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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 June 30, 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 June 30, 2000: common stock - 62,264,228.
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RENTECH, INC.
FORM 10-QSB QUARTERLY REPORT
Table of Contents
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2000
and September 30, 1999.............................................3
Consolidated Statements of Operations for the three and
nine months ended June 30, 2000 and June 30, 1999..................5
Consolidated Statement of Stockholders' Equity for
the nine months ended June 30, 2000................................6
Consolidated Statements of Cash Flows for the nine
months ended June 30, 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>
JUNE 30,
2000 SEPTEMBER 30,
(UNAUDITED) 1999
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,484,380 $ 308,182
Accounts receivable, net 578,126 374,683
Other receivables 204,356 59,378
Inventories 105,231 90,482
Prepaid expenses and other current assets 266,611 184,998
----------- -----------
Total Current Assets 3,638,704 1,017,723
----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $498,553 and $329,238 3,574,404 3,415,921
----------- -----------
OTHER ASSETS
Licensed technology, net of accumulated
amortization of $1,573,252 and $1,401,694 1,857,897 2,029,454
Goodwill, net of accumulated amortization
of $276,904 and $207,771 1,116,529 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 58,703 -0-
Technology rights, net of accumulated
amortization of $76,256 and $55,907 211,490 231,839
Deposits and other assets 1,115,280 426,471
----------- -----------
Total Other Assets 9,456,141 8,776,337
----------- -----------
Total Assets $16,669,249 $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>
JUNE 30,
2000 SEPTEMBER 30,
(UNAUDITED) 1999
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 452,600 $ 344,696
Accrued liabilities 117,364 113,544
Current portion of long-term debt 321,243 444,026
------------ ------------
Total Current Liabilities 891,207 902,266
------------ ------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 1,051,880 1,237,669
Lessee deposits 9,248 9,248
------------ ------------
Total Long-Term Liabilities 1,061,128 1,246,917
------------ ------------
Total Liabilities 1,952,335 2,149,183
------------ ------------
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; 62,264,228 and 49,272,747 shares
issued and outstanding 622,640 492,725
Additional paid-in capital 32,395,028 23,935,679
Unearned compensation (137,549)
Accumulated deficit (18,163,205) (14,700,926)
------------ ------------
Total Stockholders' Equity 14,716,914 11,060,798
------------ ------------
Total Liabilities and Stockholders' Equity $ 16,669,249 $ 13,209,981
============ ============
</TABLE>
See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 668,515 $ 576,103 $ 1,526,377 $ 1,386,953
Service sales 615,745 145,951 1,596,600 145,951
Royalty income 60,000 60,455 200,000 280,479
Rental income 31,414 27,767 92,003 38,975
------------ ------------ ------------ ------------
Total Revenues 1,375,674 810,276 3,414,980 1,852,358
------------ ------------ ------------ ------------
Cost of sales:
Product sales 307,681 301,562 733,192 650,069
Service sales 496,120 119,468 1,323,608 119,468
------------ ------------ ------------ ------------
Total Cost of Sales 803,801 421,030 2,056,800 769,537
------------ ------------ ------------ ------------
Gross profit 571,873 389,246 1,358,180 1,082,821
Expenses:
General and administrative 1,654,181 992,092 3,608,334 2,822,091
Research and development 329,726 76,046 559,250 219,589
Depreciation and amortization 111,246 101,912 329,731 315,769
Loss on disposal of assets -0- -0- 9,142 -0-
------------ ------------ ------------ ------------
Total Expenses 2,095,153 1,170,050 4,506,457 3,357,449
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,523,280) (780,804) (3,148,277) (2,274,628)
OTHER INCOME (EXPENSE):
Interest income 61,266 11,207 99,657 69,431
Interest expense (33,057) (26,681) (107,749) (38,896)
------------ ------------ ------------ ------------
Total Other Income (Expense) 28,209 (15,474) (8,092) 30,535
------------ ------------ ------------ ------------
Equity in Loss of Investee (236,089) -0- (305,910) -0-
------------ ------------ ------------ ------------
NET LOSS (1,731,160) (796,278) (3,462,279) (2,244,093)
------------ ------------ ------------ ------------
Dividend requirement on preferred stock -0- 208,809 89,612 407,107
------------ ------------ ------------ ------------
LOSS APPLICABLE TO COMMON STOCK $ (1,731,160) $ (1,005,087) $ (3,551,891) $ (2,651,200)
------------ ------------ ------------ ------------
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 61,970,497 44,432,781 56,009,496 43,243,888
------------ ------------ ------------ ------------
PER SHARE LOSS:
