<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[] 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, 2000: common stock - 61,692,251.
<PAGE> 2
RENTECH, INC.
FORM 10-QSB QUARTERLY REPORT
Table of Contents
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2000
and September 30, 1999..................................................................................3
Consolidated Statements of Operations for the three and
six months ended March 31, 2000 and March 31, 1999......................................................5
Consolidated Statement of Stockholders' Equity for
the six months ended March 31, 2000.....................................................................6
Consolidated Statements of Cash Flows for the six
months ended March 31, 2000 and 1999....................................................................7
Notes to the Consolidated Financial Statements..........................................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.........................................................................................17
Item 2. Change in Securities.............................................................................................17
Item 3. Defaults Upon Senior Securities - None...........................................................................17
Item 4. Submission of Matters to a Vote of Security Holders - None.......................................................17
Item 5. Other Information - None.........................................................................................17
Item 6. Exhibits and Reports on Form 8-K.................................................................................17
(a) Exhibits - None
(b) Form 8-K
</TABLE>
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31,
2000 September 30,
(UNAUDITED) 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,221,944 $ 308,182
Accounts receivable (net) 520,087 374,683
Other receivables 46,183 59,378
Stock subscription receivables 117,121 -0-
Inventories 67,988 90,482
Prepaid expenses and other current assets 253,112 184,998
----------- -----------
Total Current Assets 5,226,435 1,017,723
----------- -----------
PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated
depreciation of $439,851 and $329,238 3,446,385 3,415,921
----------- -----------
OTHER ASSETS
Licensed technology, net of accumulated
amortization of $1,516,066 and $1,401,694 1,915,082 2,029,454
Goodwill, net of accumulated amortization
of $253,676 and $207,771 1,139,758 1,169,382
Investment in ITN/ES 3,079,107 3,079,107
Investment in Dresser 2,017,135 1,840,084
Investment in Sand Creek 103,380 -0-
Technology rights, net of accumulated
amortization of $69,473 and $55,907 218,273 231,839
Deposits and other assets 501,381 426,471
----------- -----------
Total Other Assets 8,974,116 8,776,337
----------- -----------
Total Assets $17,646,936 $13,209,981
=========== ===========
</TABLE>
See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
MARCH
2000 September 30,
(UNAUDITED) 1999
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 352,629 $ 344,696
Accrued liabilities 127,859 113,544
Current portion of long-term debt 462,839 444,026
------------ ------------
Total Current Liabilities 943,327 902,266
------------ ------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 1,128,680 1,237,669
Lessee deposits 9,248 9,248
------------ ------------
Total Long-Term Liabilities 1,137,928 1,246,917
------------ ------------
Total Liabilities 2,081,255 2,149,183
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COMMITMENTS
STOCKHOLDERS' EQUITY
Series B convertible preferred stock - $10 par value; 800,000 shares
authorized; 0 and 133,332 shares issued and outstanding; $10 per share
liquidation value (in the aggregate $0 and $1,370,742 including accrued
dividends of $0 and $37,422) -0- 1,333,320
Series C participating preferred stock - $10 par value; 500,000
shares authorized; no shares issued or outstanding -0- -0-
Common stock - $.01 par value; 100,000,000 shares
authorized; 61,692,251 and 49,272,747 shares
issued and outstanding 616,920 492,725
Additional paid-in capital 31,380,806 23,935,679
Accumulated deficit (16,432,045) (14,700,926)
------------ ------------
Total Stockholders' Equity 15,565,681 11,060,798
------------ ------------
Total Liabilities and Stockholders' Equity $ 17,646,936 $ 13,209,981
============ ============
</TABLE>
See notes to the consolidated financial statements.
