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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 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 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, including area code: (303) 298-8008
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the 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 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 .
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. [ ]
The issuer's revenues for its most recent fiscal year ended
September 30, 1997 were $1,189,536.
The aggregate market value of voting stock held by nonaffiliates
of the issuer as of November 25, 1997 was $23,453,169 based upon
the average closing bid and asked prices of such stock on that date.
The number of shares outstanding of the issuer's common stock as
of September 30, 1997 was 29,539,548.
Transitional Small Business Disclosure Format. Yes No X
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PART I
Item 1. Description of Business
General
Rentech, Inc. ("Rentech" or the "Company") was organized as a Colorado
corporation in 1981 to develop and exploit processes for the conversion
of natural gas and other low-value carbon-bearing gases and solids into
valuable liquid hydrocarbons, including premium diesel fuel, naphthas and
waxes. The gas-to-liquids technology developed by the Company ("Rentech
Process Technology" or "Technology") is protected by a series of patents
issued by the U.S. Patent Office. The ability of the Technology to
convert carbon-bearing gases into valuable liquid hydrocarbons has been
validated in two pilot plants operated periodically between 1982 and
1989, in a 235 barrel per day commercial scale facility in 1992 and 1993,
and in a third pilot plant presently being operated in Rentech's test
facility at Pueblo, Colorado. Rentech's gas-to-liquids Technology has
been licensed for use in India in a 360 barrel per day plant that the
licensee is now beginning to construct.
During March 1997, the Company entered into the business of
manufacturing and selling water-based stains, sealers and coatings on a
wholesale basis by purchasing the assets of Okon, Inc. The Company is
continuing the established business of Okon as a wholly-owned subsidiary
under the name Okon, Inc. ("Okon"). Okon sells environmentally clean,
water repellant sealers, coatings and stains for wood, concrete and
masonry. The customers are retailers who sell to the construction
industry and architects. Okon presently provides Rentech's primary
source of revenues.
During July 1997, Rentech agreed with ITN Energy Systems, Inc., a
privately-owned Colorado corporation, to enter into a new business called
ITN Electronic Substrates LLC. Rentech owns 50% of this new entity. The
LLC will manufacture and sell 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. The new business intends to begin its first
activities and begin production 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 flexible
thin-film as substrates or base components for manufacturing their own
products.
The Company's long-term plan is to diversify into three industry
groups centered around its three present lines of business. Rentech
plans to continue licensing its gas-to-liquids Technology in a
petrochemical group; to establish an environmental and industrial
products group, in which Okon would be included; and to develop an
advanced technology group which would include the new business of ITN
Electronic Substrates LLC.
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The Company is continuing its original business of licensing its
gas-to-liquids Technology, including sale of its proprietary catalyst
used in the conversion process. Licences are granted in exchange for
license fees and royalties on the production of liquid hydrocarbons from
conversion plants that use the Technology and are constructed and owned
by licensees. Rentech will provide its engineering design and technical
services under contract to its licensees, for their use in constructing
their plants, together with engineering services and startup operational
support services on a fee basis for licensed plants. In addition,
Rentech may reserve the right to contract for the engineering and supply
the synthesis gas conversion reactor modules that are essential to use of
its Technology in conversion plants. Rentech is not now receiving
significant revenues from its gas-to-liquids Technology. Rentech has
licensed its Technology for use in a plant now under construction by its
Indian licensee at Arunachal Pradesh, India.
On March 31, 1997, the Company entered into an agreement with Texaco
Group, Inc. to negotiate with Texaco to establish a business relationship
to accelerate the development and licensing of Rentech's Process
Technology and to commercially exploit the Technology on a worldwide
basis. The negotiations are continuing on a positive basis. There can
be no assurance, however, that an agreement for a business relationship
will be reached.
Gas-to-Liquids Technology --- Petrochemicals
Rentech was originally established to develop and exploit its
Technology for the conversion of low-value carbon bearing solids or gases
into valuable liquid hydrocarbons, including premium diesel fuel,
naphthas and waxes. The technical feasibility of the Company's
Technology, that is, ability of the Company's conversion process to
convert carbon-bearing gases into valuable liquid hydrocarbons was
established in the Company's first pilot plant which operated
periodically between 1982 and 1985, and again in its second pilot plant
operated during 1989. The Rentech Technology is based upon the
Fischer-Tropsch conversion process that was originally developed in
Germany during the 1930s to create synthetic fuels. When petroleum
imports became readily available after World War II,
Fischer-Tropsch research was abandoned. The Arab oil embargo of 1973
created fuel shortages, and that crisis renewed interest in
Fischer-Tropsch processes. Research was conducted at the Naval Weapons
Center in China Lake, California and later at the Solar Energy Research
Institute in Golden, Colorado. Based in part on those efforts, Rentech
developed its own gas-to-liquids conversion process as well as a catalyst
that is essential to use of its Technology.
Economic use of the Rentech gas-to-liquids Technology depends upon
inexpensive sources of carbon-bearing gas or solids that can be
efficiently converted into feedstock gases. That normally will require
location of conversion plants near the fuel sources.
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The Rentech Technology uses as feedstock natural gas from gas wells
that are not producing or that flare gas, or synthesis gas, a mixture of
hydrogen and carbon monoxide gases, produced by gasification of coal and
other carbonaceous materials. These sources of fuel are in abundant
supply worldwide. Other sources of feedstock include methane, a gas
collected from coal beds, as well as industrial off gases. The
Technology can provide a means of utilizing gas resources that are
currently unmarketable due to their remote locations or because of the
presence of diluents such as carbon dioxide or nitrogen.
The principal products of the Rentech gas-to-liquids process are
clean-burning and premium-grade diesel fuel, naphthas useful as a
feedstock for chemical processing and for refining into varnishes and
mineral spirits, and waxes useful in hot-melt adhesives, inks and
coatings, and a variety of other wax-based products.
The Company's original business is licensing the Rentech
gas-to-liquids Technology, including sale of its patented catalyst, in
exchange for license fees and royalties on the production of liquid
hydrocarbons from conversion plants that use the Technology and are
constructed and owned by licensees. Rentech also provides engineering
design and technical services under contract with its licensees for their
use in constructing their plants, and it provides engineering services
and startup operational support services on a fee basis for licensed
plants. In addition, Rentech may reserve the right to contract for the
engineering and supply of the synthesis gas conversion reactor modules
that are essential to use of its Technology in conversion plants.
The Company has not in the past year and does not in the future
intend to incur any costs for constructing plants that it would own,
except that it may make investments to participate in minority ownership
of future plants constructed by licensees. See "Description of
Business - Present Licenses and Contracts for the Gas-to-Liquids
Conversion Technology."
Rentech is undertaking a study, with technical support from ITN
Energy Systems, Inc., to evaluate use of the hydrogen produced as a
byproduct of its gas-to-liquids Technology as a fuel source for operation
of fuel cells. Fuel cells produce electricity by reacting hydrogen and
oxygen together electrochemically, rather than by combustion. The result
of the fuel cell process is electricity and water; there are no harmful
emissions such as the carbon monoxide, oxides of nitrogen and other
greenhouse gases produced by internal combustion engines. Fuel cells
cannot now be operated economically. Because of the growing demand for
pollution-free energy sources, significant efforts are being made by
third parties to rapidly commercialize fuel cell technology for use in
stationary power generators and in electric motor vehicles. One of the
major difficulties for the emerging field of fuel cell technology is a
supply of hydrogen, which is normally expensive. The hydrogen produced
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as a result of Rentech's gas-to-liquids Technology is already available
at plants using that Technology. If that hydrogen can be used in a
stationary power fuel cell system associated with a petroleum refining
unit that implements Rentech's gas-to-liquids Technology, the results
could be both economically and environmentally beneficial.
Environmental and Industrial Products (Okon, Inc.)
The Company in March 1997 entered into the business of manufacturing
and selling water-based stains, sealers and coatings on a wholesale basis
by purchasing the assets of Okon. The coatings produced and sold by the
Okon division are biodegradable and environmentally clean. Its formulas
used for manufacturing its products are proprietary. The customers are
primarily the construction industry and architects who use the coatings
on wood, concrete and masonry. Okon presently provides the Company's
primary source of revenues.
Okon has been engaged for over 25 years in the business of
manufacturing and marketing biodegradable and environmentally clean
water-based wood stains, concrete stains, block pluggers and other water
repellent sealers. Okon markets and sells its products nationwide
through a variety of channels. These include distribution through paint
dealers, industrial applications, retailers, excluding discount retailers
and mass merchandisers, and architects and building contractors. The
Company has no direct sales force, distributors or independent sales
representatives. The brand names of the various products are recognized
throughout the industry.
Okon manufactures and markets primarily standard products, but does
prepare special products for large orders. Sales are generally made
pursuant to purchase orders, which are occasionally revised to reflect
changes in the customer's requirements or to establish special orders.
Product deliveries are scheduled upon the Company's receipt of purchase
orders, and orders are typically filled within one to two days. The
Company had no significant backlog of orders as of September 30, 1997.
Generally the purchase orders allow customers to reschedule delivery
dates and cancel purchase orders without significant penalties. Orders
are occasionally rescheduled, revised or canceled. For these reasons,
the Company believes that its backlog, while useful for scheduling
production, is not necessarily a reliable indicator of future revenues.
Historically, sales of coatings have been seasoned in nature. The
heaviest concentration of sales have occurred in the spring and summer
months. Production schedules are timed to reflect these seasonal
variations.
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Okon's sales of products to certain customers, individually, may
constitute a significant portion of its revenues. One of these customers
accounted for 34% of the total net sales for fiscal 1997. As of
September 30, 1997, two customers account for 40% of Okon's accounts
receivable. Okon, however, sells to over 2,000 customers, and the loss
of any single customer would not have a material adverse effect upon the
overall business of the Okon division.