Basic and diluted $ (0.03) $ (0.02) $ (0.06) $ (0.06)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Convertible
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 $621,767 -0- -0- 10,252,861 102,529
Preferred stock issued for cash, net of offering
costs of $16,660 16,666 166,660 -0- -0-
Common stock issued for deposit on potential business acquisition -0- -0- 200,000 2,000
Common stock issued for prepaid expense -0- -0- 200,000 2,000
Preferred stock and $46,680 in dividends redeemed for cash (23,832) (238,320) -0- -0-
Common stock issued for conversion of Series B
preferred stock and $60,154 in dividends (126,166) (1,261,660) 2,338,620 23,386
Deemed dividends on convertible
preferred stock of $20,200 -0- -0- -0- -0-
Options granted for services -0- -0- -0- -0-
Options granted for acquisition costs
in business acquisition -0- -0- -0- -0-
Warrants granted for offering costs -0- -0- -0- -0-
Net loss for the nine months ended June 30, 2000 -0- -0- -0- -0-
---------- ----------- ----------- ---------
Balances, June 30, 2000 (unaudited) -0- $ -0- 62,264,228 $622,640
========== =========== ========== ========
<CAPTION>
Additional Total
Paid-in Unearned Accumulated Stockholders'
Capital Compensation Deficit Equity
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balances, October 1, 1999 $ 23,935,679 $ -0- $(14,700,926) $ 11,060,798
Common stock and options issued for cash,
net of offering costs of $621,767 6,205,667 -0- -0- 6,308,196
Preferred stock issued for cash, net of offering
costs of $16,660 (16,660) -0- -0- 150,000
Common stock issued for deposit on potential business acquisition 398,000 -0- -0- 400,000
Common stock issued for prepaid expense 104,240 -0- -0- 106,240
Preferred stock and $46,680 in dividends redeemed for cash (46,680) -0- -0- (285,000)
Common stock issued for conversion of Series B
preferred stock and $60,154 in dividends 1,275,696 -0- -0- 37,422
Deemed dividends on convertible
preferred stock of $20,200 -0- -0- -0- -0-
Options granted for services 489,548 (137,549) -0- 351,999
Options granted for acquisition costs
in business acquisition 16,281 -0- -0- 16,281
Warrants granted for offering costs 33,257 -0- -0- 33,257
Net loss for the nine months ended June 30, 2000 -0- -0- (3,462,279) (3,462,279)
------------- ---------- ------------- ------------
Balances, June 30, 2000 (unaudited) $ 32,395,028 $(137,549) $(18,163,205) $ 14,716,914
============= ========== ============= ============
</TABLE>
See notes to the consolidated financial statements
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine Months Ended June 30, (Unaudited) 2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $(3,462,279) $(2,244,093)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 454,716 340,465
Services paid with options 351,999 -0-
Loss on disposal of assets 9,142 -0-
Equity in loss of investee 305,910 -0-
Changes in operating assets and liabilities,
net of business acquisitions
(Increase) in accounts receivables (203,443) (146,883)
(Increase) in other receivables (144,978) -0-
(Increase) in inventories (14,749) (10,692)
Decrease in prepaids and other current assets 24,627 105,367
Increase (Decrease) in accounts payable
and other accrued expenses 149,146 (67,591)
Increase in lessee deposits -0- 9,248
----------- -----------
Net Cash Used in Operating Activities (2,529,909) (2,014,179)
----------- -----------
INVESTING ACTIVITIES:
Purchase of land and buildings -0- (448,224)
Purchase of equipment (392,987) (505,335)
Purchase of business -0- (590,109)
Increase in investments (541,664) -0-
Proceeds from disposal of property and equipment 31,687 4,400
Increase in deposits and other assets (288,809) (406,279)
----------- -----------
Net Cash Used in Investing Activities (1,191,773) (1,945,547)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 166,660 1,630,000
Proceeds from issuance of common stock 6,929,961 286,194
Payment for offering costs (605,169) (159,000)
Redemption of preferred stock (285,000) -0-
Payment on long-term debt and notes payable (308,572) (9,315)
----------- -----------
Net Cash Provided by Financing Activities 5,897,880 1,747,879
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,176,198 (2,211,847)
Cash and Cash Equivalents,
Beginning of Period 308,182 3,056,379
----------- -----------
Cash and Cash Equivalents,
End of Period $ 2,484,380 $ 844,532
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 8
RENTECH, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 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 nine months ended June 30, 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 nine months ended June 30, 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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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 nine-month periods ended June 30, 2000 and 1999, total stock
options of 8,003,000 and 3,090,200 and total stock warrants of 3,981,305 and
2,275,426 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.