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<PAGE> 5
RENTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 386,603 $ 409,563 $ 857,862 $ 810,849
Service sales 516,558 -0- 980,855 -0-
Royalty income 60,000 60,023 140,000 220,024
Rental income 30,901 14,112 60,589 14,112
------------ ------------ ------------ ------------
Total Revenues 994,062 483,698 2,039,306 1,044,985
------------ ------------ ------------ ------------
COSTS OF SALES:
Product sales 211,001 184,459 425,511 398,347
Service sales 460,390 -0- 827,488 -0-
------------ ------------ ------------ ------------
Total Cost of Sales 671,391 184,459 1,252,999 398,347
------------ ------------ ------------ ------------
GROSS PROFIT 322,671 299,239 786,307 646,638
EXPENSES:
General and administrative 1,082,901 897,331 1,963,295 1,702,924
Research and development 112,528 178,772 229,524 251,509
Depreciation and amortization 110,440 100,227 218,485 185,973
------------ ------------ ------------ ------------
Total Expenses 1,305,869 1,176,330 2,411,304 2,140,406
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (983,198) (877,091) (1,624,997) (1,493,768)
OTHER INCOME (EXPENSE):
Interest income 33,258 25,792 38,391 58,225
Interest expense (36,453) (11,985) (74,692) (12,215)
------------ ------------ ------------ ------------
Total Other Income (Expense) (3,195) 13,807 (36,301) 46,010
------------ ------------ ------------ ------------
Equity in Loss of Investee (69,821) 0 (69,821) 0
------------ ------------ ------------ ------------
NET LOSS (1,056,214) (863,284) (1,731,119) (1,447,758)
============ ============ ============ ============
Dividend requirement on Preferred Stock 0 176,617 89,612 208,809
============ ============ ============ ============
LOSS APPLICABLE TO COMMON STOCK $ (1,056,214) $ (1,039,901) $ (1,820,731) $ (1,656,567)
------------ ------------ ------------ ------------
Basic and diluted weighted average number
of common shares outstanding 53,776,364 43,262,908 52,774,595 42,649,442
============ ============ ============ ============
PER SHARE LOSS
Basic and diluted $ (0.02) $ (0.02) $ (0.03) $ (0.04)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Six Months ended March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Series B Par
Shares Amount Shares Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, October 1, 1999 133,332 $ 1,333,320 49,272,747 $ 492,725
Common stock and options issued for cash net
of offering costs of $570,831 8,428,334 84,283
Common stock issued for cash and $117,121 in stock
subscription receivables on options and warrants
exercised 1,452,550 14,526
Preferred stock issued for cash, net of offering
costs of $16,660 16,666 166,660
Common stock issued for prepaid expense 200,000 2,000
Preferred stock redeemed for cash (23,832) (238,320)
Common stock issued for conversion of Series B
Preferred stock (126,166) (1,261,660) 2,338,620 23,386
Deemed dividends on convertible
preferred stock of $20,200
Warrants issued for services
Warrants issued for acquisition costs
in business acquisition
Warrants issued for offering costs
Net loss for the six months ended March 31, 2000
------------ ------------ ------------ ------------
Balances, March 31, 2000 (unaudited) -0- $ -0- 61,692,251 $ 616,920
============ ============ ============ ============
<CAPTION>
Additional
Paid-in Accumulated
Capital Deficit
------------ ------------
<S> <C> <C>
Balances, October 1, 1999 $ 23,935,679 $(14,700,926)
Common stock and options issued for cash net
of offering costs of $570,831 5,876,885
Common stock issued for cash and $117,121 in stock
subscription receivables on options and warrants
exercised 185,030
Preferred stock issued for cash, net of offering
costs of $16,660 (16,660)
Common stock issued for prepaid expense 104,240
Preferred stock redeemed for cash (46,680)
Common stock issued for conversion of Series B
Preferred stock 1,275,696
Deemed dividends on convertible
preferred stock of $20,200
Warrants issued for services 17,078
Warrants issued for acquisition costs
in business acquisition 16,281
Warrants issued for offering costs 33,257
Net loss for the six months ended March 31, 2000 (1,731,119)
------------ ------------
Balances, March 31, 2000 (unaudited) $ 31,380,806 $(16,432,045)
============ ============
</TABLE>
See notes to the consolidated financial statements.
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<PAGE> 7
RENTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six Months Ended March 31, (Unaudited) 2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $(1,731,119) $(1,447,758)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 284,456 219,850
Services paid with warrants 17,078 -0-
Equity in loss of investee 69,821
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivables (145,404) 65,301
Decrease in other receivables 13,195 -0-
(Increase) Decrease in inventories 22,494 (4,085)
Decrease in prepaids and other current assets 38,126 57,908
Increase (Decrease) in accounts payable
and other accrued expenses 59,670 (67,135)
Increase in lessee deposits -0- 11,954
----------- -----------
Net Cash Used in Operating Activities (1,371,683) (1,163,965)
----------- -----------
INVESTING ACTIVITIES
Purchase of land and buildings -0- (444,561)
Purchase of equipment (141,077) (376,687)
Increase in investments (350,252) -0-
Increase in deposits and other assets (74,910) (208,985)
----------- -----------
Net Cash Used in Investing Activities (566,239) (1,030,233)
----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock 166,660 750,000
Proceeds from issuance of common stock 6,647,691 236,194
Payment for offering costs (587,491) (79,000)
Redemption of preferred stock (285,000) -0-
Payment on long-term debt and notes payable (90,176) (490)
----------- -----------
Net Cash Provided by Financing Activities 5,851,684 906,704
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,913,762 (1,287,494)
Cash and Cash Equivalents,
Beginning of Period 308,182 3,056,379
----------- -----------
Cash and Cash Equivalents,
End of Period $ 4,221,944 $ 1,768,885
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 8
RENTECH, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 (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, 1999 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 six months ended March 31, 2000
are not necessarily indicative of the results that may be expected for the full
fiscal year ending September 30, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash equivalents - The Company considers highly liquid investments
purchased with original maturities of three months or less and money market
accounts to be cash equivalents.
