U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-19260
RENTECH, INC.
(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)
Issuer's telephone number, including area code: (303) 298-8008
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
Yes X. No .
The number of shares outstanding of each of the issuer's classes of
common equity, as of March 31, 1998: common stock - 31,556,134.
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RENTECH, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, September 30,
1998 1997
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 885,374 $ 391,487
Accounts receivable 256,939 150,911
Inventories 109,717 107,151
Prepaid expenses and other current assets 102,697 52,688
- --------------------------------------------------------------------------------
Total Current Assets 1,354,727 702,237
- --------------------------------------------------------------------------------
Property and equipment
Property and equipment, net of accumulated
depreciation of $152,261 and $126,774 as of
March 31, 1998 and September 30, 1997
respectively 164,937 172,863
- --------------------------------------------------------------------------------
Other Assets
Licensed technology, net of accumulated
amortization of $1,058,580 and $944,208 as of
March 31, 1998 and September 30, 1997
respectively 2,372,568 2,486,940
Goodwill, net of accumulated amortization
of $84,009 and $43,685 as of March 31,
1998 and September 30,1997 respectively 1,125,706 1,166,030
Synhytech plant held for sale 99,500 99,500
Accounts receivable 191,206 191,206
Deposits and other 240,939 38,428
- --------------------------------------------------------------------------------
Total Other Assets 4,029,919 3,982,104
- --------------------------------------------------------------------------------
Total Assets $ 5,549,583 $ 4,857,204
================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 221,674 $ 130,201
Accrued liabilities 138,227 122,166
Convertible notes payable 620,500 560,500
Current portion of long-term debt -0- 475,000
Note payable, related party -0- 90,000
- --------------------------------------------------------------------------------
Total Current Liabilities 980,401 1,377,867
- --------------------------------------------------------------------------------
Long-term debt, net of current portion -0- 125,000
- --------------------------------------------------------------------------------
Total liabilities 980,401 1,502,867
- --------------------------------------------------------------------------------
Commitments
Stockholders' Equity
Preferred stock - $10 par value; 1,000,000
shares authorized; 200,000 and no shares
issued and outstanding 2,000,000 -0-
Common stock - $.01 par value; 100,000,000
shares authorized; 31,556,134 and 29,539,548
shares issued and outstanding 315,559 295,392
Additional paid-in capital 13,257,624 12,794,769
Accumulated deficit (11,004,001) (9,735,824)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 4,569,182 3,354,337
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 5,549,583 $ 4,857,204
================================================================================
</TABLE>
See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 393,182 $ 104,568 $ 795,349 $ 104,568
Contract revenues -0- 5,249 -0- 5,249
- -----------------------------------------------------------------------------------------
Total Revenues 393,182 109,817 795,349 109,817
Costs of sales:
Cost of sales 196,534 37,811 368,834 37,811
- -----------------------------------------------------------------------------------------
Gross profit 196,648 72,006 426,515 72,006
Expenses:
General and administrative 612,358 299,324 1,182,180 494,648
Depreciation and amortization 89,979 62,752 180,183 126,262
- -----------------------------------------------------------------------------------------
Total Expenses 702,337 362,076 1,362,363 620,910
- -----------------------------------------------------------------------------------------
Loss from operations (505,689) (290,070) (935,848) (548,904)
Other income (expense):
Interest income 4,469 200 6,939 1,494
Interest expense (35,827) (123) (111,158) (123)
- -----------------------------------------------------------------------------------------
Total Other Income (Expense) (31,358) 77 (104,219) 1,371
- -----------------------------------------------------------------------------------------
Net loss (537,047) (289,993) (1,040,067) (547,533)
- -----------------------------------------------------------------------------------------
Dividend requirement on
Preferred Stock 228,110 175,069 228,110 175,069
- ----------------------------------------------------------------------------------------
Loss applicable to common stock $ (765,157) $ (465,062) $(1,268,177) $ (722,602)
- -----------------------------------------------------------------------------------------
Weighted average number
of shares outstanding - basic 31,008,405 16,152,126 30,496,444 15,552,092
Diluted 32,290,294 16,152,126 31,768,333 15,552,092
- -----------------------------------------------------------------------------------------
Per Share
Basic and diluted $(0.02) $(0.03) $(0.04) $(0.05)
=========================================================================================
See notes to the consolidated financial statements.