Recent Accounting Pronouncements - The Financial Accounting Standards
Board ("FASB") has recently issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133, amended by SFAS No. 137 established standards for
recognizing all derivative instruments at fair value. This Statement is
effective for quarters of fiscal years beginning after June 15, 2000. Management
believes the adoption of this statement will have no impact on the Company's
consolidated financial statements.
In March 2000, the FASB issued Emerging Issues Task Force Issue No.
00-2, "Accounting for Web Site Development Costs" ("EITF 00-2"), which is
effective for all such costs incurred for fiscal quarters beginning after June
30, 2000. This issue establishes accounting and reporting standards for costs
incurred to develop a web site based on the nature of each cost. Currently as
the Company has no web site development costs, the adoption of EITF 00-2 would
have no impact on the Company's financial condition or results of operations. To
the extent the Company, begins to enter into such transactions in the future,
the Company will adopt the Issue's disclosure requirements in the quarterly and
annual financial statements for the year ending September 30, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation" ("FIN 44"), which is
effective July 1, 2000, except that certain conclusions in this interpretation
which cover specific events that occur after either December 15, 1998 or January
12, 2000 are recognized on a prospective basis from July 1, 2000. This
Interpretation clarifies the application of APB Opinion 25 for certain issues
relating to stock issued to employees. The Company believes its existing stock
based compensation policies and procedures are in compliance with FIN 44 and
therefore, the adoption of FIN 44 will have no material impact on the Company's
financial condition, results of operations or cash flows.
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<PAGE> 10
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 was the placement agent for this
offering. The Company offered 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 was $2.40 per Unit.
The Company 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
was 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 $346,767.
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 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 nine months ended June 30, 2000, the Company issued 1,824,527
shares of its common stock upon the exercise of stock options and stock warrants
for cash proceeds of $397,962.
During June 2000, the Company issued 200,000 shares of its common stock
with a fair market value of $400,000 as a deposit in connection with a potential
business acquisition.
During the nine-month period ended June 30, 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 June 30, 2000, the
Company has charged $39,842 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
nine-month period ended June 30, 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.
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<PAGE> 11
During February 2000, the Company entered into a consulting agreement
with DSN Enterprises Ltd. ("DSN"). The Company granted the following stock
options to DSN.
o 100,000 stock options exercisable at an exercise price of $.575
per share. These stock options are exercisable at the date of the
grant and expire during 2001.
o 180,000 stock options exercisable at an exercise price of $1.25
per share. These stock options are exercisable at the date of the
grant and expire during 2001.
o 100,000 stock options exercisable at an exercise price of $.80 per
share. These stock options are exercisable beginning on May 10,
2000 and expire during 2001.
o 100,000 stock options exercisable at an exercise price of $.90 per
share. These stock options are exercisable beginning on October
10, 2000 and expire during 2001.
The Company recorded $334,921 in consulting expense and $137,549 in
unearned compensation as of June 30, 2000 from the issuance of these stock
options.