The coatings industry in which Okon conducts its business is highly
competitive and has historically been subject to intense price
competition. Other competitive factors include V.O.C. content, product
quality, product innovation, and distribution. The competitors number
between 800 to 900 other coatings manufacturers located throughout the
United States. Many competitors are small companies which provide
intense competition within regional and local markets, especially with
respect to lower priced coatings and custom made specialty products
required on a short-time delivery basis. Other competitors are large
diversified corporations, with assets substantially greater than those of
the Company, which compete on a nationwide basis. The position of Okon
in the industry is very small. The Company believes that Okon can
compete satisfactorily however, especially on the basis of the V.O.C.
content of its products.
Most of Okon's competitors in the coatings industry use and dispose
of substances regulated under extensive environmental protection laws. A
pervasive system of federal, state and local laws and regulations
prohibit or limit the discharge of hazardous materials into the
environment. In the coatings industry, the regulation of Volatile
Organic Compounds (V.O.C.) by the U.S. Environmental Protection Agency,
and increasingly by the states, is an important factor in success.
Okon's products are water-based and biodegradable, which
significantly reduces the risks of environmental problems. Management
believes that Okon is in compliance with EPA and state regulations
regarding environmental protection.
The chemistry of Okon's products exceed current Environmental
Protection Agency standards for Volatile Organic Compounds (V.O.C.), and
Rentech's management therefore considers the products to be
environmentally friendly. The Company believes that the business is
well-positioned to take advantage of a nationwide movement by state and
federal agencies to further regulate and restrict the V.O.C. contents of
paints, stains and sealers. The majority of wood stains, concrete stains
and block pluggers currently on the market contain V.O.C. levels that are
increasingly considered unacceptable in several regions of the United
States. State and federal government agencies have proposed further
restrictions to limit the levels of V.O.C. contained in products. The
restrictions have effectively prohibited the sale and use of high V.O.C.
products in certain states such as California.
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The environmental advantages of the Okon products complement
Rentech's original business philosophy of producing environmentally
cleaner fuels and products from its gas-to-liquids conversion technology.
The Company's long-term plan is to establish an environmental and
industrial products group that includes Okon.
Advanced Technologies (ITN Electronic Substrates LLC)
As a step toward its long-term goal of establishing an advanced
technology group, Rentech agreed in July 1997 with ITN Energy Systems,
Inc. to enter into a new business called ITN Electronic Substrates LLC.
Rentech owns 50% of the LLC, and ITN Energy Systems, Inc., a privately
owned Colorado corporation, owns 50%. Rentech is manager of the LLC for
financial, marketing, and operational matters, and the other member of
the LLC is manager for technical matters.
ITN Electronic Substrates LLC's business will be based upon advanced
technology to be contributed to it by ITN Energy Systems, Inc. The LLC
will use the Technology to manufacture and sell 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. The Company expects that the LLC will start work
during the fiscal quarter ending December 31, 1997, on retrofitting its
thin-film manufacturing machines that will be used to produce its thin-film
products. The Company expects the LLC to begin production in 1998. The
managers have contacted potential customers for its products, but as yet the
new LLC has no contracts for purchases of its products. The customers are
expected to be contract manufacturers in the computer, aerospace and medical
instrument industries, as well as large end-users which would use the
substrates to manufacture their own products.
Rentech has another agreement with ITN Energy Systems, Inc.
contemplating co-ownership by them of additional limited liability
companies that would commercially exploit other advanced technologies
developed by ITN Energy Systems, Inc. In October 1996 the two companies
formed ITN/ES LLC under Colorado law for these purposes. The potential
technologies of ITN/ES LLC include advanced processes for ceramic
deposition on materials to improve their capacity to withstand heat and
wear, and use 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.
Rentech's ownership interest in ITN/ES 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. Rentech is to
register its shares issued to the LLC within 120 days after issuance, and
if it has not, is required to issue an additional 400,000 shares to
ITN/ES LLC as additional consideration.
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The agreement relating to ITN/ES LLC between ITN Energy Systems,
Inc. and Rentech 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.
Rentech by mutual agreement, may provide additional capital to increase
its ownership interest in the various technologies in which it invests
with ITN Energy Systems, Inc.
General Arrangements for Licensing the Gas-to-Liquids Technology
The Company's objective for its gas-to-liquids Technology is to
license the Technology for use in plants to be constructed and financed
by licensees. Rentech's Technology is innovative, has been presented at
energy industry conferences, and has become generally known throughout
the energy industry. Interested businesses that are potential licensees
have initiated contacts with the Company. The Company has also had
negotiations with potential licensees who were introduced through its
present licensees.
Rentech's licensees are responsible for financing, constructing and
operating their own process plants that use the Rentech Technology and
catalyst, including payment for the gas conversion reactors that are
constructed for Rentech to the special design specifications required for
each plant. It is the licensee's obligation to obtain the feedstock
material, either carbon-burning solids or gases, to be used at the
licensee's plant. Upon production of liquid hydrocarbons, each licensee
is responsible for marketing its own products.
Conversion plants that use the Rentech Technology may be designed to
produce from several hundred up to one hundred thousand or more barrels
per day of product. The smaller plants are expected to be assembled from
component systems that are trucked into remote locations where
inexpensive sources of feedstock gas may be available. Plants with the
largest production capabilities would have to be constructed directly at
the sites where they are to be operated. The cost of constructing
conversion plants will vary depending upon their production capacity,
available infrastructure for electrical power, water supplies, roads, gas
pipelines and the like, location and other factors such as costs of
financing and whether the feedstock is a gas or carbon-bearing solids
that must first be converted to gas.
To date, Rentech's licensees and prospective licensees are foreign
and expect to locate their plants outside the United States. Many
foreign nations, such as India, have substantial needs for diesel fuel
that are not being met at this time. The designs of plants for use of
the Rentech Technology are complex. Business dealings in foreign
countries, the ability of licensees to obtain financing for construction
of plants, and the complexity of design are factors that may result in
delays in the schedules for financing, design, construction and start up
of operations of a plant following the initial decision to proceed with
construction.
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Synhytech Plant
In 1985, Fuel Resources Development Company (Fuelco), a
wholly-owned subsidiary of Public Service Company of Colorado (PSCo),
evaluated Rentech's Technology. In 1986 Rentech granted Fuelco the right
to obtain an option to license the Technology, and Fuelco continued its
evaluation. Fuelco subsequently assisted with construction and operation
of the second pilot plant in 1989. Successful operation of that plant
confirmed the technical feasibility of the Technology, that is, the
ability of the Technology to convert carbon-bearing gases, and solids
converted into such gases, that are fed to a conversion plant, into
valuable liquid hydrocarbons such as diesel fuel, naphthas, and waxes.
In 1990 Fuelco began construction of the first full-scale conversion
plant, located near Pueblo, Colorado. This plant, called the Synhytech
plant, cost Fuelco approximately $25 million to construct, maintain and
operate, and was specifically designed and constructed to use methane gas
from an adjacent landfill as its feedstock. The plant was designed and
built by a contractor for Fuelco to produce 235 barrels of liquid
hydrocarbons per day. Fuelco commenced start up operations of the
Synhytech Plant and first produced liquid hydrocarbons in January 1992.
Rentech's Technology, including its synthesis reactors and catalyst,
performed as expected. Fuelco was unable, however, to produce enough
methane from the landfill to operate the plant. Contrary to the results
that Fuelco expected based upon previous test drilling into the landfill,
most of the methane produced by decomposition of the landfill apparently
escaped into the atmosphere rather than entering the gas gathering
pipeline that Fuelco had installed in the landfill for delivery of the
landfill gas to the Synhytech plant. Further, the composition of the gas
was considerably different than the gas Fuelco had determined would be
produced. Consequently, the gas that was produced was collected in
inadequate volumes was not a suitable feedstock for the Synhytech plant
because it did not contain the combination of carbon-bearing materials
that Fuelco projected and for which the plant was specifically designed.
The deficiencies in Fuelco's ability to collect its projected volume of
landfill gas and in the composition of the landfill gas that it did
collect have no relation to the technical feasibility of the Rentech
Technology, which cannot be applied without an adequate volume of gas
that is the same as that which a plant is designed to use.
Fuelco constructed a pipeline to bring an expensive and limited
supply of natural gas to the plant as an alternative feedstock on a
temporary basis. Fuelco operated the plant with a mixture of the
pipeline natural gas and the landfill gas. Because this temporary gas
supply was not intended to be a permanent supply due to the high cost of
the natural gas, because it was delivered under too low a pressure to
meet the plant's design requirements, and because the natural gas supply
was subject to cutoff in favor of prior users during periods of high
demand for gas, Fuelco shut down operations of the plant in May 1992 to
seek a better feedstock source and to repair mechanical problems in the
conventional systems of the plant. In mid-1992, before Fuelco could
solve these problems, PSCo, as part of its decision to return to its core
business of producing and selling electricity, decided to divest several
subsidiary businesses, including its real estate development business and
Fuelco and its Synhytech operations. After extensive negotiations based
upon the potential of claims by Rentech against PSCo and Fuelco, they
transferred all interests in the Synhytech plant to Rentech in May
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1993, together with associated equipment and assets, including $650,000
in cash and all the machinery, equipment and other assets assembled by
Fuelco in Boulder, Colorado to manufacture Rentech's proprietary
catalyst. The primary motivation for PSCo to enter into the transfer
agreement was Rentech's agreement to release its claims that PSCo and
Fuelco failed to perform under its license agreement with Rentech to
construct and operate a commercial size plant. The transfer required no
cash or stock from Rentech, but instead was based on termination of the
relationship between the companies and release of Rentech's claims
against Fuelco and PSCo. Rentech assumed equipment sublease obligations
for computers, vehicles and equipment associated with the Synhytech plant
and agreed to remove the plant and clean up the site upon its final
decision to discontinue operations of the plant. Fuelco's 20% interest
in Rentech's future revenues from royalties and license fees reverted to
Rentech. PSCo retained its equity interest in the Company as a
shareholder.
