15(d) 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.
RENTECH, INC.
(Signature)
By: ----------------------------------
Date: December 2, 1997 James P. Samuels, Vice President
- Finance and Chief Financial
Officer
<PAGE>
<PAGE>
PAGE 3
Report of Independent Certified Public Accountants
Stockholders and Board of Directors
Rentech, Inc.
Denver, Colorado
We have audited the accompanying balance sheets of Rentech, Inc.
(the "Company") as of September 30, 1996 and December 31, 1995, and
the related statements of operations, stockholders' equity and cash
flows for the nine months ended September 30, 1996 and for the year
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the
Company as of September 30, 1996 and December 31, 1995 and the
results of its operations and its cash flows for the nine months
ended September 30, 1996 and for the year ended December 31, 1995,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered
recurring losses from operations that raise substantial doubt about
its ability to continue as a going concern. Management's plans in
regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
BDO Seidman, LLP
December 2, 1996
Denver, Colorado<PAGE>
<PAGE>
PAGE 4
Rentech, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- ---------
Assets
<S> <C> <C>
Current:
Cash $ 210,486 $ 15,908
Restricted cash (Note 8) 25,000 25,000
Accounts receivable, net of no allowance
for doubtful accounts 198,457 237,070
Property tax receivable 71,813 -
Stock subscription receivable 50,000 -
Advances and other current assets 23,511 4,272
----------- ----------
Total current assets 579,267 282,250
----------- ----------
Equipment -
Equipment, net of accumulated depreciation
of $94,620 and $75,744 57,156 76,032
----------- ----------
Other:
Licensed technology, net of accumulated
amortization of $715,464 and $543,907 (Note 4) 2,715,684 2,887,241
Synhytech plant held for sale (Note 4) 99,500 199,500
Deposits and other 7,276 9,709
----------- ----------
Total other assets 2,822,460 3,096,450
----------- ----------
$ 3,458,883 $3,454,732
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 53,948 $ 620,255
Accrued liabilities 68,759 50,154
----------- ----------
Total current liabilities 122,707 670,409
----------- ----------
Commitments (Note 8)
Stockholders' Equity (Note 6)
Preferred stock - $10 par value; 1,000,000 shares
authorized; none issued and outstanding - -
Common stock - $.01 par value; 100,000,000 shares
authorized; 14,975,116 and 9,956,868 shares issued
and outstanding 149,748 99,567
Additional paid-in capital 10,888,152 9,994,002
Accumulated deficit (7,701,724) (7,309,246)
----------- ----------
Total stockholders' equity 3,336,176 2,784,323
----------- ----------
$ 3,458,883 $3,454,732
=========== ==========
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
<PAGE>
PAGE 5
<TABLE>
Rentech, Inc.
Statements of Operations
<CAPTION>
Nine
Months Ended Year Ended
September 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Contract revenues (Note 3) $ 55,176 $ 970,814
License fees 240,000 -
Other - 11,819
----------- -----------
Total revenues 295,176 982,633
----------- -----------
Cost of contracts (Note 3) 29,463 1,381,301
----------- -----------
Gross profit (loss) 265,713 (398,668)
----------- -----------
Operating expenses:
General and administrative expense 629,079 991,487
Loss on disposition of subsidiary (Note 2) - 500,908
Depreciation and amortization 190,433 256,162
----------- -----------
Total operating expenses 819,512 1,748,557
----------- -----------
Loss from operations (553,799) (2,147,225)
----------- -----------
Other income (expense):
Gain (loss) on sale of assets (Note 4) 3,140 (240,329)
Write-down of Synhytech plant held
for sale (Note 4) (100,000) -
Loss on investment (Note 5) - (75,000)
Other income 71,813 -
Interest income 3,593 18,528
Interest expense (17,659) (8,797)
----------- -----------
Total other income (expense) (39,113) (305,598)
----------- -----------
Loss before extraordinary item (592,912) (2,452,823)
Extraordinary gain from debt extinguishment,
net of $0 income tax expense 200,434 -
----------- -----------
Net loss $ (392,478) $(2,452,823)
=========== ===========
Loss per common share:
Loss before extraordinary item $ (.06) $ (.25)
Extraordinary gain .02 -
----------- -----------
Net loss $ (.04) $ (.25)
Weighted-average number of shares outstanding 10,401,922 9,956,868
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
<PAGE>
<PAGE>
PAGE 6
Rentech, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996
and for the Year Ended December 31, 1995
Foreign
Additional Currency
Common Stock Paid-In Accumulated Treasury Translation
Shares Amount Capital Deficit Stock Adjustment