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 Nine Months Ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Paint $ 668,515 $ 576,103 $ 1,526,377 $ 1,386,953
Alternative Fuels 210,062 124,455 590,997 344,479
Mud Logging Services 465,683 81,951 1,205,603 81,951
Real Estate 31,414 27,767 92,003 38,975
------------ ------------ ------------ ------------
$ 1, 375,674 $ 810,276 $ 3,414,980 $ 1,852,358
------------ ------------ ------------ ------------
Operating Income (Loss):
Paint $ 157,728 $ 91,421 $ 160,839 88,248
Alternative Fuels (1,734,465) (887,729) (3,287,365) (2,385,603)
Mud Logging Services 10,189 6,316 (73,508) 6,316
Real Estate 43,268 9,188 51,757 16,411
------------ ------------ ------------ ------------
$ (1,523,280) $ (780,804) $ (3,148,277) $ (2,274,628)
------------ ------------ ------------ ------------
Depreciation and Amortization:
Paint $ 71,190 $ 26,528 $ 122,741 $ 80,130
Alternative Fuels 56,727 74,212 211,818 234,468
Mud Logging Services 29,293 7,890 82,828 7,890
Real Estate 13,050 11,985 37,329 17,977
------------ ------------ ------------ ------------
$ 170,260 $ 120,615 $ 454,716 $ 340,465
------------ ------------ ------------ ------------
Expenditures for Additions
and Long-Lived Assets:
Paint $ 46,604 $ 943 $ 46,604 $ 8,497
Alternative Fuels 171,285 124,648 239,429 493,781
Mud Logging Services 34,021 1,351,701 106,954 1,351,701
Real Estate -0- 3,663 -0- 1,437,324
------------ ------------ ------------ ------------
$ 251,910 $ 1,480,955 $ 392,987 $ 3,291,303
------------ ------------ ------------ ------------
Total Assets:
Paint $ 1,495,799 $ 1,624,365 $ 1,495,799 $ 1,624,365
Alternative Fuels 11,862,628 7,455,494 11,862,628 7,455,494
Mud Logging Services 1,636,182 1,497,184 1,636,182 1,497,184
Real Estate 1,674,640 1,436,741 1,674,640 1,436,741
------------ ------------ ------------ ------------
$ 16,669,249 $ 12,013,784 $ 16,669,249 $ 12,013,784
------------ ------------ ------------ ------------
</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.
-12-
<PAGE> 13
For the nine months ended June 30, 2000, the Company has contributed
$364,613 to SCE and has recognized $305,910 related to its equity in SCE's loss.
As of June 30, 2000, the Company has recorded a $58,703 investment in SCE.
On April 15, 2000 as amended, 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 renewed or cancelled by
mutual agreement.
6. SUPPLEMENTAL DATA TO STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 2000 and 1999, the Company made cash
interest payments of $107,749 and $38,896.
Excluded from the statements of cash flows for the nine months ended
June 30, 2000 and 1999 were the effects of certain non-cash investing and
financing activities as follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30, 2000 1999
------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Issuance of common stock for prepaid expenses $ 106,240 $-0-
Issuance of common stock for deposit on potential
business acquisition $ 400,000 $-0-
Issuance of common stock for conversion of preferred stock
and dividends $1,299,082 $2,413,526
Issuance of stock options for unearned compensation $137,549 $-0-
Issuance of warrants for offering costs $33,257 $-0-
Issuance of warrants for acquisition costs in business acquisition $16,281 $-0-
Purchase of business financed with notes payable, common stock
and assumption of existing debt $ -0- $ 782,849
Purchase of land and building financed with mortgage payable $ -0- $ 989,100
Increase in accrued dividends $ -0- $ 21,261
</TABLE>
-13-
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
RESULTS OF OPERATIONS
For the nine-month and three-month periods ended June 30, 2000, the
Company had net losses of $3,462,279 and $1,731,160, respectively, compared to
net losses of $2,244,093 and $796,278 for comparable periods in 1999. The
increase is primarily due to expenses associated with stock options issued for
services in the amount of $334,921, equity in loss of investee, increased
research and development expense, and the one time receipt of $100,000 royalty
income under the Texaco license agreement in the first quarter of the 1999
fiscal year.