Inventories - Inventories which consist of water protection sealants,
chemicals and packaging supplies, are recorded at the lower of cost (first-in,
first-out) or market.
Licensed Technology - Licensed technology represents costs incurred by
the Company primarily for the purpose of demonstrating the Company's proprietary
technology to prospective licensees, which it licenses to third parties under
various fee arrangements. These capitalized costs are carried at the lower of
amortized cost or realizable value and are being amortized over 15 years.
Goodwill - Goodwill which relates to the acquisition of Okon in 1997
and the acquisition of PML in 1999 is being amortized over a 15 year period
using the straight-line method.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization expense are computed using the straight-line
method over the estimated useful lives of the assets, which range from three to
thirty years except for leasehold improvements which are amortized over the
shorter of the useful life or the remaining lease term. Maintenance and repairs
are expensed as incurred. Major renewals and improvements are capitalized. When
property and equipment are retired or otherwise disposed of, the asset and
accumulated depreciation or amortization are removed from the accounts and the
resulting profit or loss is reflected in operations. The Company capitalizes
interest costs as part of construction in process. Interest cost capitalized for
the six months ended March 31, 2000 was not material.
Investment in ITN/ES - The Company has a 10% investment in ITN Energy
System, Inc. The investment is stated at cost. The investment is periodically
evaluated for impairment and is carried at the lower of cost or net realizable
value.
Investment in Dresser - The Company has a 10% investment in Dresser
Engineers & Construction, Inc. The investment is stated at cost. The investment
is evaluated periodically and is carried at the lower of cost or net realizable
value.
Investment in Sand Creek - The Company has a 50% investment in Sand
Creek Energy, LLC. The investment is accounted for using the equity method of
accounting. Under such method, the Company's proportionate share of net income
(loss) is included as a separate item in the statement of operations.
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<PAGE> 9
Technology rights - Technology rights are recorded at cost and are
being amortized on a straight-line method over a ten-year estimated life.
Long-Lived Assets - Long-lived assets, identifiable intangibles, and
associated 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.
Revenue Recognition - Sales of water-based stains sealers and coatings
are recognized when the goods are shipped to the customers. Revenues from mud
logging services are billed at the completion of the service. Rental income from
tenant leases is recognized in the period earned. Laboratory research revenues
are recognized upon completion of a project. Royalty fees are recognized when
the revenue earning activities that are to be provided by the Company have been
performed and no future obligation to perform services exist.
Income Taxes - The Company accounts for income taxes under the
liability method which requires an entity to recognize deferred tax assets and
liabilities. Temporary differences are differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in future years.
Net Loss per Common Share - Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 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 (loss) available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of securities
that could share in the earnings of an entity, similar to fully diluted earnings
per share. For the six-month periods ended March 31, 2000 and 1999, total stock
options of 8,025,448 and 3,265,700 and total stock warrants of 4,225,834 and
1,375,926 were not included in the computation of diluted loss per share because
their effect was anti-dilutive.
Reclassifications - Certain reclassifications have been made to the
1999 financial statements in order for them to conform to the 2000 presentation.
Such reclassifications have no impact on the Company's financial position or
results of operations.
3. STOCKHOLDERS' EQUITY
Common stock - On October 12, 1999, the Company began offering for sale
its common stock in a private placement memorandum ("PPM") for the purpose of
raising $7,500,000. First Union Securities is the placement agent for this
offering. The Company is offering for sale Units consisting of four shares of
its $.01 par value common stock and one redeemable stock purchase warrant for
the purchase of one share of common stock. The purchase price is $2.40 per Unit.