In February 1993, Rentech took possession of the Synhytech plant and
the related assets acquired from Fuelco and Public Service Company of
Colorado. Before acquiring the Synhytech plant, Rentech had entered into
negotiations with prospective licensees that had indicated a substantial
interest in acquiring licenses if the Company could provide data from
actual operations of a full-size plant. In order to provide verifiable
statistics and evidence for prospective licensees, and to evaluate the
plant and its components for resale to one or more prospective licensees,
Rentech decided to operate the plant for a short period of time. Rentech
therefore converted the plant during 1993 for use of natural gas rather
than landfill gas; corrected or resized several items of equipment and
other associated hardware; and modified several aspects of the
engineering design used by Fuelco for the conventional systems of the
plant. Rentech's costs to convert the plant, including operations during
the demonstration run and assumption of all obligations for equipment
leases, gas supply contracts and utilities, were approximately $3.3
million.
In accordance with the Company's plan to provide operating data on
its Technology in a full-size, commercial scale plant and to evaluate the
plant and its components for resale, Rentech operated the modified
Synhytech plant successfully in a continuous state for three weeks during
July and August 1993. As planned, the plant was then shut down pending a
decision by Rentech's management regarding its sale or other disposition.
During the demonstration phase, the plant operated at design
specifications, produced the expected range of hydrocarbon products, and
achieved the design conversion ratios anticipated for Rentech's
proprietary catalyst used in the conversion process. The technical data
collected and initial product test results show the process is feasible
for commercial exploitation. The operations produced liquid hydrocarbon
products, samples of which are available to prospective licensees for
their evaluation of uses, markets and pricing of the products. Valuable
engineering and operational data bearing on the efficiency and economics
of the Technology were collected and will also be used by licensees in
the design of their own plants. Based on these results and the
observations of them made by several prospective licensees, Rentech was
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able to obtain arrangements for use of its Technology in the Henan Plant
in China, now deemed terminated for accounting purposes, and a
preliminary design contract for the Arunachal Pradesh plant under
construction in India. See "Description of Business--Present Licenses
and Contracts for the Gas-to-Liquids Technology." Rentech expects to
recover the related costs of the demonstration run in the Synhytech Plant
over the term of present and expected future license agreements.
In 1993, the Synhytech plant fulfilled Rentech's purpose of
demonstrating use of its Technology on a commercial scale that allowed
collection of data for use by licensees in their plants. However,
Fuelco's inability to obtain its projected quantities and adequate
quality of landfill gas feedstock from the landfill adversely impacted
the economic viability of the plant, thus preventing it from ever being
operated at a profit at the Pueblo site. The Company's present business
plan for its Technology remains focused on licensing its Technology to
licensees for plants they construct to use Rentech's gas conversion
process. Accordingly, in 1995, Rentech sold the Synhytech plant as a
whole, except for the buildings used for support activities, to its
licensee for the India plant. The plant was dismantled in 1996 and the
component parts were shipped to India to be used in the plant under
design for use of the Rentech Technology in Arunachal Pradesh, India.
Present Licenses and Contracts for the Gas-to-Liquids Conversion
Technology
Several licenses for use of its gas-to-liquids Technology have been
granted by Rentech, as described in this section. A license authorizes a
third party to construct a conversion plant utilizing the Rentech
Technology. The license agreements are granted in exchange for license
fees, engineering design fees, and production royalties based either upon
a percentage of gross proceeds from the sale of liquid hydrocarbons or
other products produced through use of the Rentech Technology or based
upon some other measure of product value. Licenses may grant either
exclusive or non-exclusive rights to use the Technology in identified
countries or other geographic areas. The license fees and terms are
individually negotiated and vary among licensees.
In September 1992 Rentech granted the exclusive right to ITN, Inc.,
a Colorado corporation, to market the Rentech Technology in the country
of India to potential owners of Rentech process plants. ITN, Inc. is
owned by Dr. Mohan S. Misra, who also owns ITN Energy Systems, Inc., a
co-owner with Rentech of new limited liability companies that expect to
enter into business in advanced technologies. See "Description of
Business--Advanced Technologies." If ITN identifies parties who obtain a
license from Rentech and build a plant or plants in India using the
Rentech Technology, ITN is entitled to 20% of Rentech's royalty, license
fee or other revenues from such plants as compensation to ITN. ITN
continues to assist with marketing the Rentech Technology in India.
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Through the efforts of ITN, Rentech has granted a license for the
design and construction of a process plant in India using Rentech's
Technology. The plant is to be a 360 barrel per day plant, using flared
gas in the state of Arunachal Pradesh in northeastern India. The owners
are Donyi-Polo Petrochemicals, Ltd., the state government of Arunachal
Pradesh, and Oil India, Ltd., a government of India enterprise. Gas
feedstock that is presently flared from oil wells has been allocated to
this project by the state government of Arunachal Pradesh. Between
August 1994 and February 1995, Rentech completed a $300,000 preliminary
contract for the basic design of the plant that it entered into in 1994
with the plant owners. In 1995, Donyi-Polo Petrochemicals, which
acquired the license from Rentech, purchased Rentech's Synhytech plant
near Pueblo, Colorado for relocation to Arunachal Pradesh, to reassemble
it and reuse it there. Rentech has received $240,000 as payments due
toward its license fee. The Synhytech plant, which will provide the
majority of base components of the India plant, was relocated to the
Arunachal Pradesh site in India in late 1996. In addition to the
$250,000 contract for engineering services awarded to Rentech, Donyi-Polo
Petrochemicals has contracted with Humphries & Glasgow, Bombay, India,
for the prime engineering contract and has entered into a contract for
the design and fabrication of the required wax distillation equipment.
The final engineering design is expected to be completed by Humphries &
Glasgow and construction is expected to commence before the end of 1997.
Completion of the plant is not expected until the first part of 1999.
The license agreement provides for royalty payments for seven years after
commencement of construction of production from the plant. The licensee
is to construct and operate its own catalyst manufacturing plant, using
the Company's patents, for the production of catalyst.
Rentech has been requested by Oil and Natural Gas Commission, the
state oil company of India, to prepare quotations for the design of two
gas conversion facilities in India that would use the Rentech Technology.
The plans under consideration would be sized to produce 2,800 and 10,000
barrels per day of production of products from use of the Rentech
Technology. No decisions have been made to proceed with these plants,
and Rentech does not expect engineering design contracts, license fees or
revenues from them in the foreseeable future. Additional prospective
Indian licensees are waiting to learn the results of operation of the
Arunachal Pradesh plant in India or another commercial size plant using
the Rentech Technology.
Several licenses have been allowed by the licensees to expire
without construction of a plant. In other cases, the licensees are
seeking financing or adequate supplies of feedstock.
Markets and Marketing of Products Produced by the Gas-to-Liquids
Conversion Technology
The market for diesel fuel is well established, extends worldwide,
is large, and is expected to increase. Industry estimates are that 80
million gallons per day of diesel fuel were produced domestically in the
United States during 1995. Recent total distillate fuel oil consumption
in the United States was approximately 123 million gallons per day, and
over 700 million gallons per day worldwide.
<PAGE>
PAGE 13
Laboratory tests made to determine the fuel properties of the diesel
fuel produced by use of Rentech's Technology have been made by
independent testing agencies. While not exhaustive or definitive from a
scientific point of view, these tests indicate that it is a
high-grade diesel fuel that provides environmental advantages over
regularly available diesel fuel. Compared to commercial No. 2 diesel
fuel, the Rentech diesel fuel has four fuel properties that make it less
polluting. These are an absence of sulphur, zero percent aromatics by
volume, higher cetane number, and a lower 90% distillation temperature.
During the tests, Rentech's diesel fuel demonstrated significant
reductions in harmful exhaust gas emissions. Based on the test reports,
Rentech's management believes that its diesel fuel has improved
combustion characteristics as measured by its higher cetane value.
A series of federal statutes known as the Clean Air Act Amendments
of 1990 and the Energy Policy Act of 1992 and related executive orders
have established benchmarks for reductions in harmful exhaust emissions
within the United States. The U.S. Environmental Protection Agency has
required reductions in diesel fuel sulphur to 0.05% weight maximum. The
state of California, which has more motor vehicles than any other state,
and several other state and local governments, have also adopted
legislation establishing allowable levels of exhaust emissions for
vehicles and businesses. The California limits include 0.05% sulphur
weight maximum and lowering aromatics content to a maximum of 10% by
volume. The legislative goals of the various legislative and regulatory
requirements are to reduce harmful engine exhaust emissions by reducing
fuel aromatics by volume, lowering the 90% distillation temperature, and
reducing the sulphur levels of diesel fuels. Initial studies as to the
requirements of California and other jurisdictions have shown that
emissions of hydrocarbons, carbon monoxide, oxides of nitrogen, and
particulate matter seem to be reduced by a reduction in fuel aromatics.
Higher cetane numbers were found to reduce hydrocarbon and carbon
monoxide emissions. Lowering the sulphur content of diesel fuel helped
reduce particulate matter emissions.
Based on the fuel characteristics tests previously described in this
section, Rentech's diesel fuel would seem to have many of the qualities
that the emerging legislation requires. Before Rentech's diesel fuel
could be said to be a practical solution to the air emission problems,
however, long-term engine wear tests are necessary. Studies conducted
during the last few years by several companies on commonly available
diesel fuels that have low aromatics and low sulphur content show that
such fuels may cause premature mechanical failure of some engine parts,
particularly fuel injection pumps. However, low sulphur fuel produced
from low sulphur crude oil has been used for many years without any
noticeable increase in engine failures. Industry studies indicate that
increased risk of premature failure of certain classes of fuel injection
pumps may be caused by the severe hydrotreating step used by other
companies that is necessary to reduce both the aromatic content as well
as the sulphur content of commonly available diesel fuel. The Company's
Technology used to produce its aromatic and sulphur free diesel fuel from
synthesis gas does not require the severe hydrotreating step.
