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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 December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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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 December 31, 1999: common stock - 52,619,372.
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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 December 31, 1999
and September 30 1999.....................................................................................3
Consolidated Statements of Operations for the three months
ended December 31, 1999 and December 31, 1998.............................................................5
Consolidated Statement of Stockholders' Equity for
the three months ended December 31, 1999..................................................................6
Consolidated Statements of Cash Flows for the three
months ended December 31, 1999 and December 31, 1998......................................................7
Notes to the Consolidated Financial Statements............................................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................................................12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.................................................................................16
Item 2. Change in Securities.....................................................................................16
Item 3. Defaults Upon Senior Securities - None...................................................................16
Item 4. Submission of Matters to a Vote of Security Holders - None...............................................16
Item 5. Other Information - None.................................................................................16
Item 6. Exhibits and Reports on Form 8-K.........................................................................16
(a) Exhibits - None
</TABLE>
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
(Unaudited)
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 903,762 $ 308,182
Accounts receivable , net of $2,600 and $2,000
allowance for doubtful accounts 445,014 374,683
Other receivables -0- 59,378
Inventories 79,877 90,482
Prepaid expenses and other current assets 345,975 184,998
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Total Current Assets 1,774,628 1,017,723
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PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated
depreciation of $390,643 and $329,238 as of December 31,
1999 and September 30, 1999 3,446,303 3,415,921
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OTHER ASSETS
Licensed technology, net of accumulated
amortization of $1,458,880 and $1,401,604 as of December 31,
1999 and September 30, 1999 1,972,268 2,029,454
Goodwill, net of accumulated amortization
of $230,724 and $207,771 as of December 31,
1999 and September 30,1999 1,146,429 1,169,382
Investment in ITN/ES 3,079,107 3,079,107
Investment in Dresser 1,840,084 1,840,084
Technology rights, net of accumulated
amortization of $62,690 and $55,907 225,056 231,839
Deposits and other assets 440,890 426,471
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Total Other Assets 8,703,834 8,776,337
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Total Assets $13,924,765 $13,209,981
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</TABLE>
See notes to the consolidated financial statements
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
(Unaudited)
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 323,812 $ 344,696
Accrued liabilities 136,737 113,544
Current portion of long-term debt 462,754 444,026
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Total Current Liabilities 923,303 902,266
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LONG-TERM LIABILITIES
Long-term debt, net of current portion 1,179,779 1,237,669
Lessee deposits 9,248 9,248
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Total Long-Term Liabilities 1,189,027 1,246,917
Total Liabilities 2,112,330 2,149,183
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COMMITMENTS
STOCKHOLDERS' EQUITY
Series A convertible preferred stock - $10 par value; 200,000
shares authorized; no shares issued or outstanding -0- -0-
Series B convertible preferred stock - $10 par value; 800,000
shares authorized; 106,166 and 133,332 shares issued and outstanding; $10
per share liquidation value (in the aggregate $1,121,196 and $1,370,742
including accrued dividends of $59,536 and $37,422) 1,061,660 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; 52,619,372 and 49,272,747 shares
issued and outstanding 526,191 492,725
Additional paid-in capital 28,055,005 26,291,017
Accumulated deficit (17,830,421) (17,056,264)
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Total Stockholders' Equity 11,812,435 11,060,798
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Total Liabilities and Stockholders' Equity $ 13,924,765 $ 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
December 31,
1999 1998
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<S> <C> <C>
REVENUES:
Product sales $ 471,259 $ 401,288
Service sales 464,297 -0-
Royalty income 80,000 160,000
Rental income 29,688 -0-
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Total Revenues 1,045,244 561,288
COSTS OF SALES:
Cost of sales 581,608 174,137
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GROSS PROFIT 463,636 387,151
EXPENSES:
General and administrative 866,776 829,521
Research and development 116,996 72,737
Depreciation and amortization 121,663 101,591
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Total Expenses 1,105,435 1,003,849
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LOSS FROM OPERATIONS (641,799) (616,698)
OTHER INCOME (EXPENSE):
Interest income 5,133 32,433
Interest expense (38,239) (230)
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Total Other Income (Expense) (33,106) 32,203
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NET LOSS (674,905) (584,495)