During the nine-month and three-month periods ended June 30, 2000, the
Company recognized $1,526,377 and $668,515 for sales of water-based paints,
sealers and coatings, as compared to $1,386,953 and $576,103 for the nine-month
and three-month periods ended June 30, 1999. This increase is due to an increase
in Okon's customer base and the introduction of new products. On June 1, 1999,
the Company acquired the assets of PML. The revenue contributed from this
subsidiary during the nine-month and three-month periods was $1,205,603 and
$465,683 respectively. There was revenue of $81,951 representing one month of
sales 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 nine-month and three-month periods ended June 30,
2000 were $390,997 and $150,062, as compared to $64,000 and $64,000 technical
service revenue for the comparable periods ended June 30, 1999. The Company
recorded the revenue earned from PML and the revenue earned from technical
services as service revenues for the periods ended June 30, 2000 and 1999. The
Company earned $200,000 and $60,000 in royalty income during the nine-month and
three-month periods ended June 30, 2000, as compared to $280,479 and $60,455 in
royalty income for the nine-month and three-month periods ended June 30, 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 $92,003 and $31,141 in revenue for the nine-month and three-month
ended June 30, 2000, as compared to $38,975 and $27,767 of rental income for the
comparable periods in 1999.
During the nine-month and three-month periods ended June 30, 2000, cost
of sales increased to $2,056,800 and $803,801, as compared to $650,069 and
$301,562 for the nine-month and three-month periods ended June 30, 1999. The
increase relates almost entirely to variable costs associated directly with
increases in revenues as detailed above. During the nine-month and three-month
periods ended June 30, 2000, cost of sales related to water-based paints,
sealers and coatings was $733,192 and $307,681, as compared to $650,069 and
$301,562 for comparable periods in the 1999 fiscal period. The increase in cost
of sales related to water-based paints sealers and coatings is attributable to
the increase in sales of water-based paints, sealers and coatings. During the
nine-month and three-month periods ended June 30, 2000, cost of sales related to
service sales was $1,323,608 and $496,120 compared to $119,468 cost of sales
associated with service sales for the nine month and three-month periods ended
June 30, 1999. The Company acquired PML on June 1, 1999 and the Company was in
the early stages of generating revenue from its technical service sales which
began in April 1999.
The gross profit of $1,358,180 and $571,873 for the nine-month and
three-month periods ended June 30, 2000, as compared to $1,082,821 and $389,246
in the nine-month and three-month periods ended June 30, 1999, is a result of
new revenues and an increase in sales of water-based paints, sealers and
coatings.
During the nine-month and three-month periods ended June 30, 2000,
general and administrative expenses increased by $786,243 and $662,089 over the
comparable nine-month and three-month periods ended June 30, 1999. The increase
is caused primarily by expenses, in the amount of approximately $336,000,
representing PML's costs for nine months in 2000 compared with one month in
1999. PML was acquired on June 1, 1999. A non-cash charge was recorded, in the
amount of $334,921, for options granted for consulting services in the third
quarter of fiscal year 2000. There is no comparable charge during the same
period in the prior year.
Depreciation and amortization increased by $13,962 and $9,334 during
the nine-month and three-month periods ended June 30, 2000, compared to the
nine-month and three-month periods ended June 30,1999. 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.
-14-
<PAGE> 15
Research and development expense increased by $339,661 and $253,680
during the nine-month and three-month periods ended June 30, 2000 over the
comparable period ended June 30,1999. The Company continues to research and
develop the commercial use of the Rentech GTL Technology.
Losses from operations for the nine-month and three-month periods ended
June 30, 2000 increased by $873,649 and $742,476 over comparable periods in
fiscal 1999. The increased loss is primarily due to increases in expenses of
$1,029,540 and $805,635 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 income (expense) increased by $38,627 for the nine-month
period June 30, 2000 over the comparable nine-month ended June 30, 1999 as a
result of the Company having more excess cash invested in interest bearing
certificates. Total other income (expense) decreased by $43,683 for the
three-month period June 30, 2000 over the comparable three-month ended June 30,
1999. Interest expense increased by $68,853 and $6,376 for the nine-month and
three-month periods ended June 30, 2000, compared to prior fiscal year periods
ended June 30,1999, as a result of debt incurred acquiring PML and the real
estate operation.