<PAGE>
PAGE 14
Some fuel industry researchers have suggested the use of additives
to diesel fuels that meet the new regulatory standards as a means of
reducing fuel system wear. Additives would increase the cost of such
fuels, including Rentech's diesel fuel, if that proved necessary, but
preliminary work and studies by others indicate the cost of additives
would not be so material as to substantially impact present costs.
Rentech's management believes that its diesel fuel can best be used for
blending with readily available diesel fuel to reduce the visible and
invisible contaminants in exhaust gases produced by combustion engines.
Unlike alternative fuels such as methanol and compressed natural
gas, Rentech's diesel fuel does not require any engine or vehicle
modification for use. Fuel mileage may be slightly decreased, although
minor engine adjustments are expected to increase the fuel mileage to the
level provided by regularly available diesel fuel.
Rentech has no arrangements by which vehicle manufacturers have
approved the use of its fuel and no arrangements for the sale of its
products. It is not aware of any reason why its fuel would not be
readily saleable and would not command a premium price compared to
current diesel fuel prices.
Rentech's Technology also produces naphthas, which are liquid
hydrocarbon products that are lighter than diesel fuel. Naphthas are
used extensively in manufacturing processes for products as diverse as
paint, printing ink, polish, adhesives, perfumes, glues and fats.
Naphthas produced at conversion plants using the Rentech Technology are
expected to be in demand due to their lower toxicity and lower aromatic
content than other naphthas. Rentech's management is aware of at least
one major urban area that limits the amounts of aromatics in naphthas due
to environmental concerns. The U.S. market for one type of naphtha that
can be produced using the Rentech Technology is estimated at 60,000
barrels per day.
The wax products produced by the Rentech Technology are expected to
be the most valuable products on a unit basis because the existing market
prices for waxes are higher for each barrel of wax than for naphthas or
diesel fuel. Rentech has contacted at least three potential buyers for
large quantities of its wax, and determined that they are interested in
the quality and quantity of the wax that would be available after
production begins. There are at this time no contracts with purchasers
of the wax.
If required, the conversion process in plants using the Rentech
Technology can be easily modified to produce a light crude oil for sale
to refineries. Rentech's Technology produces a high-grade crude oil,
already partially refined, that management believes could be
inexpensively refined in existing refineries into gasoline and other
petroleum products for which the markets are well developed and
extensive.
<PAGE>
PAGE 15
Competition for the Gas-to-Liquids Technology
Rentech and its licensees are subject to substantial competition,
especially for the products of its Technology. Competition in the diesel
fuel market is largely a function of price. Thus, the Company's future
success will depend upon whether or not its Technology will enable
production of the liquid hydrocarbons at a cost that will allow them to
be profitably sold. Downward movements in the price of diesel fuel,
naphtha or waxes could have an adverse impact upon operations of the
Company.
Several major oil companies are involved in large-scale synthetic
fuel development, such as The Royal Dutch Shell Oil Company, Exxon
Corporation, and Statoil, the national oil company of Norway. The
largest user of similar technology is South African Synthetic Oil, Ltd.
(SASOL), a South African company that is engaged in coal gasification to
produce synthesis gas that is converted by Fischer-Tropsch reactions into
synthetic fuel.
Rentech's management believes that its patents protect several
unique features of its Technology and catalyst that give it competitive
advantages in costs and end products over those of its competitors. See
"Description of Business--Patents Relating to the Gas-to-Liquids
Technology." However, most companies that do or may compete with Rentech
are well established and have substantially greater financial, marketing,
personnel and other resources than does the Company. No assurance can be
given that Rentech will be able successfully to compete on a price basis
with either synthetic or natural fuels.
Catalyst Production for the Gas-to-Liquids Technology
Use of the Company's Technology requires use of its proprietary
catalyst. After several plants are in operation and the volume of
catalyst that is required justifies the capital cost of a catalyst
manufacturing facility, Rentech plans to manufacture its proprietary
catalyst and provide it to its licensees for cost plus a reasonable
profit. Until Rentech develops its own manufacturing capability, the
catalyst is to be produced by an independent catalyst manufacturer under
license from Rentech.
Feedstock Supplies for the Gas-to-Liquids Technology
The Company's licensees of its Technology are responsible for
obtaining their own supplies of carbon-bearing, low-cost feedstock,
usually in substantial quantities. Economic use of the Rentech
Technology depends upon inexpensive sources of feedstock. Management
believes such feedstock will be readily available to its licensees from
inexpensive sources such as natural gas wells that are not producing or
that flare gas or that produce gas that is not suitable for commercial
sale.
A potential feedstock that is of growing importance is the heavy high
sulphur residual fuels at refineries ("refinery bottoms "). Within the
next ten years a large surplus of high sulphur residue is predicted which
cannot be absorbed by the market. Conversion of such fuels to synthesis
<PAGE>
PAGE 16
gas by conventional gasification technologies is an attractive option.
The synthesis gas, a mixture of hydrogen and carbon monoxide, with its
low hydrogen-to-carbon monoxide ratio, is an excellent feedstock source
for conversion into liquid hydrocarbons by the application of the
Company's Technology. The hydrocarbon products, as well as other
byproducts such as the excess steam and hydrogen produced by the process,
can all be utilized at the refinery. The diesel fuel fraction is an
excellent blending stock to upgrade non-specification fuels or to improve
the quality of the commercial diesel currently being produced in
refineries by lowering the aromatic and sulphur content and increasing
the cetane index. Rentech has patented the blending of its Fischer-Tropsch
diesel fuel with commercial diesel to reduce harmful emissions.
Additional sources of feedstock include methane gas collected from
coal beds and industrial off gases. Carbon-bearing solids such as coal,
biomass and other carbonaceous materials that, like natural gas and
refinery residues must first be converted to synthesis gas, can provide
another feedstock source.
Patents Relating to the Gas-to-Liquids Technology
Rentech has been granted eight United States patents related to
certain process applications, products produced, and materials used in
its gas conversion process. The patents are directed to technology in
the field of conversion of gaseous hydrocarbons to liquid hydrocarbons
through use of Fischer-Tropsch processes in slurry bed reactors.
Additional patent applications have been filed.
The present patents include a method for cracking a Fischer-Tropsch
wax, a method of making and promoting a promoted iron catalyst for use in
slurry Fischer-Tropsch synthesis reactors, a synthetic oxygenated diesel
fuel produced by Fischer-Tropsch synthesis, an oxygenated diesel fuel to
be used as an additive, the overall gas-to-liquids conversion process,
and Rentech's oxygenated, sulphur and aromatic-free diesel fuel for use
as an additive. The latter patent solidifies Rentech's previous patent
relating to use of its diesel fuel as an additive, which increases the
oxygen content in diesel fuel while maintaining diesel fuel specification
limits for viscosity.
Two of the patents include key elements of the process that enables
Rentech's iron-based catalyst to compete with cobalt-based catalysts used
by others with gas conversion processes. These patents protect process
steps that improve Rentech's carbon conversion efficiency by over 30%.
Because Rentech's iron-based catalyst is significantly less expensive
than cobalt catalysts, the improvement in conversion efficiency makes
Rentech's process cost-competitive. Additionally, cobalt catalysts used
by others, due to the toxicity of the catalysts, are less environmentally
friendly because they create a waste hazard for their users. By
comparison, Rentech's iron-based catalyst can be disposed of in a
landfill with no environmental regulation or concerns. These factors
make the Rentech process more cost-effective and environmentally safe for
converting gases containing hydrocarbons to liquids while allowing
Rentech's end products to be competitively priced with products from
crude oil or other products made from Fischer-Tropsch processes.
<PAGE>
PAGE 17
The issuance of patents to the Company does not assure it that
competitors or licensees will not engage in infringement of such patents,
especially outside the United States where rights to technology are
generally not as well protected as in the United States. There are no
assurances that the Company's patents will not be challenged, invalidated
or circumvented, that the rights granted by the patents will provide
competitive advantages to the Company, or that the Company's efforts to
protect its intellectual property rights will be successful.
Governmental Regulations Pertaining to the Gas-to-Liquids Technology
Conversion plants using the Rentech Technology and plants
manufacturing Rentech's proprietary catalyst are subject to federal,
state and local laws, rules and regulations relating to occupational
health and safety as well as those regulating protection of the
environment. Compliance with such requirements is not expected to
require significant capital expenditures by Rentech and is the
responsibility of the licensees that own and operate the plants.
Research and Development Pertaining to the Gas-to-Liquids Technology
The Company had no expenses for research and development during the
twelve-month period ended September 30, 1997, and none during the
9-month fiscal period ended September 30, 1996.
Employees
At present, the Company has fifteen full-time employees, eight of
whom are employed by Okon.
Item 2. Description of Property
Synhytech Plant Buildings
Two industrial buildings formerly used to support operations
of the Synhytech plant are located in Pueblo, Colorado, on land leased
from Public Service Company of Colorado and its subsidiary, Fuel
Resources Development Company, that is owned by the City of Pueblo.
Rentech expects to either sell or lease the buildings on site,
depending upon reaching agreement with the City of Pueblo for the city
to sell the land on which they are located to buyers of the buildings,
or if no agreement is reached, to sell the buildings for disassembly,
relocation and reuse off the site. If the buildings are sold to be
relocated, the buyer will be required to remove the buildings.
Office Lease
The executive offices of the Company are located in Denver,
Colorado and consist of approximately 2,977 square feet of office
space. The lease expires in November 1999 and includes an option to
extend for another five-year term. The rent is approximately $39,000
per year.
<PAGE>
PAGE 18
Okon Facility
Okon rents an industrial building located in Lakewood,
Colorado, where it conducts its operations. The building contains
approximately 12,000 square feet of office and warehouse space. The
lease expires March 14, 1999 and includes an option to extend for a
five-year term. In addition, provided that Okon is not in default
under the lease, Okon has the option to purchase the facility at any
time during the lease term. The rent is $24,000 a year.