The Company has granted the placement agent an option, exercisable within 45
days from the date of the memorandum, to purchase shares of common stock equal
to 15% of the shares included in the Units sold, to cover over-allotments, if
any, sold to investors in this offering. The warrants entitle investors to
purchase one share of the Company's common stock at an exercise price of $1.20
for a period of five years from the date of this memorandum. The warrants may be
redeemed for $.05 per warrant by the Company at any time prior to their
expiration date upon written notice 30 days in advance to the holders of the
warrants if the market price of the common stock exceeds 120% of the exercise
price of the warrants for a period of 20 consecutive trading days prior to a
call for redemption by the Company, and if the holders do not exercise their
warrant during the 30-day period. The holders of shares of common stock, the
additional shares of common stock to be issued upon exercise of the warrants and
any over-allotment shares will be entitled to piggyback registration rights and
the provisions of the Company's shareholder Rights Plan.
The Company completed its private placement under this memorandum on
January 17, 2000. The Company issued 4,136,667 shares under the above PPM for
$2,482,000 before offering costs of $295,831.
On March 18, 2000, the Company sold 1,000,000 shares of its common
stock to Anschutz Investment Company and 1,000,000 additional shares of common
stock to Forest Oil Corporation at a price of $.60 per share. In addition,
Anschutz Investment and Forest Oil separately purchased options to acquire an
additional 3,000,000 shares each, 2,000,000 shares at $1.25
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<PAGE> 10
per share exercisable until December 31, 2001, and 1,000,000 shares at $5.00
exercisable until December 31, 2004. The Company received $1,300,000 in cash
proceeds from the issuance of common stock and options.
The Company and Forest Oil also signed a memorandum of understanding
that entitles Forest Oil to obtain one or more licenses to use the Company's GTL
technology. The Company and Forest oil are evaluating several potential
opportunities for use of the technology at sites of Forest Oil's natural gas
reserves as well as at existing industrial gas plants.
On March 29, 2000, the Company sold 2,291,667 shares of its common
stock to Azure Energy Fund with warrants to purchase 2,291,667 more shares of
common stock. The sales price was $2,750,000 before offering costs of $275,000.
The warrants are exercisable at a price of $2.64 per share until March 29, 2003.
For the six months ended March 31, 2000, the Company issued 1,452,550
shares of its common stock upon the exercise of stock options and stock warrants
for cash proceeds of $82,435 and stock subscription receivables of $117,121.
Subsequent to March 31, 2000, the Company received the $117,121 on the stock
subscription receivables.
During the six-month period ended March 31, 2000, the Company issued
200,000 shares of its common stock with a market value of $106,240 in payment
for director's fees for the fiscal years of 2000 and 2001. At March 31, 2000,
the Company has charged $26,561 to expense and recorded the balance in prepaid
expenses.
Preferred stock - In October 1999, the Company issued for cash 16,666
shares of Series B convertible Preferred stock for $150,000, net of $16,660 in
offering costs. The Company recorded a deemed dividend of $20,200 when it issued
the Series B convertible Preferred stock as the Series B convertible Preferred
stock is convertible at a discount into common stock of the Company. During the
six-month period ended March 31, 2000, the Company redeemed 23,832 shares of
Series B convertible Preferred stock for $285,000 which includes dividends of
$46,680. The Company converted 126,166 shares of Series B convertible Preferred
Stock at $10.00 per share together with dividends earned on these shares of
$60,154 for 2,338,620 common shares.
4. SEGMENT INFORMATION
The Company operates in four business segments as follows:
o Paint - The Company manufactures and distributes water-based
stains, sealers and coatings.
o Alternative Fuels - The Company develops and markets processes
for conversion of low-value, carbon-bearing solids or gases into
valuable liquid hydrocarbons.
o Mud Logging Services - The Company is in the business of logging
the progress of drilling operations for the oil and gas industry.
o Real Estate - The Company leases office and warehouse space to
third parties.
The Company's reportable operating segments have been determined in
accordance with the Company's internal management structure, which is organized
based on operating activities. The accounting policies of the operating segments
are the same as those described in the summary of accounting policies. The
Company evaluates performance based upon several factors, of which the primary
financial measure is segment operating income.