---------- --------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 9,956,868 $ 99,567 $ 9,920,502 $ (4,856,423) $ (1,500) $ (5,550)
Common stock issued
from treasury for
settlement of note
payable 1,500
Foreign currency trans-
lation adjustment 5,550
Net loss (2,452,823)
---------- --------- ------------ ------------ -------- --------
Balances, December 31, 1995 9,956,868 99,567 9,994,002 (7,309,246) -0- -0-
Common stock issued for
conversion of notes
payable, net of offering
costs 3,993,426 39,934 653,990
Common stock issued for
cash 100,000 1,000 49,000
Common stock issued for
services 813,681 8,137 158,988
Common stock issued for
settlement of accounts
payable 111,141 1,110 32,172
Net loss (392,478)
---------- --------- ------------ ------------ -------- --------
Balances, September 30, 1996 14,975,116 $ 149,748 $ 10,888,152 $ (7,701,724) $ -0- $ -0-
========== ========= ============ ============ ========= =========
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
<PAGE>
<PAGE>
PAGE 7
Rentech, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1996 1995
---------- -------------
<S> <C> <C>
Increase (Decrease) in Cash
Operating activities:
Net loss $ (392,478) $ (2,452,823)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 18,876 29,563
Amortization 171,557 289,353
Bad debt expense - 103,930
Write-down of Synhytech plant held for sale 100,000 -
Loss on disposition of subsidiary - 500,908
Loss on investment - 75,000
(Gain) loss on sale of assets (3,140) 240,329
Stock issued for services 152,125 -
Changes in operating assets and liabilities:
Restricted cash - 25,000
Accounts receivable 38,613 (237,070)
Property tax receivable (71,813) -
Advances and other current assets (4,239) 12,832
Accounts payable (533,025) 244,375
Accrued liabilities 30,290 24,354
Billings in excess of costs and estimated
earnings on uncompleted contracts - (109,393)
---------- -------------
Net cash used in operating activities (493,234) (1,253,642)
Investing activities:
Proceeds from sale of assets 3,140 223,620
Purchase of equipment - (6,480)
Receipts for deposits and other assets 2,433 3,630
---------- -------------
Net cash provided by investing activities 5,573 220,770
---------- -------------
Financing activities:
Proceeds from issuance of common stock 50,000 -
Proceeds from non-subordinated notes payable 798,750 -
Payment for offering costs (104,761) -
Proceeds from note payable - 158,063
Payments on note payable (61,750) -
---------- -------------
Net cash provided by financing activities 682,239 158,063
---------- -------------
Increase (decrease) in cash 194,578 (874,809)
Cash, beginning of period 15,908 890,717
---------- -------------
Cash, end of period $210,486 15,908
========== =============
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
<PAGE>
PAGE 8
Rentech, Inc.
Summary of Accounting Policies
Basis of Presentation
Rentech, Inc. (the "Company") was incorporated on December 18, 1981 in
the state of Colorado to develop and market processes for conversion of
low-value, carbon-bearing solids or gases into valuable liquid
hydrocarbons, including high-grade diesel fuel, naphthas and waxes
("Rentech Technology"). The Company's activities prior to 1994 were
primarily directed toward obtaining financing, licensing its technology
to third parties and completing full-scale plant processing to
demonstrate the Company's technology to prospective licensees. During
1994, the Company entered into contracts to provide basic engineering
design relating to the construction of plants using the Company's gas
conversion technology (See Note 3). In December 1996, the Company
elected to change its year end to September 30.
Cash Equivalents
The Company considers highly liquid debt instruments purchased with
original maturities of three months or less and money market accounts
to be cash equivalents.
Licensed Technology
Licensed technology represents costs incurred by the Company primarily
for the purpose of demonstrating the Company's proprietary technology
to prospective licensees, which it licenses to third parties under
various fee arrangements. These capitalized costs are carried at the
lower of amortized cost or net realizable value and are being amortized
over 15 years. Permanent impairments are evaluated periodically based
upon expected future cash flows in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets."
Synhytech Plant Held for Sale
The Synhytech plant held for sale is recorded at the lower of cost or
net realizable value. Permanent impairments are evaluated periodically
based upon expected future cash flows in accordance with Statements of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets."