Item 3. Legal Proceedings
There are no material legal proceedings pending against the
Company or its properties.
Item 4. Submission of Matters to a Vote of Securities Holders
The Company's annual meeting of shareholders was held on June 12,
1997. At the meeting, Erich W. Tiepel was elected to a term ending in
2000 as a member of the board of directors. The terms of Ronald C.
Butz, Mark S. Bohn, and Dennis L. Yakobson as directors continue after
the meeting.
The following tabulation shows the votes cast at the meeting on
each matter voted upon, including election of directors.
<TABLE>
<CAPTION>
Withheld/ Not
For Against Voted
<S> <C> <C> <C>
Election of Directors:
Erich W. Tiepel 10,861,635 469,699 0
</TABLE>
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters
The common stock of the Company trades on the NASDAQ SmallCap
Market under the symbol RNTK. The following table sets forth the high
and low bid prices for the Company's common stock, as reported on
NASDAQ, for the quarters presented. The quotations reflect
inter-dealer prices, without adjustment for retail mark-ups, mark-downs
or commissions and may not necessarily represent the actual
transactions.
<PAGE>
PAGE 19
<TABLE>
<CAPTION>
Price Ranges
For the Quarterly Periods Indicated
1997 1996 1995
-------------- -------------- ---------------
Low High Low High Low High
--- ---- --- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
Jan. Mar. 1/8 15/32 3/16 11/16 1-1/8 2
Apr.-Jun. 1/8 1/2 1/4 21/32 29/32 1-1/4
Jul.-Sep. 7/32 31/32 7/32 1/2 5/8 1-1/4
Oct-Dec. 23/64 29/64 1/16 11/32 7/16 15/16
</TABLE>
Based solely upon the number of record holders, the approximate
number of shareholders of the common stock of the Company as of
September 30, 1997 was 337. The number of beneficial owners is
estimated by management at not less than 1,400.
No dividends have been declared during the 12-month fiscal year
ended September 30, 1997 and the 9-month fiscal period ended September
30, 1996, with respect to the common stock.
The Nasdaq Stock Market has increased its financial requirements
as of January 1998 for companies whose stocks are listed on Nasdaq.
Among several changes, one makes stocks trading at less than $1
ineligible for listing, and another increases the total assets
requirement to $3 million. At present Rentech meets all of the new
requirements, but there are no assurances that the Company will
continue to meet the listing requirements. If it does not, the common
stock would be dropped from Nasdaq's SmallCap Market after a grace
period. The effect of delisting would have a material adverse effect
upon ability of shareholders to sell their stock and upon the value of
the stock.
The following table shows information concerning all sales of the
Company's unregistered securities made by the Company during the past
three years.
<PAGE>
PAGE 20
<TABLE>
<CAPTION>
No. Total Exemptions
Date of Security Securities Offering Total Class of From
Sale Sold Sold Price Commissions Purchasers Registration
- - ------- -------- ---------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jul. 17, 1996 Common Stock 578,126 $ 115,625 0 Accredited Rule 506 and
and Warrants Officers and Section 4(6)
to Purchase Directors
826,126
shares of
Common Stock
Aug. 1, 1996 Common Stock 3,993,426 $ 787,000 $104,761 Accredited Rules 505, 506,
and Warrants Investors Section 4(6)
to Purchase
3,993,426
shares of
Common Stock
Sep. 13, 1996 Common Stock 295,274 $ 97,537 0 Accredited Rules 505, 506,
and Warrants Investors Section 4(6)
to Purchase
138,724
shares of
Common Stock
Sep. 30, 1996 Common Stock 151,422 $ 37,245 0 Accredited Rules 505, 506
and Warrants Investors Section 4(6)
to Purchase
33,724
shares of
Common Stock
Jan. 29, 1997 Common Stock 1,479,000 $ 73,950 0 Accredited Rules 505, 506,
Investor Section 4(6)
Sep. 5, 1997 Common Stock 1,000,000 $ 200,000 0 Accredited Rules 505, 506,
Investor and Section 4(6)
Oct. 17, 1997 Promissory 26 $ 620,500 63,050 Accredited Rules 505, 506,
Notes Investors Section 4(6)
Convertible
into Common
Stock(1)
<FN>
<F1> Notes in the original principal balance of $620,500 are convertible into shares of Common Stock at
$.33 per share until April 16, 1998. If not converted by the note holders by then, and if the Company does
not pay the note in cash at that time, the note holders may convert their notes into Common Stock at 70% of
the average closing bid price for the 5 trading days prior to conversion, not to exceed $33 a share. The
placement agent was Neidiger/Tucker/Bruner, Inc., Denver, Colorado. In addition to the placement fees paid
in cash, the placement agent received a warrant, exercisable for 5 years, to purchase the Company's
convertible promissory note in the amount of $58,500. The note is convertible, for 180 days from exercise
of the warrant, at the same price and conversion terms as the other notes issued in the private placement.
</TABLE>
<PAGE>
PAGE 21
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
For the year ended September 30, 1997 and the nine month period
ended September 30, 1996, the Company had net losses of $1,375,686 and
$392,478, respectively. The increase of approximately 350% in loss for
the twelve month period in 1997 compared to the nine month period in 1996
is due to a decrease in contract revenues and license fees of $295,176,
increase in interest expense of approximately $289,000 from the addition
of $1,250,500 in debt and extraordinary gain in 1996 of $200,434.
Increases in 1997 costs over 1996 are attributable in general to the
longer fiscal period in 1997 and in particular to public relations costs,
and approximately $100,000 in hiring costs of a chief financial officer.
Profit contributed by Okon from its acquisition in March 1997 partially
offset the increases in costs due to the longer fiscal period.
During the year ended September 30, 1997, the Company did not
recognize any contract revenues related to the Arunachal Pradesh plant under
construction in India. Contract revenues of $55,176 were
recognized during the nine months ended September 30, 1996.
During the year ended September 30, 1997, no revenue was recognized
for license fees compared to $240,000 for license fees from Donyi Polo
Petrochemicals Ltd., an Indian corporation, for grant of a license to use
the Company's gas conversion technology in the plant under construction by
Donyi Polo at Arunachal Pradesh, India. Donyi Polo purchased the
Company's Synhytech plant located at Pueblo, Colorado during 1995,
dismantled it and shipped the component parts and systems to India in 1996
for reassembly and use as the basis of the Arunachal Pradesh plant.
During the year ended September 30, 1997, the Company recognized
$1,189,536 for sales of water-based paints, sealers and coatings for a six
and one-half month period commencing March 16, 1997 as compared to no
income for the nine month period ended September 30, 1996. This increase
reflects the purchase of Okon in March 1997.
During the year ended September 30, 1997, no costs were incurred for
cost of contracts compared to $29,463 incurred in the nine months ended
September 30, 1996.
During the year ended September 30, 1997, costs of sales related to
the water-based paints, sealers and coatings was $481,796 as compared to
no costs for the nine months ended September 30, 1996. This increase
reflects the purchase of Okon in March 1997.
The gross profit of $707,739 for the year ended September 30, 1997
is primarily a result of sales of water-based paints, sealers and
coatings for a six and one-half month period since the acquisition of
Okon. The gross profit of $265,713 for the nine months ended September
30, 1996 is a result of the license fees and engineering design and
consulting contract for the Indian plant.
During the year ended September 30, 1997, general and administrative
expenses increased by 133% over the nine month period ended September 30,
1996. The increase is caused by approximately $366,000 in expenses
<PAGE>
PAGE 22
associated with Okon which were not included in the prior period, increased
costs related to public relations, approximately $100,000 in
expense from the hiring of a chief financial officer during 1997, and by
the longer fiscal period in 1997 during which costs were incurred.
Depreciation and amortization increased 37% during the year ended
September 30, 1997 compared to the nine months ended September 30, 1996
primarily due to the longer period during which equipment was depreciated
and licensed technology was amortized and due to depreciation of Okon's
equipment and amortization of goodwill acquired when Okon was purchased in
March 1997.
Loss from operations for the year ended September 30, 1997 increased
by $523,984 to a loss of $1,077,783 compared to a loss of $553,799 for the
nine months ended September 30, 1996. The increased loss is
primarily due to a decrease in revenue from contracts and license fees,
increases in general and administrative expenses and depreciation and
amortization, combined with the cost impact of a longer operating period.
This increase is partially offset by an operating profit contributed by
Okon, which was acquired in March 1997.
Gain of $3,140 on sale of fixed assets for the nine months ended
September 30, 1996 reflects sale of an individual component of the
Synhytech plant that was not purchased for relocation to India. During
the nine months ended September 30, 1996, the Company recognized a
write-down of $100,000 on the Synhytech plant held for sale. During the
nine months ended September 30, 1996 the Company had $71,813 in other
income from refund of a property tax paid in a prior period. Interest
expense increased by approximately $293,000 during the twelve months
ended September 30, 1997 compared to the nine month period ended
September 30, 1996 due to the addition of $1,250,500 in debt. Interest
expense in the prior year is due to $798,750 in convertible notes that
were converted into the Company's common stock during September 1996.
Liquidity and Capital Resources
The Company has a working capital deficit of $675,630 and has
incurred losses since its inception that raise substantial doubt about its
ability to continue as a going concern. At September 30, 1997 the Company
had a working capital deficit of $675,630 as compared to working
capital of $456,560 at September 30, 1996. The decrease in working
capital is primarily due to the addition of $1,250,500 in debt that comes
due within one year, partially offset by the working capital of Okon.
$560,500 of the $1,250,500 in current portion of long-term debt is
convertible into the Company's common stock at the Company's option if
not converted by the noteholders by April 16, 1998 and if the Company
does not pay the debt in cash at that time.
The cash realized by the Company during the fiscal year ended
September 30, 1997 and the cash generated from Okon's operations are
expected to be adequate to fund the Company's operations at the current
level through the first half of the 1998 fiscal year. In order to realize
revenues from the Company's interests in ITN Electronic
Substrates LLC, which intends to manufacture and sell flexible
thin-film, and from ITN/ES LLC, which intends to manufacture and sell
<PAGE>
PAGE 23
a heat pump, the Company requires additional working capital. The
Company expects to make one or more private placements of its securities
that would be convertible into common stock at a discount from the
market price.