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Dividend requirement on Preferred Stock 99,252 32,192
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LOSS APPLICABLE TO COMMON STOCK $ (774,157) $ (616,687)
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Weighted average number
of common shares outstanding 50,467,090 41,951,486
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PER SHARE LOSS
Basic and diluted $ (0.02) $ (0.01)
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</TABLE>
See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
For the Three Months ended December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Series B Par Paid-in Accumulated
Shares Amount Shares Value Capital Deficit
------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1999 133,332 $ 1,333,320 49,272,747 $ 492,725 $ 26,291,017 $(17,056,264)
Common stock issued for cash
net of offering costs of $122,583 2,666,667 26,667 1,450,750
Preferred stock issued for cash
net of offering costs of $16,660 16,666 166,660 (16,660)
Common stock issued
for prepaid expense 200,000 2,000 104,240
Preferred stock redeemed for cash (23,832) (238,320) (46,680)
Common stock issued
for conversion of Series B
Preferred stock (20,000) (200,000) 479,958 4,799 205,458 (10,258)
Deemed dividends on convertible
preferred stock 20,200 (20,200)
Dividends on preferred stock (22,114)
Net loss for the three
months ended
December 31, 1999 (674,905)
------- ------------ ---------- ------------ ------------ ------------
Balances, December 31, 1999
(unaudited) 106,166 $ 1,061,660 52,619,372 $ 526,191 $ 28,055,005 $(17,830,421)
======= ============ ========== ============ ============ ============
</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 Three Months Ended December 31, (Unaudited) 1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (674,905) $ (584,495)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 148,326 102,743
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivables (70,331) 125,692
Decrease in other receivables 59,378 -0-
(Increase) Decrease in inventories 10,605 (11,915)
Increase in prepaids and other current assets (54,737) (29,341)
Decrease in accounts payable
and other accrued expenses (19,805) 100,749
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Net Cash Used in Operating Activities: (601,469) (498,065)
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INVESTING ACTIVITIES
Purchase of equipment (91,787) (161,473)
Increase in deposits and other assets (14,419) (102,665)
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Net Cash Used in Investing Activities: (106,206) (264,138)
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FINANCING ACTIVITIES
Proceeds from issuance of preferred stock 150,000 -0-
Proceeds from issuance of common stock 1,477,417 234,194
Redemption of preferred stock (285,000) -0-
Payment on long-term debt and notes payable (39,162) -0-
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Net Cash Provided by Financing Activities 1,303,255 234,194
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 595,580 (528,009)
Cash and Cash Equivalents,
Beginning of Period 308,182 3,056,379
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Cash and Cash Equivalents,
End of Period $ 903,762 $ 2,528,370
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</TABLE>
See notes to consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 (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 three months ended December 31,
1999 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) and 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 is 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 income. The Company capitalizes
interest costs as part of construction in process. Interest cost capitalized in
the quarter 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 evaluated
periodically and is carried at the lower of cost or net realizable value.
Investment in Dresser - The Company has a 5% 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.
Technology rights - Technology rights are recorded at cost and are being
amortized on a straight line method over a ten year useful life.
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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 the 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 reflects the potential dilution of securities
that could share in the earnings of an entity, similar to fully diluted earnings
per share. For the three month period ended December 31, 1999 and 1998, total
stock options of 3,265,700 and 3,106,200 and total stock warrants of 1,830,014
and 1,525,426 were not included in the computation of diluted loss per share
because their effect was anti-dilutive.
3. STOCKHOLDERS' EQUITY
Common stock - On October 12, 1999, the Company began offering for sale its
common stock in a private placement memorandum 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
warrants include anti-dilutive provisions. 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.
During the three month period ended December 31, 1999, the Company issued
2,666,667 shares for $1,477,417 net of offering costs of $122,583.
During the three month period ended December 31, 1999, 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 December 31, 1999,
the Company has charged $13,280 to expense and recorded the balance in prepaid
expenses.
Preferred stock - During the three month period ended December 31, 1999,
the Company issued for cash 16,660 shares of Series B convertible Preferred
stock for $150,000. 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 three month period ended December 31, 1999, the Company redeemed
23,832
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shares of Series B convertible Preferred stock for $285,000 which includes
dividends of $46,680. The Company converted 20,000 shares of Series B
convertible Preferred Stock at $10.00 per share together with dividends earned
on these shares for 479,958 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.