Equipment
Equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets, which range from
five to seven years. Maintenance and repairs are expensed as incurred.
Major renewals and improvements are capitalized. When equipment is
retired or otherwise disposed of, the asset and accumulated
depreciation are removed from the accounts and the resulting profit or
loss is reflected in income.
Revenue Recognition
The Company reports its contract revenue on fixed-priced contracts
using the percentage-of-completion method of accounting measured by the
percentage of job costs incurred to date to the latest estimated cost
to complete for each project. Job costs incurred prior to the
Company's entering into a contract are expensed as incurred and
excluded from the percentage-of-completion calculation.
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PAGE 9
Rentech, Inc.
Summary of Accounting Policies
Contract costs include all direct material, labor, travel and other
costs directly related to contracts and indirect costs. Indirect costs
include all other costs indirectly related to contract completion such
as indirect labor, supplies, tools and equipment rental.
Changes in job performance, job conditions, and estimated final
profitability, including final contract settlements that may result in
revisions to costs and earnings are recognized in the period in which
the revisions are determined.
License fees are recognized when the revenue earning activities that
are to be provided by the Company have been performed and no future
obligation to perform services exist.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"). Temporary differences
are differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements that will result in
taxable or deductible amounts in future years.
Net Loss per Common Share
The net loss per share of common stock is determined using the
weighted-average number of shares outstanding during the period.
Options for common stock and warrants are not considered in the
computation of net loss per share as their inclusion would be
antidilutive.
Reclassifications
Certain reclassifications have been made to the 1995 financial
statements in order for them to conform to the 1996 presentation. Such
reclassifications have no impact on the Company's financial position or
results of operation.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations
of credit risk consists primarily of cash and accounts receivable.
The Company's cash is in demand deposit accounts placed with Federally
insured financial institutions. Such deposit accounts at times may
exceed federally insured limits. The Company has not experienced any
losses on such accounts.
Concentrations of credit risk with respect to accounts receivables are
limited due to a few customers dispersed across geographic areas.
<PAGE>
Page 10
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, the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments. Fair value estimates
discussed herein are based upon certain market assumptions and
pertinent information available to management as of September 30, 1996.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash, accounts receivable, accounts payable and
accrued liabilities. Fair values were assumed to approximate carrying
values for these financial instruments since they are short term in
nature and their carrying amounts approximate fair value or they are
receivable or payable on demand.
<PAGE>
PAGE 11
Rentech, Inc.
Notes to Financial Statements
1. Going Concern
The Company has incurred losses since its inception that raise
substantial doubt about its ability to continue as a going concern. In
order to provide operating income, the Company plans to diversify into
other fields. In October 1996 the Company and ITN Energy Systems,
Inc., a Colorado corporation, agreed to form a limited liability
company called ITN/ES LLC to commercially exploit technologies
developed and owned by ITN Energy Systems, Inc. The technologies will
be contributed to the LLC by ITN Energy Systems, Inc., which will be
the manager of the LLC. The technologies and products to be owned by
the LLC include production of thin-film electronic substrates by
deposition upon which computer chips can be mounted; advanced
processes for ceramic deposition on materials to improve their capacity
to withstand heat and ware; and utilization of shape memory alloys that
are highly advanced metals which by the proper application of heat,
cold or electrical impulse can perform a mechanical function with
precision for long period of time. The Company's ownership interest in
the LLC and all of its technologies is to be 10%, subject to
contribution of $200,000 in cash and 1,200,000 shares of Rentech
restricted common stock by February 24, 1997, or, on April 15, 1997
upon contribution of an additional $25,000. The agreement between ITN
Energy Systems, Inc. and the Company recognizes that commercialization
of the technologies already in existence as well as those that may be
developed in the future by ITN/ES LLC may require establishment of
additional business entities. The Company, by mutual agreement, may
provide additional capital to increase its ownership interest up to a
maximum of 49% of each technology in which it invests. The Company
will be entitled to distribution of revenues from the LLC and the
additional business entities in a percentage equal to its ownership
interest.
On December 6, 1996, the Company entered into an agreement to purchase
the assets of Okon, Inc. of Lakewood, Colorado. The Company intends to
use the assets to engage in the business of producing and selling
biodegradable and environmentally clean water-based sealers and stains
for wood, concrete and masonry. The purchase price is $1,300,000 of
which $50,000 has been advanced and $950,000 is to be paid in cash upon
closing and $300,000 is due by the terms of a promissory note. The
note is payable in 12 monthly installments commencing one year after
the closing.