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Paint $ 386,603 $ 409,561 $ 857,862 $ 810,849
Alternative Fuels 198,035 60,024 380,935 220,024
Mud Logging Services 378,523 -0- 739,920 -0-
Real Estate 30,901 14,112 60,589 14,112
------------ ------------ ------------ ------------
$ 994,062 $ 483,697 $ 2,039,306 $ 1,044,985
------------ ------------ ------------ ------------
Operating Income (Loss):
Paint $ (67,109) $ (8,464) $ 3,111 (3,173)
Alternative Fuels (853,762) (879,896) (1,552,900) (1,501,885)
Mud Logging Services (61,868) -0- (83,697) -0-
Real Estate (459) 11,290 8,489 11,290
------------ ------------ ------------ ------------
$ (983,198) $ (877,070) $ (1,624,997) $ (1,493,768)
------------ ------------ ------------ ------------
Depreciation and Amortization:
Paint $ 24,619 $ 26,858 $ 51,551 $ 53,602
Alternative Fuels 70,873 84,257 155,091 160,256
Mud Logging Services 27,588 -0- 53,535 -0-
Real Estate 13,050 5,992 24,279 5,992
------------ ------------ ------------ ------------
$ 136,130 $ 117,107 $ 284,456 $ 219,850
------------ ------------ ------------ ------------
Expenditures for Additions
and Long-Lived Assets
Paint $ -0- $ 865 $ -0- $ 7,554
Alternative Fuels (4,380) 214,349 68,144 369,133
Mud Logging Services 53,670 -0- 72,933 -0-
Real Estate -0- 1,433,661 -0- 1,433,661
------------ ------------ ------------ ------------
$ 49,290 $ 1,648,875 $ 141,077 $ 1,810,348
------------ ------------ ------------ ------------
Total Assets:
Paint $ 1,380,741 $ 1,521,382 $ 1,380,741 $ 1,521,382
Alternative Fuels 12,981,778 8,147,401 12,981,778 8,147,401
Mud Logging Services 1,613,255 -0- 1,613,255 -0-
Real Estate 1,671,162 1,439,332 1,671,162 1,439,332
------------ ------------ ------------ ------------
$ 17,646,936 $ 11,108,115 $ 17,646,936 $ 11,108,115
------------ ------------ ------------ ------------
</TABLE>
5. INVESTMENT IN SAND CREEK
On January 7, 2000, the Company and Republic Financial Corporation
("Republic") through Sand Creek Energy, LLC (SCE) purchased the "Sand Creek"
methanol facility and all the supporting infrastructure, buildings and the
underlying 17 acre site. The Company and Republic are developing a plan to
convert the facility to a gas-to-liquids (GTL) plant making Fischer-Tropsch
diesel, naphtha, petroleum waxes and other products.
The new owner of the facility is SCE which is 50 percent owned by
Rentech Development Corp., a wholly-owned subsidiary of Rentech, Inc., and 50
percent owned by RFC-Sand Creek Development, LLC, a wholly-owned subsidiary of
Republic Financial Corporation. Republic Financial Corporation is headquartered
in Aurora, Colorado. In connection with the acquisition of the facility, SCE
assumed certain commitments with third parties. The Company and Republic jointly
and severally guarantee the full and punctual performance and payment by SCE of
all SCE's obligations with respect to this facility. The aggregate liability of
the Company under this guaranty shall not exceed $4,000,000.
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<PAGE> 12
For the three months ended March 31, 2000, the Company has contributed
$173,201 to SCE and has recognized $69,821 related to its equity in SCE's loss.
As of March 31, 2000, the Company has recorded a $103,380 investment in SCE.
On March 20, 2000, the Company granted Texaco Energy Systems, Inc. the
exclusive right to negotiate for Texaco's participation in the project to
retrofit the Sand Creek plant for the planned purpose. Texaco has the right to
evaluate and acquire up to one-half of the Company's 50% interest in Sand Creek
Energy LLC. This agreement is in force until April 14, 2000 unless renewed or
cancelled by mutual agreement (see Note 8).
6. MEMORANDUMS OF UNDERSTANDING
Jacob Engineering U.K. Limited
In January 2000, the Company and Jacobs Engineering U.K. Limited signed
a Memorandum of Understanding (MOU) for a non-exclusive worldwide license to
market the Rentech synthesis gas-to-liquids (GTL) process technology for the
conversion of natural gas to valuable liquid hydrocarbons. This MOU will be
effective until the earlier of thirty-six months from January 20, 2000, or upon
six months' written notice by either party. The Company did not receive or incur
any cost associated with entering into this MOU.