The net proceeds of the private placement would also be applied to
pay off the Company's indebtedness. There are no assurances that
additional capital will be raised or that the businesses that the Company
intends to develop will generate operating income to the Company in time
or in amounts adequate to enable the Company to continue its operations
as a going concern.
The Company expects to realize income during the next 18 months from
its license granted for the plant at Arunachal Pradesh in India. The
Company expects to receive license fees in the amount of $240,000, and
additional fees for engineering services are expected although not yet under
contract. Income from royalties associated with the India plant
are not expected until after the completion of construction and startup
and operation of the plant. Construction is not expected to be completed
until the first part of 1999.
The Company is discussing other proposals made by several energy
companies, including Texaco Group, Inc., for exploitation of the
Company's gas-to-liquids Technology through licenses or other business
ventures. No assurances can be made that these discussions will result
in either business ventures or revenues to the Company.
The Company has made no commitments for material capital
expenditures, either in the short or long term. Management does not
presently expect to make such commitments in the near future.
The Company has deferred tax assets with a 100% valuation allowance
at September 30, 1997 and 1996. Management is not able to determine if it
is more likely than not that the deferred tax assets will be realized.
Analysis of Cash Flow
The Company had net losses from operations of $1,375,686 during the
year ended September 30, 1997, and $392,478 during the nine months ended
September 30, 1996. During the year ended September 30, 1997, non-cash
expenses included depreciation, which was 41% more, and amortization,
which was 37% more, than during the nine month period in 1996, primarily
due to the longer period during which equipment was depreciated and
licensed technology was amortized, as well as depreciation of Okon's
equipment and amortization of goodwill acquired when Okon was purchased
in March 1997 and interest expense which was paid by issue of options to
purchase common stock at market value. Also during the year ended
September 30, 1997, the Company incurred $274,539 in noncash interest
expense associated with its convertible notes payable and issued stock
options for services valued at $45,028. The Company recorded a $100,000
write-down of the Synhytech plant held for sale and a gain of $3,140 on
sale of assets due to sale of the Synhytech plant and issued shares to
discharge $152,152 for services during the nine month period ended
September 30, 1996.
<PAGE>
PAGE 24
Changes in operating assets and liabilities are primarily due to
accounts receivable, inventories, prepaid expenses and accrued
liabilities acquired with the operations of Okon. Property tax refund
receivable recorded during the nine months ended September 30, 1996 was
received during the year ended September 30, 1997. The total net
cash used in operations increased by 53% to $753,324 in the year ended
September 30, 1997 compared to an increase of $493,234 during the nine
months ended September 30, 1996. The increase reflects increased cash
costs for general and administrative expenses partially offset by cash
contribution from Okon since its acquisition in March 1997 and increased
due to the longer fiscal period.
Investing activities during the year ended September 30, 1997
included purchase of $65,815 in equipment compared to no purchases in the
prior period. The Company used $1,075,739 in cash to acquire the assets
of Okon during the year ended September 30, 1997. There were no
acquisitions in the nine months ended September 30, 1996. There was a
reduction in restricted cash of $25,000 during the 1997 period compared
to no reduction in restricted cash during the 1996 period. Other assets
increased by $23,901 during the 1997 period compared to a decrease of
$2,433 in the 1996 period, primarily due to preliminary investments in
future joint ventures.
Financing activities during the year ended September 30, 1997
produced $1,378,899 from the issuance of common stock compared to $50,000
during the nine months ended September 30, 1996. During the year ended
September 30, 1997, the Company received net proceeds of $1,249,011 from
the issuance of $1,500,000 in redeemable and convertible preferred stock.
Preferred stock that was not converted was redeemed during the year for
$1,474,684. During the year, the Company received $390,000 ($90,000 from
a related party) as proceeds of notes payable. Convertible notes payable
in the amount of $560,500 generated $481,554 after payment of $78,946 in
debt issue costs. During the nine month period, the Company received
$798,750 as proceeds from non-subordinated notes payable, offset by
offering costs of $104,761, and made payments of $61,750 on a note
payable. The net cash provided by financing activities was $2,074,780,
an increase of 304% compared to cash provided by financing activities
during the 1996 period.
Cash increased during the year ended September 30, 1997 by $181,001
compared to an increase of $194,578 during the nine months ended
September 30, 1996. These changes increased the ending cash balance to
$391,487 at September 30, 1997 from $210,486 at September 30, 1996.
The Financial Accounting Standards Board ("FASB") recently issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS 128") and Statement of Financial Accounting Standards No. 129
"Disclosure of Information About an Entity's Capital Structure ("SFAS 129").
SFAS 128 provides a different method of calculating earnings per
share than is currently used in accordance with Accounting Board Opinion
("ABP") No. 15, "Earnings Per Share." SFAS 128 provides for the
calculation of "Basic" and "Diluted" earnings per share. Basic earnings
per share includes no dilution and is computed by dividing income
available to common stock holders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share. SFAS
129 establishes standards for disclosing information about an entity's
<PAGE>
PAGE 25
capital structure. SFAS 128 and SFAS 129 are effective for financial
statements issued for periods ending after December 15, 1997. Their
implementation is not expected to have a material adverse effect on the
consolidated financial statements.
In June 1997, FASB issued Statement of Financial Accounting Standard
No. 130 "Reporting Comprehensive Income ("SFAS 130") and Statement of
Financial Accounting Standard No. 131 "Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 130 establishes
standard for reporting and display of comprehensive income, its components
and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in
a financial statement that displays with the same prominence as other
financial statements. SFAS 131 supersedes Statement of Financial
Accounting Standard No. 14 "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 establishes standards of the way the
public companies report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public.
It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and
in assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Because of the recent
issuance of these standards, management has been unable to fully evaluate
the impact, if any, the standards may have on future financial statement
disclosures. Results of operations and financial position, however, will
be unaffected by the implementation of these standards.
Item 7. Financial Statements
The financial statements identified in Item 13 are filed as part of
this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Auditors on Accounting and
Financial Disclosure
The Company has not had a change of its independent auditors during
its two most recent fiscal years or subsequent interim period, except
that on January 1, 1996, the Company's auditors, Mitchell - Finley and
Company, P.C. combined their practice into BDO Seidman, LLP. Thereafter
BDO Seidman, LLP became the Company's independent auditors for the next
two fiscal periods ended September 30, 1996 and 1997. The Company has
not reported disagreement with its auditors on any matter of accounting
principles or practices or financial statement disclosure.
<PAGE>
PAGE 26
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;'
Compliance with Section 16(a) of the Exchange Act
The following table sets forth certain information concerning
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Term of Service Term as
as an Officer Director
Name Positions Held or Director Expires
- - -------------- -------------- --------------- --------
<S> <C> <C> <C>
Charles B. Benham Vice President - Research 1981 to date --
and Development
Mark S. Bohn(1)(3) Director 1981 to date 1998
Ronald C. Butz(2) Vice President, Chief Operating 1984 to date 1998
Officer, Secretary and Director
James P. Samuels Vice President - Finance, 1996 to date --
Chief Financial Officer
Erich W. Tiepel(1)(3) Director 1983 to date 2000
Dennis L. Yakobson(4) President, Chief Executive Officer, 1981 to date 1999
Director, and Chairman of the
Board
- - --------------------
<FN>
<F1> Member of audit committee.
<F2> Director since 1984 and officer since 1989.
<F3> Member of stock option committee.
<F4> President since 1983.
</FN>
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon the Company's review of Securities and Exchange
Commission Forms 3 and 4 and amendments to those forms submitted to it
during the most recent fiscal year, the Company has identified the following
person who was at any time during the fiscal year a director,
officer, or beneficial owner of more than 10% of any class of equity
securities that failed to file such forms on a timely basis with the SEC,
as required by Section 16(a) of the Securities Exchange Act, during the
most recent fiscal year or prior fiscal years: James P. Samuels failed
to timely file one Form 4 due by September 10, 1997 to report one
transaction, the acquisition of a promissory note convertible into common
stock acquired on August 15, 1997. The required report was filed on
October 10, 1997.
No arrangements exist between directors, officers or other persons
which resulted in the selection or election of any of them. There are no
family relationships among the executive officers and directors. All
directors are elected for three-year terms expiring at the annual meeting
of shareholders or until their successors are elected and qualified.
Officers serve at the pleasure of the board of directors, but have
employment contracts, as subsequently described.
<PAGE>
PAGE 27
Business Experience of Directors and Continuing Officers
The principal occupations of each executive officer, significant
employee and director of the Company for at least the past five years are
as follows:
Charles B. Benham, Vice President - Research and Development--
Dr. Benham, age 61, received a Bachelor of Science degree in
Mechanical Engineering from the University of Colorado in 1958, and a
Master of Science degree in Engineering in 1964 and a Ph.D. degree in
1970, both from the University of California at Los Angeles. He worked
at the Naval Weapons Center, China Lake, California, from 1958 through
1977 performing research and development on thermal and chemical
processes for converting municipal solid wastes to liquid hydrocarbon
fuels, thermochemical analyses of solid-fueled and ramjet engines,
combustor modeling, rocket motor thrust vector control, rocket motor
thrust augmentation, catalyst behavior in carbon monoxide oxidation, and
in liquid hydrocarbon fuels for ramjet applications. From 1977 to 1981,
he worked at the Solar Energy Research Institute in Golden, Colorado, on
thermal and chemical processes for converting agricultural crop residues
to diesel fuel, on thermochemical transport of solar energy using ammonia
decomposition and steam reforming of methane, and on high temperature
applications of solar energy. Dr. Benham has published several articles
in the fields of liquid fuel production from organic waste, catalyst
pellet behavior and rocket propulsion. He has been an officer of the
Company since its inception in 1981 and served as a director from
inception until 1996. Dr. Benham devotes his full time to the business
of the Company.