The Company is seeking additional financing to provide for these
acquisitions and near term working capital. The financing alternatives
include private placements of its common stock or other equity interest
in the Company, third-party loans and equity participations, or a
combination of these methods. There are no assurances that any of
these events will occur or that the Company's plan will be successful.
The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
<PAGE>
Page 12
Rentech, Inc.
Notes to Financial Statements
2. Future Fuels
On August 27, 1993, the Company acquired all of the stock of Future
Fuels Pty Limited ("Future Fuels"), an Australian corporation that was
a majority-owned subsidiary of CMPS&F Pty Limited, an Australian
corporation. The acquisition was accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair values at date of acquisition. The excess of cost over
fair value of the net assets acquired was accounted for as goodwill and
was being amortized over a 15-year period.
During the later part of 1995, a dispute arose between Future Fuels and
the Australian joint venture for which Future Fuels was providing
engineering design services as discussed in Note 3. This dispute led
to financial difficulties for Future Fuels which forced Future Fuels to
go into liquidation during the first quarter of 1996. As a result of
Future Fuels going into liquidation, the Company recorded a loss of
approximately $501,000 from its investment in Future Fuels for the year
ended December 31, 1995.
3. Contracts
During June 1994, the Company entered into a contract with a company
incorporated in India to provide basic engineering design and
consulting relating to a plant to be constructed in India to use the
Company's technology. The contract called for $300,000 to be paid to
the Company. The primary work relating to the contract was performed
by Future Fuels and the work was completed during March 1995. For the
year ended December 31, 1995, the Company recognized contract revenue
of $131,666 and incurred direct costs, excluding general and
administrative expenses of the Company, of $67,973.
During February 1996, the Company and Jamike Engineering Pty Ltd,
entered into a second contract with the company incorporated in India
to provide additional engineering design and consulting relating to a
plant to be constructed in India to use the Company's technology for a
gross contract price of approximately $223,000 ($281,600 in Australian
dollars). For the nine months ended September 30, 1996, the Company
recognized contract revenue of $55,176 and incurred direct costs of
$29,463.
During July 1994, Future Fuels entered into a contract with an
Australian joint venture between CMPS&F Pty Limited ("CMPS&F"), a
former stockholder of Future Fuels, and another Australian corporation
(the "JV"). The JV had an underlying contract with the Chinese
government which it entered into for approximately $10,916,000 in gross
revenues over several years. Future Fuels provided basic engineering
design and certain equipment for the gas conversion plant to be located
in the Henan Province, China using the Company's Technology. During
1995, a dispute arose between the JV and Future Fuels. The JV asserted
that Future Fuels breached the contract for failure to timely deliver
the final portion of the basic design documentation and final reports
on a centrifuge test and bubble column reactor test that had been
requested by the JV. Future Fuels asserted that it had delivered all
<PAGE>
PAGE 13
Rentech, Inc.
Notes to Financial Statements
required documentation and reports on a timely basis and that any
documentation or reports provided by Future Fuels later than requested
by the JV, or that had not yet been provided to the JV, are not
required by the contract. The JV's and Future Fuels' assertions led to
the discontinuance of work under the contract. For the year ended
December 31, 1995, the Company recognized contract revenue of $629,735
relating to the contract and had incurred costs of $1,313,328. As of
December 31, 1995, the Company has recorded a loss from this contract
of $683,593.
4. Synhytech Project and Licensed Technology
During 1992, Fuel Resources Development Company ("Fuelco"), a
subsidiary of Public Service Company of Colorado ("PSCo"), completed
construction of a full-scale conversion plant near Pueblo, Colorado.
The facility, called the Synhytech Project, cost approximately $25
million to construct, maintain and operate. The purpose of the
Synhytech Project was to build a plant that would use the Rentech
Technology to convert landfill gas into liquid hydrocarbons.
The Company had an option to purchase and own up to a 15 percent
interest in the Synhytech plant but, during 1991, the Company decided
not to exercise its option to acquire the 15 percent interest in the
Synhytech plant.
In April 1993, the Company and PSCo reached agreement on terms for
transfer of the Synhytech plant to the Company, together with the
separate catalyst manufacturing assets that Fuelco had assembled, and
the related machinery and equipment. The primary motivation for PSCo
to enter into the transfer agreement was the Company's agreement to
release all its claims that PSCo and Fuelco had failed to perform under
its license agreement with the Company to construct a commercial sized
plant that could be operated on a continuous basis.