According to the terms of the MOU, both companies agree to cooperate on
a plan to jointly market their combined capabilities to potential customers on a
worldwide basis. These collective endeavors will provide licensing and
engineering services, including design, procurement, construction, project
technical development and estimating services as required for each specific
project. The companies will target a variety of prospective natural gas fed and
natural gas retrofit GTL facilities where Rentech's GTL process could be
utilized. Estimated plant sizes will range from 2,000 to 50,000 barrels per day.
FuelCell Energy, Inc.
In March 2000, the Company agreed in a Memorandum of Understanding with
FuelCell Energy, Inc. of Danbury, Connecticut to study the feasibility for
locating a commercial scale fuel cell power plant at the site of the Sand Creek
facility, to produce up to 9,000 kilowatts of electricity. The goal is to
operate both the Company's GTL technology and FuelCell's fuel cell technology at
the site. The Companies are evaluating use of GTL products as the feedstock for
the fuel cell. The Company did not receive or incur any cost associated with
this MOU.
7. SUPPLEMENTAL DATA TO STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2000 and 1999, the Company made cash
interest payments of $74,692 and $12,215.
Excluded from the statements of cash flows for the six months ended
March 31, 2000 and 1999 were the effects of certain non-cash investing and
financing activities as follows:
<TABLE>
<CAPTION>
Six Months Ended March 31, 2000 1999
----------- -----------
<S> <C> <C>
Issuance of common stock for prepaid expenses $ 106,240 $ -0-
Issuance of common stock for conversion of preferred stock
and dividends $ 1,321,814 $ 1,934,824
Issuance of common stock upon exercise of stock options for
stock subscription receivables $ 117,121 $ -0-
Issuance of warrants for offering costs $ 33,257 $ -0-
Issuance of warrants for acquisition costs in business acquisition $ 16,281 $ -0-
Purchase of land and building financed with mortgage payable $ -0- $ 989,100
Increase (decrease) in accrued dividends $ (37,422) $ 34,346
</TABLE>
-12-
<PAGE> 13
8. SUBSEQUENT EVENTS
The Company and Texaco Energy Systems, Inc. agreed on April 15, 2000 to
extend the exclusive right to negotiate for Texaco's participation in
the project to retrofit the Sand Creek plant for the planned purpose
(see Note 5).
-13-
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
RESULTS OF OPERATIONS
For the six-month and three-month periods ended March 31, 2000, the
Company had net losses of $1,731,119 and $1,056,214, respectively, compared to
net losses of $1,447,758 and $863,284 for comparable periods in 1999. The
increase is primarily due to expenses associated with Petroleum Mud Logging,
Inc. ("PML"), which was acquired in June 1999, and the initial receipt of
$100,000 royalty income under the Texaco license agreement in the first quarter
of the 1999 fiscal year.
During the six-month and three-month periods ended March 31, 2000, the
Company recognized $857,862 and $386,603 for sales of water-based paints,
sealers and coatings, as compared to $810,849 and $409,563 for the six-month and
three-month periods ended March 31, 1999. On June 1, 1999, the Company acquired
the assets of PML. The revenue contributed from this subsidiary during the
six-month and three-month periods was $739,920 and $378,523, respectively. There
was no revenue for comparable periods in the prior year. Under a contract with
Texaco, the Company began billing for technical services in April 1999. Revenues
for technical services for the six-month and three-month periods ended March 31,
2000 were $240,935 and $102,900, as compared to no technical service revenue for
the six months ended March 31, 1999. The Company recorded the revenue earned
from PML and the revenue earned from technical services as service revenues for
the period ended March 31, 2000. The Company earned $140,000 and $60,000 in
royalty income during the six-month and three-month periods ended March 31,
2000, as compared to $220,024 and $60,024 in royalty income for the six-month
and three-month periods ended March 31, 1999. In February 1999, the Company
acquired the land and building occupied by its research department and three
other tenants. Rental income from this facility contributed $60,589 and $30,901
in revenue for the six-month and three-month ended March 31, 2000, as compared
to $14,112 of rental income for the comparable periods in 1999.
During the six-month and three-month periods ended March 31, 2000,
costs of sales increased to $1,252,999 and $671,391, as compared to $398,347 and
$184,459 for the six-month and three-month periods ended March 31, 1999. The
increase relates almost entirely to variable costs associated directly with
increases in revenues as detailed above. During the six-month and three-month
periods ended March 31, 2000, costs of sales related to water-based paints,
sealers and coatings was $425,511 and $211,001, as compared to $398,347 and
$184,459 for comparable periods in the 1999 fiscal period. This is attributable
to the increase in sales of water-based paints, sealers and coatings.