For the nine-month and three-month periods ended June 30, 2000, the
Company recognized a $305,910 and $236,089 loss in its equity investment in SCE
(see Note 5, Investment in Sand Creek).
Liquidity and Capital Resources
At June 30, 2000, the Company had working capital of $2,747,497, as
compared to working capital of $115,457 at September 30, 1999. The $2,632,040
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 $6,347,453, net of
the cash redemption of preferred shares for $285,000, offset by the ongoing
losses from operations.
The Company has liquidity, as a result of its current cash position,
its existing lines of credit and the cash generated from the Company's
subsidiary operations, for at least the next twelve month period.
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 June 30, 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 $3,462,279 and $2,244,093, respectively, for the nine months ended June 30,
2000 and 1999. The period ended June 30, 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 for a full nine-month
period.
For the nine months ended June 30, 2000, the Company issued stock
options for services in the amount of $351,999. The Company did not incur this
expense in the prior comparable period.
There was a $203,443 increase in accounts receivable during the nine
months ended June 30, 2000, compared to a $146,883 decrease during the
comparable 1999 period. The increase in 2000 is primarily due to the increased
level of revenue in the operating companies.
-15-
<PAGE> 16
There was a $144,978 increase in other receivables during the nine
months ended June 30, 2000. As of June 30, 2000, the Company paid approximately
$151,000 in costs for the behalf of Republic's investment in SCE. The Company
and Republic each acquired an interest in SCE during January 2000 (see Note 5).
During the first nine months of fiscal 2000, $2,529,909 of net cash was
used by operating activities, compared to a net cash usage of $2,014,179 for the
comparable period of 1999.
During the nine months ended June 30, 1999 the Company acquired a
building to occupy the Company's laboratory. The Company used $448,224 in cash
to fund a portion of the building. The Company purchased $392,987 in equipment
during the first nine months of fiscal 2000, compared to purchases of equipment
and leasehold improvements, in the amount of $505,335, during the comparable
1999 period. During the first nine months of 1999, the Company purchased
additional equipment as it was setting up its new laboratory and research
facility. Capital expenditures in fiscal year 2000 are primarily for the
research laboratory. During the nine months ended June 30, 1999, the Company
used $590,109 in cash to acquire the net assets of Petroleum Mud Logging Inc.
and Petroleum Well Logging Inc.
The Company invested $364,613 in SCE and $177,051 in Dresser during the
first nine months 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.
Deposits and other assets increased by $688,809 during the first nine
months of 2000, as compared to a $406,279 increase during the comparable 1999
period. The increase in both periods is primarily due to payments of deposits
for potential acquisitions.
During the first nine months of fiscal 1999, $1,191,773 of net cash was
used by investing activities, compared to a net cash usage of $1,945,547 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 $6,341,452 from
issuance of its common stock during the 2000 period, compared to proceeds of
$286,194 from common stock and $1,630,000 in proceeds from preferred stock,
reduced by $159,000 in offering costs, during comparable periods in 1999.
During the nine months ended June 30, 2000, the Company redeemed 23,386
shares of its preferred shares for $285,000, and paid $308,572 in principal
payments against its long-term debt primarily associated with the acquisition of
PML. There were no similar payments during the comparable 1999 period.
Cash increased during the first nine months of fiscal 2000 by
$2,176,198, compared to a decrease of $2,211,847 for the comparable periods of
1999. These changes increased the ending cash balance to $2,484,380 at June 30,
2000 from $308,182 at September 30, 1999. The 1999 changes decreased the
$3,056,379 September 30, 1998 balance to $844,532 at June 30, 1999.
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 $133,935 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
June 21, 2000 Common Stock 200,000 $450,000 -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 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.
Dated: August 10, 2000 /s/ Dennis L. Yakobson
-----------------------------------------
Dennis L. Yakobson, President
Dated: August 10, 2000 /s/ James P. Samuels
-----------------------------------------
James P. Samuels, Vice President-Finance
and Chief Financial Officer
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
EX-27 Financial Data Schedule
</TABLE>