In exchange for the resolution of all such claims, PSCo, Fuelco and
Synhytech, Inc. had agreed, among other things, to transfer the
Synhytech plant, catalyst plant, related equipment, other related
assets and $650,000 to the Company. The Company also assumed equipment
sublease obligations for various computer equipment, vehicles and other
equipment used with the Synhytech plant. In addition, the Asset
Transfer Agreement provided that Fuelco's 20 percent interest in the
Company's future revenue from royalties and licenses fees from future
Rentech process plants reverted back to the Company.
As a result of the transfer of assets, the Company recorded a gain of
approximately $1,286,000 on the conveyance of the Synhytech assets from
Fuelco to the Company. The gain was based upon the fair market value
of determinable assets conveyed to the Company, including $650,000 in
cash, less acquisition costs of approximately $205,000. With the
technological feasibility having been previously established, the
Company converted and operated the plant for a three-week period in
order to provide prospective licensees with verifiable statistics and
evidence as well as allow observations and provide data on the use of
<PAGE>
PAGE 14
Rentech, Inc.
Notes to Financial Statements
the technology under operating conditions in full-size plant (the
"demonstration run") and to evaluate the plant and its components for
resale to one or more prospective licensees. The Company's conversion
of the plant commenced during early 1993, and its demonstration run was
successfully completed during the summer of 1993. There were no
problems relating to or in determining the technological
feasibility of the Company's proprietary technology. The cost of the
demonstration run was approximately $3.3 million. The Company expects
to recover the capitalized expenditures from future license and royalty
fees. The plant was then shut down and remained idle. The Company
decided to sell the plant as a whole, except for the buildings, to its
Indian licensee who dismantled the plant and shipped it to India to be
used in a new plant under design for use of the Rentech Technology.
During 1995, the Company sold the plant for $223,620 and recorded a
$244,880 loss from the sale. As of September 30, 1996 and December 31,
1995, the Company has recorded a balance remaining of $99,500 and
$199,500 in the Synhytech plant, which consists of the remaining
buildings.
5. Investment
During 1992, the Company purchased, for $75,000, a two percent interest
in Clean Fuels Development Corporation. During 1995, the Company
determined that its investment was permanently impaired and recorded a
$75,000 loss from its investment.
6. Stockholders' Equity
During January 1996, the Company issued 100,000 shares of common stock
for $50,000 in cash.
During July 1996, the Company issued 487,080 shares of common stock to
reduce the Company's debt of $97,416 to its officers in satisfaction of
all compensation due and unpaid under their employment agreements.
During July 1996, the Company issued 91,046 shares of common stock to
reduce the Company's debt of $18,209 to a director for engineering
consulting services provided to the Company.
During September 1996, the Company issued 120,000 shares of common
stock to reduce the Company's debt of $24,000 to an individual for
commissions associated with the Company's license revenue.
During September 1996, the Company issued 115,555 shares of common
stock to a company for $27,500 in consulting services. Of the
consulting services, $15,000 are prepaid through December 31, 1996.
During September 1996, the Company issued 111,141 shares of common
stock in settlement of $33,282 in accounts payable. Of these shares,
18,724 were issued to a director of the Company.
<PAGE>
PAGE 15
Rentech, Inc.
Notes to Financial Statements
During August 1996, the Company completed the sale of $848,750
non-subordinated 10% promissory notes (the "Notes") convertible into
shares of the Company's common stock at $.20 per share together with
warrants to purchase, at $.25 per share, additional shares of the
Company's common. The Company received net proceeds of $743,989 after
deducting $104,761 in offering costs. During September 1996, the
noteholders elected to convert $787,000 of their notes, including
accrued interest of $11,685, into 3,993,426 shares of the Company's
common stock.
Stock Options
At September 30, 1996, the Company has four stock option plans, which
are described below. The Company applies APB Opinion 25, "Accounting
for Stock Issued to Employees", and related Interpretations accounting
for the plans. Under APB Opinion 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation cost is
recognized.
FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), requires the Company to provide pro forma information
regarding net loss and net loss per share as if compensation costs for
the Company's stock option plans and other stock awards had been
determined in accordance with the fair value based method prescribed in
SFAS No. 123. The Company estimates the fair value of each stock award
at the grant date by using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1996 and
1995, respectively: dividend yield of 0 percent for all years; expected
volatility of 17 and 15 percent; risk-free interest rates of 5.52 and
6.88 percent; and expected lives of one and five years for the Plans
and stock awards.
Under the accounting provisions for SFAS No. 123, the Company's net
loss and net loss per share would have been increased by the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
--------- -------------
<S> <C> <C>
Net loss
As reported $(392,478) $ (2,452,823)
Pro forma $(425,884) $ (2,504,823)
Net loss per share
As reported $ (.04) $ (.25)
Pro forma $ (.04) $ (.25)
</TABLE>
<PAGE>
PAGE 16
Rentech, Inc.
Notes to Financial Statements
During 1996, the Company's board of directors adopted the 1996 Stock
Option Plan which allows the issuance of incentive stock options,
within the meaning of the Internal Revenue Code, and other options
pursuant to the plan that constitute nonstatutory options. The Company
has reserved 500,000 shares of the Company's $0.01 par value common
stock for issuance under the plan. No options were granted under the
plan for the nine months ended September 30, 1996.
During 1994, the Company's board of directors adopted the 1994 Stock
Option Plan which allows for the issuance of incentive stock options,
within the meaning of Internal Revenue Code Section 422. The Company
has reserved 300,000 shares of the Company's $0.01 par value common
stock for issuance under the plan. During 1996 and 1995, the Company
granted 150,000 and 130,000 options to acquire shares of the Company's
$0.01 par value common stock. The options' exercise price was equal to
the common stock's market price at the date of grant. The following
options are outstanding as of September 30, 1996:
<TABLE>
<CAPTION>
Grant Expiration Exercise Options
Date Date Price Granted
----- ---------- -------- -------
<S> <C> <C> <C>
April 7, 1995 April 6, 2000 $ 1.27 130,000
July 15, 1996 September 20, 1997 $ .28 150,000
-------
Options outstanding,
September 30, 1996 280,000
</TABLE>
The Company's board of directors adopted the 1990 Stock Option Plan
which allows for the issuance of incentive stock options, within the
meaning of the Internal Revenue Code, and other options issued pursuant
to the plan that constitute nonstatutory options. Options granted
under the 1990 Stock Option Plan are for shares of the Company's $0.01
par value common stock. The Company has reserved 385,988 shares for
the 1990 Stock Option Plan and the following options are outstanding as
of September 30, 1996:
<TABLE>
<CAPTION>
Grant Expiration Exercise Options
Date Date Price Granted
----- ---------- -------- -------
<S> <C> <C> <C>
September 1, 1991 August 31, 1996 $ 3.60 270,000
May 19, 1993 May 18, 1998 $ 1.88 115,988
Expired options (270,000)
--------
Options outstanding,
September 30, 1996 115,988
</TABLE>
<PAGE>
PAGE 17
Rentech, Inc.
Notes to Financial Statements
During 1995, the Company extended the expiration date of options to
purchase 356,292 shares of the Company's common stock previously
granted to officers and directors. The extension of these options
resulted in no compensation expense in 1995. The following options are
outstanding as of September 30, 1996:
<TABLE>
<CAPTION>
Grant Expiration Exercise Options
Date Date Price Granted
----- ---------- -------- -------
<S> <C> <C> <C>
April 13, 1988 December 31, 1996 $ .5052 178,146
May 2, 1989 March 1, 1997 $ .5052 178,146
-------
Options outstanding,
September 30, 1996 356,292
</TABLE>
The total options outstanding as of September 30, 1996 and December 31,
1995 were 752,280 and 872,280.
During the initial phase-in period of SFAS 123, the effects on pro
forma results are not likely to be representative of the effects on
pro forma results in future years since options vest over several
years and additional awards could be made each year.
A summary of the status of the Company's stock option plans and
outstanding warrants as of September 30, 1996 and December 31, 1995 and
changes during the nine months ended September 30, 1996 and the year
ended December 31, 1995 is presented below.
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of period 3,117,724 $2.65 3,272,474 $2.47
Granted 4,894,000 .25 130,000 1.27
Expired (1,483,444) 3.50 (284,750) ---
Outstanding, end of period 6,528,280 $ .82 3,117,724 $2.65
Options and warrants exercisable,
end of period 6,528,280 $ .82 3,117,724 $2.65
Weighted average fair value of options
and warrants granted during the
period 4,894,000 $ .25 130,000 $1.27
</TABLE>
<PAGE>
PAGE 18
Rentech, Inc.