</TABLE>
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RENTECH, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity
<TABLE>
For the Six Months ended March 31, 1998 (Unaudited)
Preferred Stock Common Stock Additional
Par Par Paid-in Accumulated
Shares Value Shares Value Capital Deficit
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
September 30, 1997 -0- $ -0- 29,539,548 $295,392 $12,794,769 $ (9,735,824)
Preferred stock issued
for cash net of offering
costs of $200,000 200,000 2,000,000 (200,000)
Common stock issued,
net of offering costs of
$53,559 for cash 1,956,586 19,567 417,834
Common stock issued
for interest expense on
convertible notes payable 60,000 600 45,021
Dividend accrued on
Preferred stock (28,010)
Deemed dividends on
Preferred stock 200,000 (200,000)
Net loss for the six
months ended
March 31, 1998 (1,040,167)
- ------------------------------------------------------------------------------------------------------
Balances, March 31, 1998
(unaudited) 200,000 $2,000,000 31,556,134 $315,559 $13,257,624 $(11,004,001)
======================================================================================================
</TABLE>
See notes to the consolidated financial statements.
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PAGE 5
RENTECH, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the Six Months Ended March 31, (Unaudited) 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net Loss $(1,040,067) $ (547,533)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 180,183 126,262
Interest paid with Common Stock 45,621 -0-
Changes in operating assets and liabilities:
Decrease in restricted cash -0- 25,000
(Increase) in accounts receivables (106,028) (104,567)
(Increase) Decrease in inventories (2,566) 8,533
Decrease in property tax receivable -0- 71,813
(Increase) Decrease in prepaids
and other current assets (50,009) 2,316
Increase in accounts payable
and other accrued expenses 107,534 123,292
- ---------------------------------------------------------------------------------------
Net Cash Used in Operating Activities: (865,332) (294,884)
- ---------------------------------------------------------------------------------------
Investing Activities
Purchase of business -0- (1,060,269)
Purchase of equipment (17,561) (12,351)
Receipts for deposit and other (2,511) (17,724)
ITN deposit (200,000) -0-
- ---------------------------------------------------------------------------------------
Net Cash Used in Investing Activities: (220,072) (1,090,344)
- ---------------------------------------------------------------------------------------
Financing Activities
Proceeds from convertible notes payable 60,000 -0-
Repayment of notes payable (690,000) -0-
Proceeds from issuance of preferred stock 2,000,000 1,105,215
Proceeds from issuance of common stock 490,960 137,644
Payment for offering costs (253,559) -0-
Proceeds from stock subscription receivable -0- 50,000
Dividend payable 28,110 -0-
- ---------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 1,579,291 1,292,859
- ---------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 493,887 (92,349)
Cash and Cash Equivalents,
Beginning of Period 391,487 210,486
- ---------------------------------------------------------------------------------------
Cash and Cash Equivalents,
End of Period $ 885,374 $ 118,137
=======================================================================================
See notes to consolidated financial statements.
</TABLE>
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PAGE 6
RENTECH, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1998 (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to
Form 10-QSB and Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying
statements should be read in conjunction with the audited financial
statements included in the Company's September 30, 1997 annual report on
Form 10-KSB. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six
months ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the full fiscal year ending September 30, 1998.
2. Significant Accounting Policies
Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, Okon, Inc. All
significant intercompany accounts and transactions have been eliminated
in consolidation. Okon, Inc., which was acquired in March 1997, is
engaged in the business of manufacturing and selling water-based stains
sealers and coatings.
Inventories -Inventories which consist of water protection sealants,
chemicals and packaging supplies, are recorded at the lower of cost
(first-in, first-out) and market.
Licensed Technology - Capitalized investment in licensed technology
represents costs incurred by the Company primarily for the purpose of
demonstrating the Company's proprietary technology to prospective
licensees, which it licenses to third parties under various fee
arrangements. These capitalized costs are being amortized using the
straight line method over 15 years.
Synhytech Plant Held for Sale - The Synhytech plant held for sale is
recorded at the lower of cost or net realizable value.
Property and Equipment - Property and equipment is stated at cost
and depreciated and amortized using the straight-line method over the
estimated useful lives of the assets, which range from five to seven
years except for leasehold improvements which are amortized over the
shorter of the useful life or the remaining lease term.
