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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT No. TWO
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] 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 0-19260
RENTECH, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-0957421
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1331 17th Street, Suite 720
Denver, Colorado 80202
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(Address of principal executive offices)
Issuer's telephone number, including area code:
(303) 298-8008
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 .
This report amends Part I, Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
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.
Transitional Small Business Disclosure Format (Check one):
Yes No. X <PAGE>
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations.
For the three and nine months ended June 30, 1997 the Company
recorded net losses of $97,619 and $645,152 compared to net losses of
$101,489 and $1,703,845 for the comparable periods in 1996. The net loss
for the nine months ended June 30, 1996 includes a non-recurring and non-cash
loss of $500,908 resulting from the loss on disposal of Future Fuels,
$732,059 loss associated with the termination of contract work on
the Henan Project in China and a $75,000 loss resulting from the write
off of a stock investment. See the following section entitled "Liquidity
and Capital Resources" for further details regarding the Henan Project
and liquidation of Future Fuels. The comparable losses excluding these
items are $645,152 and $395,878, respectively, for the nine-month periods
ended June 30, 1997 and 1996.
During the three and nine months ended June 30, 1997 the Company had
$608,432 and $718,249 in revenues compared to none and $329,412 for the
comparable 1996 periods. The increased revenues during the 1997 quarters
reflects the acquisition of Okon, Inc. in March 1997. Of the 1997
revenues for the nine month period, $713,000 were attributed to Okon.
Only $5,249 were attributed to Rentech's gas conversion licensing
business, and these revenues were billed to the India project.
Cost of sales were first occurred during the previous quarter due to
the acquisition of Okon, which is engaged in the business of wholesale
sales of stains and sealers.
Cost of contracts decreased to zero during the three and nine months
ended June 30, 1997 compared to zero and $732,059 for the comparable
periods of 1996, reflecting termination of work on the Company's contract
for the Henan Project. The cost of contracts represents the direct costs
associated with the performance of contracts for gas conversion licensing
projects. The contract revenue during 1996 relates to the Henan Project
in China.
Gross profit was $305,717 and $377,723 for the three and nine month
periods ended June 30, 1997 compared to a gross loss of zero and $402,647
for the three month and nine month periods ended June 30, 1996.
General and administrative expenses increased by 29% to $820,346 for
the nine month period ended June 30, 1997 compared to the same period in
1996. General and administrative expenses increased by 127% to $328,311
for the three month period ended June 30, 1997 compared to the same
period in 1996. The increases are attributable to the acquisition of
Okon, as well as the increased effort to acquire additional businesses.
There was no loss on disposal of subsidiary during the nine months
ended June 30, 1997 compared to a loss of $500,908 for the nine months
ended June 30, 1996. The Henan contract was discontinued during the
three months ended December 31, 1995, and Future Fuels was placed into
liquidation during March 1996.
Depreciation and amortization remained relatively constant at
approximately $69,000 and $195,000, respectively, for both the three-month
and nine month periods ended June 30, 1997.
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There was no loss on investment during the 1997 nine-month period
compared to a loss of $75,000 on investment during the 1996 period
resulting from the write off of an investment determined to have no
value.
Interest income was nearly the same during the nine months ended
June 30, 1997, as compared to the same period of 1996.
Interest expense during the three month period ended June 30, 1997
was significantly higher compared to the same period of 1996 due to a
$300,000 note payable related to the Okon acquisition. The nine month
period in 1996 included interest payments on trade accounts payable.
Liquidity and Capital Resources
The Company has incurred losses since its inception. At June 30,
1997 the Company had working capital of $541,956 as compared to $456,560
at September 30, 1996. The $85,396 or 19% increase in working capital is
due to the sale of preferred stock, common stock, and the exercise of
outstanding warrants for the purchase of common stock. During the last
two quarters the Company obtained financing through issuance of preferred
shares totaling $1,265,535, net of offering costs, to diversify into
other businesses that are expected to generate net income to sustain the
Company. The Company used $1,107,635 of this cash to purchase Okon, a
wholly-owned subsidiary engaged in the manufacture of water-based stains
and sealers for retail sales. The preferred stock accrues dividends at
15% per annum, payable in cash or common stock at the option of the
Company. The preferred stock is also convertible into common stock at an
average price of $.21 per share or a price that is 70% of the average
closing bid price of the common stock for the five trading days preceding
the date of conversion, whichever is less. During the quarter ended June
30, 1997, 37,250 preferred shares were converted into 2,690,946 common
shares.
During the nine months ended June 30, 1997 the Company issued
6,924,713 shares of common stock for $782,508, primarily through the
exercise of stock purchase warrants. The Company used $352,350 of this
equity capital to redeem 28,188 preferred shares.