The gross profit of $786,307 and $322,671 for the six-month and
three-month periods ended March 31, 2000, as compared to $646,638 and $299,239
in the six-month and three-month periods ended March 31, 1999, is a result of
new revenues and an increase in sales of water-based paints, sealers and
coatings.
During the six-month and three-month periods ended March 31, 2000,
general and administrative expenses increased by $260,371 and $185,570 over the
comparable six-month and three-month periods ended March 31, 1999. The increase
is caused primarily by expenses associated with PML which was acquired June 1,
1999.
Depreciation and amortization increased by $32,512 and $10,213 during
the six-month and three-month periods ended March 31, 2000, compared to the
six-month and three-month periods ended March 31, 1999. This is primarily due to
the depreciation and amortization of assets acquired with the purchase of PML in
June, 1999, and a building acquired in February 1999.
Research and development expense decreased by $21,985 and $66,244
during the six-month and three-month periods ended March 31, 2000 over the
comparable period ended March 31, 1999. The Company continues to research and
develop the commercial use of the Rentech GTL Technology.
-14-
<PAGE> 15
Losses from operations for the six-month and three-month periods ended
March 31, 2000 increased by $131,229 and $106,107 over comparable periods in
fiscal 1999. The increased loss is primarily due to increases in expenses of
$270,898 and $129,539 offset by an increase in gross profit contributed by the
Company's GTL alternative fuel segment resulting from technical services revenue
received in fiscal 2000 and an operating profit from the real estate operation.
Total other expense increased by $82,311 and $17,002 for the six-month
and three-month periods ended March 31, 2000 over the comparable six-month and
three-month periods ended March 31, 1999. Interest expense increased by $62,477
and $24,468 for the six-month and three-month periods ended March 31, 2000,
compared to prior fiscal year periods ended March 31, 1999, as a result of debt
incurred acquiring PML and the real estate operation.
For the three months ended March 31, 2000, the Company recognized a
$69,821 loss in its equity investment in SCE (see Note 5, Investment in Sand
Creek).
Liquidity and Capital Resources
At March 31, 2000, the Company had working capital of $4,283,108, as
compared to working capital of $115,457 at September 30, 1999. The $4,167,651
increase in working capital is due to the net proceeds of preferred stock issued
for $150,000 in cash, net proceeds of common stock issued for $6,076,860, net of
the cash redemption of preferred shares for $285,000, as well as the ongoing
losses from operations.
The cash received from sale of common and preferred stock and the cash
generated from the Company's subsidiary operations are expected to be adequate
to fund the Company's operations, at the current level, through fiscal 2000.
The Company is discussing other proposals made by several energy
companies for exploitation of the Company's GTL Technology through licenses or
other business ventures. In October 1998, Rentech entered into a license
agreement with Texaco Energy Systems, Inc. which provides Texaco exclusive
rights to use Rentech's GTL Technology in commercial projects that use solid and
liquid hydrocarbons as feedstocks.
The Company has net deferred tax assets with a 100 percent valuation
allowance at March 31, 2000 and 1999. Management is not able to determine if it
is more likely than not that the net deferred tax assets will be realized.
Analysis of Cash Flow
As discussed under "Results of Operations," the Company had net losses
of $1,731,119 and $1,447,758, respectively, for the six months ended March 31,
2000 and 1999. The period ended March 31, 2000 includes depreciation on the
rental building, which was acquired in February 1999, and depreciation on PML's
equipment and amortization of goodwill acquired when PML was purchased in June
1999, which is not included in the comparable prior period.
There was a $145,404 increase in accounts receivable during the six
months ended March 31, 2000, compared to a $65,301 decrease during the
comparable 1999 period. The increase in 2000 is due to the acquisition of PML
during June 1999.
During the first half of fiscal 2000, $1,371,683 of net cash was used
by operating activities, compared to a net cash usage of $1,163,965 for the
comparable period of 1999.
The Company purchased $141,077 in equipment during the first half of
fiscal 2000, compared to purchases of $376,687 during the comparable 1999
period. During the first half of 1999, the Company purchased additional
equipment as it was setting up its new laboratory and research facility.
The Company invested $173,201 in SCE and $177,051 in Dresser during the
first half of 2000, as compared to no investments in the comparable 1999 period.
As discussed in Note 5, Investment in Sand Creek, the Company has a 50% interest
in SCE. Also, with the additional $177,051 cash investment in Dresser, the
Company increased its investment in Dresser from a 5% investment to a 10%
investment.