Excess of Cost Over Net Assets Acquired - The excess of cost over
net assets acquired, which relate to the acquisition of Okon, is being
amortized over a 15 year period using the straight-line method.
Long-Lived Assets - Long-lived assets, identifiable intangibles, and
excess of costs over net assets acquired (goodwill) are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the expected future cash flow
from the use of the asset and its eventual disposition is less than the
carrying amount of the asset, an impairment loss is recognized and
measured using the asset's fair value.
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PAGE 7
Revenue Recognition - The Company reports its contract revenue on
fixed-priced contracts using the percentage-of-completion method of
accounting measured by the percentage of job costs incurred to date to
the latest estimated cost to complete for each project. Job costs
incurred prior to the Company's entering into a contract are expensed as
incurred and excluded from the percentage-of-completion calculation.
Sales of water-based stains sealers and coatings are recognized when
the goods are shipped to the customers.
Research and Development Costs - Research and development costs are
charged to expense as incurred.
Net Income (Loss) Per Share - Statement of Financial Accounting
Standards No. 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 stockholders by the
weighted-average number of shares outstanding during the period. Diluted
earning per share reflect the potential dilution of securities that could
share in the earnings of the Company, similar to fully diluted earnings
per share. Options and warrants are not considered in the computation of
diluted earnings per share as their inclusion would be antidilutive.
3. Convertible Notes
The Company has $620,500 in convertible promissory notes that are
convertible into Common Stock of the Company at $0.33 per share until
April 16, 1998. If the these notes are not converted by April 16, 1998
and if the Company does not pay the notes in cash at that time, the note
holders may convert their notes into Common Shares of the Company at 70%
of the average closing bid price for the 5 days prior to conversion, not
to exceed $0.33 per share.(see Note 6)
4. Preferred Stock
During the period the Company issued 200,000 shares of Series A
Preferred Stock at $10.00 per share together with warrants to purchase
200,000 shares of Series B Preferred stock and, at the option of the
Company, up to an additional 600,000 shares of Series B Preferred Stock
at $10.00 per share. Net proceeds from issuance of the Series A
Preferred Stock was $1,800,000. The Series A Preferred Stock pays a
dividend of 9% per year and is convertible over 18 months into common
stock at the lesser of the average closing bid price of the common stock
for the five trading days preceding the sale of the preferred shares, or
at 82.5% of the average closing bid for the five trading days preceding
the conversion of the Series A Preferred Stock into common stock. During
the period the Company recorded a deemed dividend of $200,000 in respect
of the Series A Preferred Shares.
The warrants provide for the purchasers, during the 18 months after
purchase of the Series A Preferred Stock, to purchase and the Company to
sell, 200,000 shares of the Series B Preferred Stock and provide the
Company during the same period the option to sell to the purchasers an
additional 600,000 shares of the Series B Preferred Stock at $10.00 per
share. The Company has no obligation to sell any of the 600,000 shares
of the Series B Preferred Stock to the purchasers. The Company does not
have to sell any of the 800,000 shares of the Series B Preferred Stock to
the purchasers if certain conditions occur, primarily related to volume
and the price of the common stock in the market. The Company has no
<PAGE>
PAGE 8
obligation to sell any of the 800,000 shares of the Series B Preferred
Stock if the average daily share price for the common stock for the 10
trading days prior to the sale is less than $1.00 per share. The Series
B Preferred Stock pays a dividend of 9% per year and is convertible into
common stock until December 31, 1999 at 82.5% of the average closing bid
for the five trading days preceding the date of conversion.
5. Commitments
(a) On February 6, 1998 the Company entered into a Consulting
Agreement whereby it agreed to issue 66,000 shares of unrestricted voting
common stock and pay $10,000 per month for a period of 12 months for
public relations services.(see Note 6)
(b) By letter of agreement dated December 31, 1997 the Company
agreed to issue 100,000 shares of their common stock to Howard, Weil,
Labouisse, Friedrichs, Inc. in return for assisting the Company's Board
of Directors in determining an Exercise Price of a Shareholder Rights
Plan.