In July 1997, the Company formed a limited liability company called
ITN Electronic Substrates LLC with ITN Energy Systems, Inc. The LLC is
owned 50% by Rentech and 50% by ITN Energy Systems, Inc. The LLC
intends to engage in the manufacture and sale of several types of
flexible thin-film on which it has electronically deposited metals with
unique properties, such as copper and molybdenum, that provide conductive
paths to which computer chips may be attached. Additional LLCs may be
formed in the future to exploit other technologies contributed to those
LLCs by ITN Energy Systems, Inc., including advanced processes for
ceramic deposition on materials to improve their capacity to withstand
heat and wear, 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 periods of time. With completion of a private placement of the
Company's securities, the Company has obtained initial working capital in
the amount of $100,000 for ITN Electronic Substrates LLC. The Company
expects that the LLC will start work on the retrofitting of its thin-film
manufacturing machines that will be used to produce its thin-film.
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Production of thin-film is expected to start in 1998. The customers are
expected to be contract manufacturers in the computer, aerospace and
medical instrument industries, as well as large end-users which use the
thin-film substrates to manufacture their own products.
The Company is negotiating with the Texaco Group Inc., to establish
a business relationship for the purposes of accelerating the development
and licensing of Rentech's gas-to-liquids technology and to commercially
exploit the technology on a world wide basis. As of this date Rentech
and Texaco are working toward terms of a definitive agreement. Although
no assurances can be given that a formal agreement will be signed,
management is optimistic as to the positive financial impact such an
agreement would have on the Company.
Since acquisition of the assets of Okon, Inc. in March 1997, the new
subsidiary has provided a reliable stream of revenues for the Company.
Management hopes to gradually increase those revenues in the future by
expanded marketing efforts.
Through a private placement of units of its securities consisting of
convertible notes and shares of common stock, the Company realized net
proceeds of $557,450 in September and October 1997. The Company also
expects to receive approximately $100,000 during October through November
of 1997 as the purchase price payable upon exercise of its outstanding
stock warrants.
The Company's India licensee has started construction of its gas
conversion plant. The plant is not expected to be ready for start of
operations until the first part of 1999. An additional license fee is
expected from the licensee within the next few months in the amount of
$120,000.
The Company expects that it will require additional working capital
over the next 12 months, or longer, until it realizes one or more
additional sources of revenue from the businesses identified in this
discussion. Management believes it will be able to raise the necessary
working capital that is not provided by Okon and the business of
licensing its gas-to-liquids technology through additional private
placements of its common stock or other securities.
Statement of Cash Flows
As discussed under "Results of Operations" in this report, the
Company had net losses of $645,152 and $1,703,845, respectively, for the
nine months ended June 30, 1997 and 1996. The 1996 non-cash expenses
include a write off of an investment of $75,000, a loss on disposal of a
subsidiary of $500,908, a loss on contracts of $732,059, and bad debt
expense of $103,930. Depreciation and amortization of $195,234 and
$190,433 for the nine months ended June 30, 1997 and 1996 were reported.
Changes in operating assets and liabilities include a $25,000
decrease in restricted cash for each period.
There was a $234,107 increase in accounts receivable during the
period ended June 30, 1997, primarily due to the acquisition of the Okon
subsidiary, compared to a $139,804 decrease during the comparable 1996
period.
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A decrease of $71,813 in property tax receivable occurred during the
nine months ended June 30, 1997 compared to none for the comparable 1996
period.
An increase in inventories of $3,664 occurred during this current
period due to the acquisition of Okon, Inc. during March 1997.
Advances and other current assets increased by $22,841 during the
nine months ended June 30, 1997 compared to a $19,206 decrease for the
comparable period ended June 30, 1996 due to acquisition of the ongoing
Okon business.
Accounts payable increased by $99,137 during the nine months ended
June 30, 1997 partially due to the acquisition of Okon compared to a
$453,474 decrease during the 1996 period.
During the nine months ended June 30, 1997, $514,580 in cash was
used by operating activities compared to a net cash usage of $370,979 for
the comparable nine months of 1996. This was primarily due to the
continued development of the gas conversion process combined with the
acquisition of the Okon business.
Investing activities during the nine months ended June 30, 1997
totaled $1,246,973, compared to $4,279 for the comparable 1996 period.
During March 1997, the Company acquired Okon with approximately
$1,107,635 in cash. Other investing activities increased by $126,397
during 1997 due to investments in ITN/ES LLC as previously discussed in
this section.
During the nine months ended June 30, 1997 the Company financed its
activities by net proceeds of $1,265,535 from the issuance of preferred
stock, $782,508 from the issuance of common stock, and $50,000 from the
collection on its stock subscription receivable. During the nine months
ended June 30, 1996, the financing activities consisted of $215,076 in
proceeds from common stock issuances. The Company also redeemed 28,188
shares of preferred stock for $352,350 during the nine month period ended
June 30, 1997.
Cash decreased during the nine months ended June 30, 1997 by $15,860
compared to a decrease of $160,182 for the comparable period of 1996.
These changes decreased the ending cash balance to $194,626 at June 30,
1997 from $210,486 at September 30, 1996. The 1996 changes decreased the
September 30, 1995 balance of $175,752 to $15,570 at June 30, 1996.
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.
RENTECH, INC.
Dated: October 31, 1997 By: (Signature)
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James P. Samuels, Vice President-Finance
and Chief Financial Officer