Notes to Financial Statements
The following table summarizes information about stock options and
warrants outstanding at September 30, 1996:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 09/30/96 Life Price at 09/30/96 Price
-------- ----------- ----------- -------- ----------- ---------
$.25 to $2.91 6,528,280 1 year $.82 6,528,280 $.82
</TABLE>
Warrants
During September 1994, warrants to purchase 2,064,000 shares were
issued in connection with a private offering of the Company's $0.01 par
value common stock. Of the 2,064,000 shares available, 1,032,000
shares are still outstanding and may be purchased for $3.50 per share
through September 18, 1997.
During 1996, the Company issued 4,744,000 warrants to purchase common
stock of the Company at an exercise price of $.25 per share. The
warrants expire on September 20, 1997.
As of September 30, 1996, warrants to purchase a total of 5,776,000
shares of common stock were outstanding.
7. Related Party Transactions
During 1995, a director of the Company provided $11,976 in engineering
consulting services to the Company.
8. Commitments
Employment Agreements
The Company has entered into employment agreements, effective from July
1, 1993 through March 31, 1997 with three of its officers. The
employment agreements, as amended, set forth annual compensation to the
three officers of between $102,000 and $106,000 each. Compensation is
adjusted annually based on the cost of living index.
Profit Sharing Plan
During 1990, the Company adopted a non-qualified profit sharing plan
administered by a committee appointed by the Company's board of
directors. The profit sharing plan allows for current year bonuses of
up to five percent of audited pre-tax earnings before depreciation,
amortization and extraordinary income, if adjusted earnings for the
preceding year exceeds $500,000.
<PAGE>
PAGE 19
Rentech, Inc.
Notes to Financial Statements
Operating Leases
The Company leases office space under a noncancelable lease which
expires during November 1999, and the Company's lease contains a
renewal option for an additional five years. Future minimum lease
payments as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Years ending September 30, Amount
------------------------- --------
<S> <C>
1997 $ 38,700
1998 38,700
1999 38,700
2000 6,450
--------
Total $122,550
</TABLE>
Total lease expense for the nine months ended September 30, 1996 and
for the year ended December 31, 1995, which includes Future Fuels'
lease expenses, was approximately $39,000 and $82,000.
As collateral for the Company's lease, the Company had a $50,000 letter
of credit with a bank in favor of the landlord and has provided a
$50,000 certificate of deposit as of December 31, 1994 as collateral
for the letter of credit. The letter of credit and related collateral
was reduced by one-half during 1995. The letter of credit matured on
November 30, 1996.
9. Income Taxes
There was no provision for income taxes required for the nine months
ended September 30, 1996 and for the year ended December 31, 1995 due
to operating losses in those years.
At September 30, 1996, the Company had available net operating loss
carryforwards and capital loss carryforwards of approximately
$6,103,000 and $152,000 for tax reporting purposes. The operating loss
carryforwards expire through 2011 and the capital loss carryforward
expires in 1999. These carryforwards are subject to various
limitations imposed by the rules and regulations of the Internal
Revenue Service.
There were no tax credits established in the statements of operations
since the Company has a 100 percent valuation allowance for the tax
benefit of net deductible temporary differences and operating loss
carryforwards. Management is not able to determine if it is more
likely than not that the deferred tax assets will be realized.
The Company has deferred tax assets with a 100 percent valuation
allowance at September 30, 1996 and December 31, 1995. The tax effect
on the components is as follows:
<PAGE>
PAGE 20
Rentech, Inc.
Notes to Financial Statements
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Net operating loss carryforwards $ 2,258,000 $1,933,800
Capital loss carryforward 56,100 56,100
Compensation expense for common
stock options and common stock
not allowed for income tax purposes 233,100 197,100
Accruals for financial statement
purposes not allowed for income
taxes - cash basis (63,200) 160,400
Basis difference relating to
licensed technology 157,600 118,500
Basis difference relating to
Synhytech plant held for sale 37,000 -
Other 6,700 -
------------ ----------
2,685,300 2,465,900
Valuation allowance (2,685,300) (2,465,900)
------------ ----------
$ -0- $ -0-
</TABLE>
During the nine months ended September 30, 1996 and the year ended
December 31, 1995, the Company's valuation allowance increased by
$232,700 and $75,500.