6. Subsequent Events
In April 1998 the Company converted $620,500 of its 10% Convertible
Subordinated Promissory Notes ("Notes") into common shares thereby
eliminating the last of the Company's existing debt. On May 8, 1998 the
Company paid the note holders a total of $31,025 as interest due on the
notes. The note holders received 2,500,801 shares of the common stock of
the Company on conversion of the Notes, all in accordance with the terms
of the 1997 Private Placement. Additionally, the brokerage firm of
Neidiger/Tucker/Bruner, Inc. exercised Warrants received in the 1997
Private Placement of the Notes for 233,959 shares of the common stock of
the Company for which the Company received $77,206.
On April 7, 1998 the Company issued 66,000 shares of its common
stock to Global Public Relations Services, Inc. (Global) in exchange for
public relations services.
On May 29, 1998 the Company and ITN Energy Systems, Inc. (ITN)
formed a venture to design, develop and manufacture active and passive
Radio Frequency Identification tags (RFID tags) which have a wide range
of applications. This opportunity utilizes thin-film deposition
technology developed by ITN Energy Systems, Inc. According to the joint
venture agreement the Company agreed to pay the following consideration
to ITN in exchange for 10% of ITN's issued and outstanding shares:
- A $200,000 non-refundable cash deposit
- Issuance of 1,700,000 common shares and
- Issuance of warrants to purchase up to 200,000 additional
shares of the Company
If at any time after nine months from May 29, 1998, ITN elects to
sell some of its Rentech shares and if at that time the closing bid price
of the Rentech shares is less than $0.40 per share for a period of 20
consecutive days, ITN shall have the right to sell up to 1,700,000 of the
shares to the Company for cash, during the following 12 month period.
The purchase price payable by the Company for each of its shares will be
$0.40.
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PAGE 9
7. Recent Accounting Pronouncements
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
standards 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 distribution 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 disclosure regarding products and
services, geographical 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 disclosures. Results
of operations and financial position, however, will be unaffected by the
implementation of these standards.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which
standardizes the disclosure requirements for pensions and other post
retirement benefits and requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis. SFAS No. 132 is effective for years beginning after
December 15, 1997 and requires comparative information for earlier years
to be restated, unless such information is not readily available.
Management believes the adoption of this statement will have no material
impact on the Company's financial statements.
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PAGE 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1998
AND 1997
Results of Operations.
For the three and six months ended March 31, 1998 , the Company
recorded losses of $537,047 and $1,040,067, compared to net losses of
$289,993 and $547,333 for the comparable periods in 1997. The increase
for 1998 is primarily due to increases in general and administrative
expenses and interest expense, which includes a non-cash interest charge
of approximately $45,000 relating to discount on convertible notes
payable. These increases are partially offset by profit from the
operations of the Company's Okon subsidiary which was acquired in March
1997.
Revenues of $393,182 and$795,349 were recognized during the three
months and six months ended March 31, 1998 from net sales of water-based
paints, sealers and coatings by the Company's Okon subsidiary. Revenues
of $109,817 were recognized by the Company during the three months and
six months ended March 31, 1997. The Company acquired Okon in March
1997.
During the three and six months ended March 31,1998, cost of sales
related to water-based paints, sealers and coatings was $196,534 and
$368,834 as compared to $37,811 for the three and six months ended March
31,1997 because of the contribution of Okon which was acquired in March
1997.
Gross profit increased to $196,648 and $426,515 for the three month
and six month periods ended March 31, 1998 compared to a gross profit of
$72,006 for the three month and six month period ended March 31,1997
because of the contribution of Okon which was acquired in March 1997.
General and administrative expenses increased to $612,358 and
$1,182,180 for the three month and six month period ended March 31,1998,
compared to $299,324 and $494,648 for the same periods in 1997. This
increase is due to expenses associated with Okon which were not included
in the prior periods increased costs associated with public relations and
increased salary and benefit costs.
Depreciation and amortization increased for the three month and six
month periods ended March 31, 1998 compared to the three months and six
months ended March 31,1997 primarily due to depreciation of Okon's
equipment and amortization of goodwill acquired when Okon was purchased
in March 1997.