Mark S. Bohn, Director--
Dr. Bohn, age 47, received a Bachelors degree in Mechanical
Engineering from Georgia Institute of Technology, Atlanta, Georgia, in
1972, and a Master of Science degree in Mechanical Engineering in 1973 and
a Ph.D. in Mechanical Engineering in 1976, both from the California
Institute of Technology, Pasadena, California. He was employed from 1976
through 1978 at the General Motors Research Laboratories in Warren,
Michigan, on research in bluff body aerodynamics, wind tunnel
experimentation, flow visualization, and the fluid mechanics of engine
intake ports. Since 1978 he has been employed by Midwest Research
Institute at the National Renewable Energy Laboratory in Golden,
Colorado, working on conversion of organic materials to liquid
hydrocarbon fuels, high temperature applications of solar energy, power
cycles for ocean thermal energy conversion, direct contact heat transfer
and building heat transfer. Dr. Bohn is a registered Professional
Engineer in Colorado and a member of the American Society of Mechanical
Engineers. He has published several articles on liquid fuel production,
organic waste, heat transfer, power cycles, aerodynamics, optics,
acoustics, solar thermal energy, and co-authored the textbook Principles
of Heat Transfer, (West Educational Publishing). He has been an officer
and director of the Company since its inception in 1981.
<PAGE>
PAGE 28
Ronald C. Butz, Vice President, Chief Operating Officer, Secretary
and Director--
Mr. Butz, age 60, received a Bachelor of Science degree in Civil
Engineering from Cornell University in 1961 and a Juris Doctor degree
from the University of Denver in 1965. From 1966 to 1982, Mr. Butz was
a practicing attorney in Denver, Colorado with the firm of Grant,
McHendrie, Haines and Crouse, P.C. In 1982, Mr. Butz became a
shareholder, vice president and chief operating officer of World
Agricultural Systems, Ltd., a privately-held Colorado corporation
specializing in the international marketing of commodity storage systems.
He resigned these offices in December 1983. In 1984, Mr. Butz became
president of Capital Growth, Inc., a privately-held Colorado corporation
providing investment services and venture capital consulting. In 1984,
he also became a director of the Company. In October 1989, Mr. Butz was
appointed a vice president of the Company, and in June 1990, he was
appointed secretary of the Company. Mr. Butz devotes his full time to
the business of the Company.
Frank L. Livingston, Vice President and General Manager, Okon, Inc.--
Mr. Livingston, age 55, received a Bachelor of Science Degree in
Chemistry from Colorado State University in 1965. He worked for
Mallinckrodt Chemical Co. from 1965 to 1971. While at Mallinckrodt
Chemical Co., he worked as a process research chemist and formulator
prior to becoming a specialty marketing manager for the industrial
chemical division. From 1971 to 1975 Mr. Livingston was employed by
Gates Rubber Co. in Denver, Colorado as a sales and marketing manager for
a specialty chemical venture start-up business within the company. He
also worked as a research market analyst for the venture group. Projects
of the venture group included specialty chemicals and lead-acid battery
technology, as well as rubber products made by the company for off-shore
oil exploration and production. Mr. Livingston joined Okon, Inc. in 1975
as sales manager and was promoted to Vice President of Sales in 1984.
Mr. Livingston also became a 24% owner of the company at that time. In
addition to his sales and marketing responsibilities, he was also
responsible for manufacturing and research and development for the
company. Mr. Livingston also served on the Board of Directors. With the
sale of Okon, Inc. to Rentech in 1997, Mr. Livingston became Vice
President and General Manager for Okon, Inc. and continues to serve on
Okon's board of directors.
James P. Samuels, Vice President - Finance, Chief Financial Officer,
Treasurer--
Mr. Samuels, age 50, has executive experience in general corporate
management, finance, sales and marketing, information technologies, and
consulting for both large companies and development stage businesses. He
received a Bachelor's degree in Business Administration from Lowell
Technological Institute, in 1970, and a Master of Business Administration
degree in 1972 from Suffolk University, Boston, Massachusetts, in 1972.
He completed an executive program in strategic market management through
Harvard University in Switzerland in 1984. From December 1995 through
April 1996, he provided consulting services in finance and securities law
compliance to Telepad Corporation, Herndon Virginia, a company engaged in
systems solutions for field force computing. From 1991 through August
<PAGE>
PAGE 29
1995, he served as chief financial officer, vice president-finance,
treasurer and director of Top Source, Inc., Palm Beach Gardens, Florida, a
development stage company engaged in developing and commercializing
state-of-the-art technologies for the transportation, industrial and
petrochemical markets. During that employment, he also served as
president of a subsidiary of Top Source, Inc. during 1994 and 1995. From
1989 to 1991, he was vice president and general manager of the Automotive
Group of BML Corporation, Mississauga, Ontario, a privately-held company
engaged in auto rentals, car leasing, and automotive insurance. From 1983
through 1989, he was employed by Purolator Products Corporation, a
large manufacturer and distributor of automotive parts. He was president
of the Mississauga, Ontario branch from 1985 to 1989, and director of
marketing from 1984 to 1985, and director of business development and
planning during 1983 for the Rahway, New Jersey, the filter division
headquarters of Purolator Products Corporation. From 1975 to 1983, he
was employed by Bendix Automotive Group, Southfield, Michigan, a
manufacturer of automotive filters, electronics and brakes. He served in
various capacities, including group director for management consulting
services on the corporate staff, director of market research and
planning, manager of financial analysis and planning, and plant
controller at its Fram Autolite division. From 1973 to 1974, he was
employed by Bowmar Ali, Inc., Acton, Massachusetts, in various marketing
and financial positions, and in 1974 he was managing director of its
division in Wiesbaden, Germany.
Erich W. Tiepel, Director--
Dr. Tiepel, age 54, obtained a Bachelor of Science degree in
Chemical Engineering from the University of Cincinnati in 1967, and a
Ph.D. in Chemical Engineering from the University of Florida in 1971.
Dr. Tiepel has twenty-three years of experience in all phases of process
design and development, plant management and operations for chemical
processing plants. In 1981, Dr. Tiepel was a founder of Resource
Technologies Group, Inc. ("RTG"), a high technology consulting
organization specializing in process engineering, water treatment,
hazardous waste remediation, and regulatory affairs. Dr. Tiepel has been
president of RTG since its inception. From 1977 to 1981 he was project
manager for Wyoming Mineral Corporation, a subsidiary of Westinghouse
Electric Corp., Lakewood, Colorado, where his responsibilities included
management of the design, contraction and operation of ground water
treatment systems for ground water cleanup programs. From 1971 to 1976
he was a principal project engineer for process research for Westinghouse
Research Labs. From 1967 to 1971, he was a trainee of the National
Science Foundation at the University of Florida in Gainesville, Florida.
Dr. Tiepel has been a director of the Company since 1983.
Dennis L. Yakobson, President, Chief Executive Officer, Director and
Chairman of the Board--
Mr. Yakobson, age 61, received a Bachelor of Science degree in Civil
Engineering from Cornell University in 1959 and a Masters Degree in
Business Administration from Adelphi University in 1963. From 1960 to
1969 he was employed by Grumman Aerospace Corporation, with the final
position held being that of contract administrator with responsibility
<PAGE>
PAGE 30
for negotiation of prime contracts with governmental agencies. From 1969
to 1971 he was employed by Martin Marietta Corporation, Denver, Colorado
in a similar position and from 1971 through 1975 was employed by Martin
Marietta as marketing engineer in space systems. In 1975 he was employed
by Wyoming Mineral Corporation in Denver as a contract administrator.
Shortly thereafter, he became group leader-land and was responsible for
the direction of all activities in lease administration and for all
in-house landmen. In 1976, he was employed by Power Resources
Corporation, Denver, Colorado, a mineral exploration company, as vice
president-land, secretary, treasurer, and a director. In 1979, he became
a director and the secretary of Nova Petroleum Corporation also in
Denver, Colorado, and in 1981 became its vice president of administration
and finance. He resigned from Nova in November of 1983 to assume the
presidency of the Company. Mr. Yakobson devotes his full time to the
business of the Company. He serves as chairman of the board of directors
of the Company.
Item 10. Executive Compensation
Cash Compensation
The following table shows all cash compensation paid or to be paid
by the Company or any of its subsidiaries, as well as other compensation
paid or accrued during the fiscal years indicated and the nine months
ended September 30, 1996 to the Chief Executive Officer and the four
other highest paid executive officers of the Company as of the end of the
Company's last fiscal year whose salary and bonus for such period in all
capacities in which the executive officer served exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
-------------------------------------- ------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal compen- Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) ($) SARs(#) ($) sation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dennis L. Yakobson 1997 $112,184 --- --- --- 462,400 --- ---
Chief Executive 1996 60,937(1) --- --- --- --- --- ---
Officer 1995 102,486 --- --- --- 79,382 --- ---
Ronald C. Butz 1997 $108,296 --- --- --- 450,880 --- ---
Chief Operating 1996 58,825(1) --- --- --- --- --- ---
Officer 1995 98,934 --- --- --- 79,382 --- ---
Charles B. Benham 1997 $108,296 --- --- --- 450,880 --- ---
Vice President - 1996 58,825(1) --- --- --- --- --- ---
Research & 1995 98,934 --- --- --- 79,382 --- ---
Development
James P. Samuels 1997 $ 94,731 --- --- --- 579,500 --- ---
Chief Financial 1996 24,500 --- --- --- ------- --- ---
Officer
- - --------------------
<FN>
<F1> For 1996, the period consisted of the nine months ended September 30, 1996.
</FN>
</TABLE>
<PAGE>
PAGE 31
Option/SAR Exercises and Holdings
The following table sets forth information with respect to the named
executives, concerning the exercise of options and/or limited SARs during
the last fiscal year and unexercised options and limited SARs held as of
the end of the fiscal period for the twelve months ended September 30,
1997.