-15-
<PAGE> 16
Deposits and other assets increased by $74,910 during the first half of
2000, as compared to a $208,985 increase during the comparable 1999 period. The
increase in both periods is primarily due to payments of deposits for potential
acquisitions.
During the first quarter of fiscal 1999, $566,239 of net cash was used
by investing activities, compared to a net cash usage of $1,030,233 for the
comparable period of 1999.
The Company financed a portion of its activities by net proceeds of
$150,000 from issuance of 16,666 shares of preferred stock and $6,076,860 from
issuance of its common stock during the 2000 period, compared to net proceeds of
$157,194 from common stock and $750,000 in proceeds from preferred stock during
comparable periods in 1999.
During the six months ended March 31, 2000, the Company redeemed 23,832
shares of its preferred shares for $285,000, and paid $90,176 in principal
payments against its long-term debt. There were no similar payments during the
comparable 1999 period.
Cash increased during the first half of fiscal 2000 by $3,913,762,
compared to a decrease of $1,287,494 for the comparable periods of 1999. These
changes increased the ending cash balance to $4,221,944 at March 31, 2000 from
$308,182 at September 30, 1999. The 1999 changes decreased the $3,056,379
September 30, 1998 balance to $1,768,885 at March 31, 1999.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, which has been
subsequently amended by SFAS No. 137, established standards for recognizing all
derivative instruments, including those for hedging activities as either assets
or liabilities in the statement of financial position, and measuring those
instruments at fair value. This Statement is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. Management believes the
adoption of this statement will have no material impact on the Company's
consolidated financial statements.
Year 2000
Since the beginning of 2000, the Company did not have any interruptions
of its business due to the Year 2000 issue. During the next few months, the
Company will continue to monitor its operations and assess whether the Year 2000
issue has an impact on the Company. The Company has not incurred significant
costs to become Year 2000 compliant.
-16-
<PAGE> 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Change in Securities.
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>
Jan. 17, 2000 Common Stock 4,136,667(1) $2,678,699 ________ Accredited Rules 505, 506,
Investors Section 4(2) & 4(6)
Mar. 18, 2000 Common Stock 2,000,000(2) $1,200,000 -0- Accredited Rules 505, 506,
Investors Section 4(2) & 4(6)
Mar. 29, 2000 Common Stock 2,291,667(3) $2,750,000 $ 275,000 Offshore Regulation S
Investors
___________ Common Stock 200,000 $ 26,561 -0- Accredited Rules 505, 506,
Investors Section 4(2) & 4(6)
</TABLE>
(1)With warrants to purchase 1,034,167 shares of common stock at $1.20
per share for five years.
(2)With options to purchase 4,000,000 shares of common stock at $1.25
per share until December 31, 2001 and 2,000,000 shares of common stock
at $5.00 per share until December 31, 2004.
(3)With warrants to purchase 2,291,667 shares of common stock at $2.64
per share until March 29, 2003.
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
(b) Reports on Form 8-K:
Form 8-K dated Feb. 18, 2000 reporting under Item 5, Other Events
Form 8-K dated Mar. 20, 2000 reporting under Item 5, Other Events
Form 8-K dated Mar. 20, 2000 reporting under Item 5, Other Events
Form 8-K dated Apr. 4, 2000 reporting under Item 5, Other Events
-17-
<PAGE> 18
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.
/s/ Dennis L. Yakobson
Dated: May 15, 2000 -----------------------------------------
Dennis L. Yakobson, President
/s/ James P. Samuels
Dated: May 15, 2000 -----------------------------------------
James P. Samuels, Vice President-Finance
and Chief Financial Officer
-18-
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,221,944
<SECURITIES> 0
<RECEIVABLES> 683,391
<ALLOWANCES> 0
<INVENTORY> 67,988
<CURRENT-ASSETS> 5,226,435
<PP&E> 3,886,236
<DEPRECIATION> 439,851
<TOTAL-ASSETS> 17,646,936
<CURRENT-LIABILITIES> 943,327
<BONDS> 1,591,519
0
0
<COMMON> 616,920
<OTHER-SE> 14,948,761
<TOTAL-LIABILITY-AND-EQUITY> 17,646,936
<SALES> 857,862
<TOTAL-REVENUES> 2,039,306
<CGS> 425,511
<TOTAL-COSTS> 1,252,999
<OTHER-EXPENSES> 2,411,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,692
<INCOME-PRETAX> (1,731,119)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,731,119)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