Loss from operations for the three month and six month periods ended
March 31, 1998 increased to $505,689 and $935,848 from losses of
$290,070 and $548,904 reported for the comparable periods in 1997. The
$213,034 increase in loss from operations for the three months ended
March 31,1998 compared to the same period in 1997 primarily reflects the
increase of $313,034 in general and administrative expenses and the
increase of $158,723 in cost of sales and the increase of $27,227 in
depreciation and amortization, which were only partially offset by the
increase in total revenues of $283,365. The $386,944 increase in loss
from operations for the six-month period ended March 31,1998 compared to
the same period in 1997 primarily reflects the increase of $687,532 in
general and administrative expenses and the increase of $331,023 in cost
of sales and the increase of $53,921 in depreciation and amortization,
which were only partially offset by the increase in total revenues of
$685,532.
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PAGE 11
Interest income was higher during the three month and six month
periods ended March 31, 1998 as compared to the same periods of 1997
because of the Company's increase in cash on hand.
Interest expense during the three month and six month periods ended
March 31, 1998 was $35,827 and $111,158 compared to $123 during
comparable 1997 periods due to interest charges relating to the addition
of $1,310,500 in debt.
Liquidity and Capital Resources.
At March 31, 1998, the Company had working capital of $374,326 as
compared to a working capital deficit of $675,630 at September 30, 1997.
The $1,049,956 increase in working capital is due to the net proceeds of
preferred stock issued for $1,800,000 in cash, net proceeds of common
stock issued for $437,401 and the net proceeds of an additional $60,000
in convertible notes payable, less the repayment of notes payable in the
amount of $690,000 as well as to the ongoing losses from operations. The
convertible notes payable of $620,500 are convertible into the Company's
common stock at the Company's option if not converted by the
shareholders by April 16,1998 and if the Company does not pay the debt in
cash at that time. The Company converted these notes payable in April
1998.
To achieve its stated plan to grow, diversify and acquire new
businesses, the Company negotiated the placement of 200,000 shares of
Series A Preferred Stock at $10.00 per share together with warrants to
purchase 200,000 shares of Series B Preferred Stock and, at the option of
the Company, up to an additional 600,000 shares of Series B Preferred
Shares at $10.00 per share; and may receive up to $8,000,000.00. As of
March 31, 1998 the Company has sold 200,000 shares of its Series A
Preferred Stock at $10 per share. The net proceeds were $1,800,000. The
Series A Preferred Stock pays a dividend of 9% per year and is
convertible over 18 months into common stock at the lesser of the average
closing bid price of the common stock for the five trading days preceding
the sale of preferred shares, or 82,5% of the average closing bid for the
five trading days preceding the conversion of the Series A Preferred
Stock into common stock. The warrants provide for the purchasers, during
the 18 months after purchase of the Series A Preferred Stock, to
purchase, and the Company to sell, 200,000 shares of Series B Preferred
Stock for an additional $2,000,000 and provide the Company during the
same period the option to sell to the purchasers an additional 600,000
shares of Series B Preferred Stock at $10.00 per share. The Company has
no obligation to sell any of the 600,000 shares of the Series B Preferred
Stock to the purchasers. The Company does not have to sell any of the
800,000 shares of Series B Preferred Stock to the purchasers if certain
conditions occur, primarily related to volume and the price of the common
stock in the market. The Company has no obligation to sell any of the
800,000 shares of Series B Preferred Stock if the average daily share
price for the common stock for the 10 trading days prior to the sale is
less than $1.00 per share. The Series B Preferred Stock pays a dividend
of 9% per year and is convertible into common stock until December 31,
1999 at 82.5% of the average closing bid for the five trading days
preceding the date of conversion.
The Company expects to realize income during the next 12 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 though not yet
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PAGE 12
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 deferred tax assets with a 100% valuation allowance
at March 31,1998 and September 30, 1997. Management is not able to
determine if it is more likely than not that the deferred tax assets will
be realized.
The over-the-counter markets for securities such as the Company's
Common Stock historically have experienced extreme price and volume
fluctuations. These broad market fluctuations, variations in the
Company's results of operations, and other economic and industry trends
may adversely affect the market price of the Company's common stock.
Although the common stock is listed for quotation on the NASDAQ SmallCap
Market, there are no assurances that the common stock will meet the
minimum bid price of $1 or other listing requirements. Accordingly there
can be no assurance that the common stock will remain eligible for
quotation on SmallCap Market. In the event of ineligibility and
delisting, the ability of shareholders to sell their stock and the value
of the stock would be adversely affected.