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values:
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired at FY-End(#) at FY-End($)
on Value Exercisable/ Exercisable/
Name Exercise(#) Realized ($) Unexercisable Unexercisable
- - -------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Dennis L. Yakobson --- --- 462,400(1) $622,525
Ronald C. Butz --- --- 450,880(1) 606,685
Charles C. Benham --- --- 450,880(1) 606,685
James P. Samuels --- --- 530,000(1) 703,250
<FN>
<F1> Exercisable.
</FN>
</TABLE>
Employment Contracts
The Company employs Messrs. Yakobson, Benham and Butz pursuant to
employment contracts that extend through March 31, 1999. Mr. Samuels and Mr.
Livingston are employed pursuant to employment contracts that extend through
December 31, 1998 and March 14, 2000, respectively. The contracts provide
for annual cost of living
adjustments.
The contracts provide that the individuals will serve in their present
capacities as officers, together with such duties,
responsibilities and powers as the board of directors may reasonably
specify. If the Company terminates employment early without cause, the
contracts provide for severance pay for the remainder of the term or one
year, which ever is more. The contracts impose obligations of
confidentiality as well as covenants not to compete with the Company for
three years following termination of employment for any reason whatsoever.
<PAGE>
PAGE 32
Option/SAR Repricings
There have been no adjustments or amendments to the exercise price of
stock options or SARs previously awarded to any of the named executive
officers, whether through amendment, cancellation or replacement grants
or any other means during the last fiscal year.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total Market
Securities Options/SARs Price on
Underlying Granted to Exercise or Date of Expira-
Options/SARs Employees in Base Price Grant tion
Name Granted(#) Fiscal Year ($/Sh) ($/Sh) Date
<S> <C> <C> <C> <C> <C>
Dennis L. Yakobson 30,000 7.9% $.1875 $.1875 12/03/01
20,000 14.1% .25 .25 03/06/02
332,400 21.1% .125 .125 05/13/00
10,000 6.7% .25 .25 07/07/02
70,000 16.3% .30 .30 09/10/02
Ronald C. Butz 30,000 7.9% .1875 .1875 12/03/01
20,000 14.1% .25 .25 03/06/02
320,880 20.5% .125 .125 05/13/00
10,000 6.7% .25 .25 07/07/02
70,000 16.3% .30 .30 09/10/02
Charles B. Benham 30,000 7.9% .1875 .1875 12/03/01
20,000 14.1% .25 .25 03/06/02
320,880 20.5% .125 .125 05/13/00
10,000 6.7% .25 .25 07/07/02
70,000 16.3% .30 .30 09/10/02
James P. Samuels 200,000 52.6% .1875 .1875 12/03/01
10,000 7.0% .25 .25 03/06/02
250,000 15.9% .125 .125 05/13/00
10,000 6.7% .25 .25 07/07/02
60,000 14.0% .30 .30 09/10/02
</TABLE>
Profit Sharing Plan
The Company has adopted a profit-sharing plan for the benefit of all
employees. The plan will be administered by a committee appointed by the
board of directors. Awards by the committee to its members will be
subject to approval by the disinterested members of the board of
directors. Awards are discretionary and may not aggregate an amount in
excess of 5% of audited pre-tax earnings before depreciation, amortization
and extraordinary income for the preceding fiscal year. However, bonuses
are payable only if such pre-tax earnings exceed $500,000 for the year.
<PAGE>
PAGE 33
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following tables set forth certain information as of October 31,
1997 with respect to each person who owns of record or is known to the
Company to beneficially own more than 5% of the issued and outstanding
shares of Common Stock and the beneficial ownership of such securities by
each executive officer, director and director nominee and by all executive
officers and directors as a group:
<TABLE>
<CAPTION>
Percent
of Class
Amount and Nature of Based on
Positions and Beneficial Common Beneficial
Name and Address Offices Held Stock Ownership Ownership
- - ----------------- ------------------ -------------------- ---------
<S> <C> <C> <C>
Charles B. Benham Vice President - Research 275,440 of record 2.6%
12878 W. 68th Avenue and Development (488,380 indirectly)(1)
Arvada, CO 80004
Mark S. Bohn Director 443,431 of record 2.5%
1614 Tamarac Drive (289,592 indirectly)(1)
Golden, CO 80401
Ronald C. Butz Vice President, Chief 533,583 of record(2) 3.5%
711 Marion Street Operating Officer, Secretary (488,380 indirectly)(1)
Denver, CO 80218 and Director
Frank L. Livingston Vice President and Manager, 40,000 of record (3)
6000 W. 13th Avenue Okon, Inc. (30,000 indirectly)(1)
Lakewood, CO 80214
James P. Samuels Vice President - Finance, 127,500 of record 2.4%
1331 17th St., Suite 720 Chief Financial Officer (579,500 indirectly(1)(4)
Denver, CO 80202
Erich W. Tiepel Director 123,277 of record 1.3%
2494 Houston Waring Cir. (272,448 indirectly)(1)
Littleton, CO 80120
Dennis L. Yakobson President, Chief Executive 404,354 of record 3.1%
8847 Norwich Street Officer and Director (499,900 indirectly)
Westminster, CO 80030
Mary H. Butz Shareholder 369,432 of record 3.5%
711 Marion Street (642,531 indirectly)(5)
Denver, CO 80218
All Directors and Executive Officers and Directors 1,947,585 of record(2) 15.6%
Officers and a Group (2,648,200 indirectly) (6.6% of
record)
(7 persons)
<FN>
<F1> Includes shares of common stock underlying presently exercisable stock
options.
<F2> Includes 369,432 shares of common stock held of record by his spouse as to which shares he denies
beneficial ownership.
<F3> Less than 1%.
<F4> Includes shares of common stock underlying presently exercisable stock options and promissory note
convertible into common stock.
<F5> Includes 164,151 shares of common stock owned of record by her spouse
and 488,380 shares subject to option to purchase by her spouse as to
which shares she denies beneficial ownership.
</FN>
</TABLE>
<PAGE>
PAGE 34
Item 12. Certain Relationships and Related Transactions
Erich W. Tiepel, a director, owns 50 percent of Resource Technologies
Group, Inc. The Company contracted with Resource Technologies Group to
conduct an environmental audit for $3,745, which was discharged during the
9-month period ended September 30, 1996 through issuance of 18,724 in
restricted shares of the Company's common stock and a warrant expiring
September 20, 1997 to purchase the same number of shares of common stock at
$.25 per share. There were no payments in the fiscal year ended September
30, 1997.
Mark S. Bohn, a director, performed engineering consulting services
for the Company during the nine months ended September 30, 1996 and, lieu
of cash payment, was issued 91,046 shares of restricted stock and warrants
expiring September 20, 1997 for the purchase of $.25 per share of the same
number shares of Common Stock as he was issued in lieu of salary. There
were no payments during the fiscal year ended September 30, 1997.
During the nine months ended September 30, 1996 certain sums that
the Company owed its officers for salaries were discharged by the issuance
of the Company's unregistered common stock issued at $.20 per share. The
number of such shares issued were 160,440 to Charles B.
Benham, 91,046 to Mark S. Bohn, 160,440 to Ronald C. Butz and 166,200 to
Dennis L. Yakobson, respectively. Each of them were also issued warrants
expiring September 20, 1997 for the purchase at $.25 per share of the same
number of shares of common stock as they were issued in lieu of salary.
On August 18, 1997, James P. Samuels was one of four individuals who
loaned the Company $390,000 to pay all remaining obligations on the
preferred stock. Mr. Samuels' loan was $90,000. It is evidenced by a
promissory note due February 15, 1998. All notes bear interest at 20% per
annum. If the notes are not paid at the time the principal amount
and accumulated interest are due, then interest will be paid on the total
amount due at an annual rate of 24%. Additionally options to purchase
55,000 shares of common stock at the then-market price of $.25 per share
were granted for each $100,000 of the loan.
Item 13. Exhibits and Reports on Form 8-K
(a) The following financial statements are filed as a part of this
report:
Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Consolidated Summary of Accounting Policies
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K.
The following Current Reports on Form 8-K were filed with the Commission
during the quarter ended September 30, 1997.
Form 8-K dated October 1, 1997; Item 5, Other Events.
<PAGE>
PAGE 35
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)
------------------------------------
Date: January 15, 1998 Dennis L. Yakobson, President
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
(signature)
------------------------------------
Date: January 15, 1998 Dennis L. Yakobson, President, Chief
Executive Officer and Director
(signature)
------------------------------------
Date: January 15, 1998 Ronald C. Butz, Chief Operating Officer,
Vice President, Secretary and Director
(signature)
------------------------------------
Date: January 15, 1998 James P. Samuels, Vice President
- Finance, Chief Financial Officer
(signature)
------------------------------------
Date: January 15, 1998 Mark S. Bohn, Director
(signature)
------------------------------------
Date: January 15, 1998 Erich W. Tiepel, Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at September 30, 1997 and the Statement of Operations for the
12 months ended September 30, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-START> Oct-01-1996
<PERIOD-END> Sep-30-1997
<CASH> 391,487
<SECURITIES> 0
<RECEIVABLES> 150,911
<ALLOWANCES> 2,000
<INVENTORY> 107,151
<CURRENT-ASSETS> 702,237
<PP&E> 172,863
<DEPRECIATION> 126,774
<TOTAL-ASSETS> 4,857,204
<CURRENT-LIABILITIES> 1,377,867
<BONDS> 0
0
0
<COMMON> 295,392
<OTHER-SE> 3,058,945
<TOTAL-LIABILITY-AND-EQUITY> 4,857,204
<SALES> 1,189,536
<TOTAL-REVENUES> 1,189,536
<CGS> 481,797
<TOTAL-COSTS> 481,797
<OTHER-EXPENSES> 1,785,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303,195
<INCOME-PRETAX> (1,375,686)
<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> (1,375,686)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