10. Extraordinary Gain
For the nine months ended September 30, 1996, the Company recognized a
$200,434 extraordinary gain from extinguishment of accounts payable and
accrued liabilities.
11. Supplemental Data to Statements of Cash Flows
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Cash payments for interest $ 5,974 $ 8,797
</TABLE>
Excluded from the statements of cash flows for the nine months ended
September 30, 1996 and for the year ended December 31, 1995 were the
effects of certain noncash investing and financing activities as
follows:
<PAGE>
PAGE 21
Rentech, Inc.
Notes to Financial Statements
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Issuance of common stock from
treasury for settlement of
note payable $ - $ 75,000
Issuance of common stock for
settlement of non-subordinated
notes payable $ 787,000 $ -
Issuance of common stock for stock
subscription receivable $ 50,000 $ -
Issuance of common stock for
settlements of accounts
payable and accrued expenses $ 44,967 $ -
Issuance of common stock for
prepaid expenses $ 15,000 $ -
</TABLE>
12. Segment and Geographic Information
The Company operates exclusively in the alternative fuels industry.
The Company develops and markets processes for conversion of low-value,
carbon-bearing solids or gases into valuable liquid hydrocarbons.
Financial information, summarized by geographic area, is as follows for
1996 and 1995.
<TABLE>
<CAPTION>
United Intercompany
September 30, 1996 States India Eliminations Consolidated
- ------------------ ----------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenues $ - $ 295,176 $ - $ 295,176
Loss from operations $ (819,512) $ 265,713 $ - $ (553,799)
Identifiable assets $ 3,013,641 $ - $ - $3,013,641
Corporate assets $ 445,242 $ - $ - $ 445,242
Total assets $ 3,458,883 $ - $ - $3,458,883
</TABLE>
<PAGE>
PAGE 22
Rentech, Inc.
Notes to Financial Statements
<TABLE>
<CAPTION>
United Intercompany
December 31, 1995 States Australia Eliminations Consolidated
- ----------------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenues $ 352,898 $ 629,735 $ - $ 982,633
Loss from operations $(1,463,632) $(683,593) $ - $(2,147,225)
Identifiable assets $ 3,323,811 $ - $ - $ 3,323,811
Corporate assets $ 130,921 $ - $ - $ 130,921
Total assets $ 3,454,732 $ - $ - $ 3,454,732
</TABLE>
13. Significant Customers
During 1996, one customer accounted for 100 percent of total
revenues. During 1995, three customers accounted for 65, 22 and 13
percent of total revenues. As of September 30, 1996, one customer
accounted for 100 percent of total accounts receivable. As of December
31, 1995, two customers accounted for 80 and 20 percent of total
accounts receivable.
14. Fourth Quarter Adjustment
During the fourth quarter of 1995, the Company recorded a loss of
approximately $501,000 from its investment in Future Fuels (See Note 2).
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Rentech, Inc.
1331 17th Street, Suite 720
Denver, CO 80202
We consent to the incorporation by reference in Registration Statement
No. 33-90250 of Rentech, Inc. on Form S-8 of our report dated December
2, 1996, appearing in the Transition Report on Form 10-KSB of Rentech,
Inc. for the nine months ended September 30, 1996 and for the year
ended December 31, 1995, and to the reference to us under the heading
"Experts" in the Prospectus, which is part of such Registration
Statement.
BDO Seidman, LLP
January 13, 1996
Denver, Colorado
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at December 31, 1996 and the Statement of Operations for
the 9 months ended September 30, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 210,486
<SECURITIES> 0
<RECEIVABLES> 320,270
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 579,267
<PP&E> 151,776
<DEPRECIATION> 94,620
<TOTAL-ASSETS> 3,458,883
<CURRENT-LIABILITIES> 122,707
<BONDS> 0
0
0
<COMMON> 149,748
<OTHER-SE> 3,186,428
<TOTAL-LIABILITY-AND-EQUITY> 3,458,883
<SALES> 0
<TOTAL-REVENUES> 295,176
<CGS> 0
<TOTAL-COSTS> 29,463
<OTHER-EXPENSES> 819,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,659
<INCOME-PRETAX> (592,912)
<INCOME-TAX> 0
<INCOME-CONTINUING> (592,912)
<DISCONTINUED> 0
<EXTRAORDINARY> 200,434
<CHANGES> 0
<NET-INCOME> (392,478)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