Analysis of cash flow
As discussed under "Results of Operations," the Company had net
losses of $1,040,067 and $547,533 respectively for the six months ended
March 31, 1998 and 1997. The 1998 non-cash expenses include a $45,621
charge for interest on convertible notes payable satisfied with the
issuance of common stock. The period ended March 31, 1998 includes
depreciation on Okon's equipment and amortization of goodwill acquired
when Okon was purchased in March 1997 which is not included in the
comparable prior period.
Operating assets and liabilities included no changes in restricted
cash for the 1998 period as compared to a $25,000 decrease in the 1997
period.
There was a $106,028 increase in accounts receivable during the six
months ended March 31,1998 compared to a $104,567 increase during the
comparable 1997 period.
The first fiscal half reflects no change in property tax receivable
compared to a $71,813 decrease for the 1997 period. There was a $50,009
increase in prepaids and other current assets during the six month period
ended March 31, 1998 compared to a decrease of $2,316 during the
comparable 1997 period.
Deposits and other assets increased by $2,511 during the first
fiscal half compared to a $17,724 increase for the comparable 1997
period.
Accounts payable increased by $107,534 during the six months ended
March 31, 1998 compared to a $123,292 increase for the comparable 1997
period.
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PAGE 13
During the first half of fiscal 1998 $865,332 cash was used by
operating activities compared to a net cash usage of $294,864 for the
comparable period of 1997.
The Company purchased $17,561 in equipment during the first half of
fiscal 1998 compared to purchases of $12,351 during the comparable 1997
period. During March the Company invested $200,000 with ITN/ES as an
initial payment regarding a joint venture as described in the subsequent
event section.
The Company financed a portion of its activities by net proceeds of
$60,000 from issuance of convertible notes payable, net proceeds of
$1,800,000 from issuance of $2,000,000 in preferred stock and $490,960
from an issuance of its common stock during the 1998 period compared to
proceeds of $1,105,215 from preferred stock and $137,644 from common
stock during comparable periods in 1997.
Cash increased during the first half of fiscal 1998 by $493,887
compared to a decrease of $92,349 for the comparable periods of 1997.
These changes increased the ending cash balance to $885,374 at March 31,
1998 from $391,487 at September 30, 1997. The 1997 changes decreased the
$210,486 September 30, 1996 balance to $118,137 at March 31, 1997.
Recent Accounting Pronouncements
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
standards 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 distribution 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 disclosure regarding products and
services, geographical 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 disclosures. Results
of operations and financial position, however, will be unaffected by the
implementation of these standards.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which
standardizes the disclosure requirements for pensions and other
<PAGE>
PAGE 14
postretirement benefits and requires additional information on changes in
the benefit obligations and fair values of plan assets that will
facilitate financial analysis. SFAS No. 132 is effective for years
beginning after December 15, 1997 and requires comparative information
for earlier years to be restated, unless such information is not readily
available. Management believes the adoption of this statement will have
no material impact on the Company's financial statements.
Year 2000
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000"
issue and is developing an implementation plan to resolve the issue. The
Year 2000 problem is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result
in a major system failure or miscalculations. The Company believes that,
by converting to new software, the Year 2000 problem will not pose
significant operational problems for the Company's computer systems as so
converted. If the Company uses any time-sensitive software in material
operations (and management believes it does not), the Year 2000 problem
could have a material adverse impact on the operations of the Company.
<PAGE>
PAGE 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Change in Securities and Use of Proceeds.
The following table shows information concerning all sales of the
Company's equity securities sold by the Company during the period covered
by this report that were not registered under the Securities Act of
1933, as amended.
<TABLE>
<CAPTION>
Total Exemptions
Date Securities Securities Offering Total Class of From
of Sale Sold Sold Price Commissions Purchasers Registration
- ------- ----------- ---------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Oct 17,1997 Promissory 26 $620,500 63,050 Accredited Rules 505,506,
Notes Investors Section 4(6)
convertible
into common
stock
</TABLE>
The promissory 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 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 was
converted in April 1998 into common shares of the Company.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None
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PAGE 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RENTECH, INC.
Dated: July 7, 1998 (signature)
------------------------------------
Dennis L. Yakobson, President
Dated: July 7, 1998 (signature)
-------------------------------------
James P. Samuels, Vice President
Finance and Chief Financial Officer