<TABLE>
<CAPTION>
Periods Ended December 31, 1999 1998
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<S> <C> <C>
Revenues:
Paint $ 471,259 $ 401,288
Alternative Fuels 182,900 160,000
Mud Logging Services 361,397 -0-
Real Estate 29,688 -0-
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$ 1,045,244 $ 561,288
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Operating Income (Loss):
Paint $ 70,220 5,291
Alternative Fuels (699,138) (621,989)
Mud Logging Services (21,829) -0-
Real Estate 8,948 -0-
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$ (641,799) $ (616,698)
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Depreciation and Amortization:
Paint $ 26,932 $ 26,744
Alternative Fuels 84,218 75,999
Mud Logging Services 25,947 -0-
Real Estate 11,229 -0-
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$ 148,326 $ 102,743
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Expenditures for Additions and Long-Lived Assets:
Paint $ -0- $ 154,784
Alternative Fuels 72,524 6,689
Mud Logging Services 19,263 -0-
Real Estate -0- -0-
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$ 91,787 $ 161,473
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Total Assets:
Paint $ 1,501,336 $ 1,495,918
Alternative Fuels 9,180,254 8,768,282
Mud Logging Services 1,558,513 -0-
Real Estate 1,684,662 -0-
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$13,924,765 $10,264,200
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</TABLE>
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5. SUBSEQUENT EVENTS
PURCHASE OF SAND CREEK FACILITY
On January 7, 2000, the Company and Republic Financial Corporation
("Republic") 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 Sand Creek Energy, LLC (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.
MEMORANDUM OF AGREEMENT
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.
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.
PRIVATE PLACEMENT MEMORANDUM
The Private Placement Memorandum discussed at Note 3 expired January 12,
2000. The total amount raised in this placement, when entirely collected will be
$2,122,000, of which the Company received $1,600,000 in gross proceeds during
the three months ended December 31, 1999.
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6. SUPPLEMENTAL DATA TO STATEMENTS OF CASH FLOWS
For the three months ended December 31, 1999 and 1998, the Company made
cash payments of interest of $38,239 and $230.
Excluded from the statements of cash flows for the three months ended
December 31, 1999 and 1998 were the effects of certain noncash investing and
financing activities as follows:
<TABLE>
<CAPTION>
Period Ended December 31, 1999 1998
------------------------- ---------- ----------
<S> <C> <C>
Issuance of common stock for prepaid expenses $ 106,240 $ -0-
Issuance of common stock for conversion of
preferred stock and dividends $ 210,257 $1,641,538
Increase in accrued dividends $ 22,114 $ 34,346
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
RESULTS OF OPERATIONS
For the three months ended December 31, 1999 and 1998, the Company had net
losses of $674,905 and $584,495, respectively. The increase is primarily due to
expenses associated with the Petroleum Mud Logging (PML) segment which was
acquired in June 1999. Gross profit which was contributed from royalty income
and Okon product sales in the three months ended December 31, 1998 has increased
by $76,485 due to the acquisition of the Real Estate segment in February 1999
and the acquisition of the PML segment in June 1999.
During the quarter ended December 31, 1999, the Company recognized $471,259
for sales of water-based paints, sealers and coatings as compared to $401,288
for the three months ended December 31, 1998. On October 8, 1998, the Company
entered into a licensing agreement with Texaco Natural Gas, Inc for the Rentech
GTL Technology. Under the license, Texaco has the right to use Rentech's GTL
(Gas to Liquids) Technology alone and in combination with Texaco's proprietary
gasification technology to produce liquid hydrocarbon products such as naphtha,
fuel and specialty products. Under this agreement the Company earned $80,000 in
royalty income during the quarter ended December 31, 1999 as compared to
$160,000 in royalty income for the quarter ended December 31, 1998. Under a
contract with Texaco, the Company began billing for technical services in April
1999. Revenues for technical services for the quarter ended December 31, 1999
were $102,900 as compared to no technical service revenue for the three months
ended December 31, 1998. On June 1, 1999, the Company acquired the assets of
PML. The revenue contributed from this subsidiary was $361,397 for the quarter
ended December 31, 1999 as compared to no revenue for the prior year. The
Company recorded the revenue earned from PML and the revenue earned from
technical services as service revenues for the period ended December 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 $29,688 in revenue for the year ended December 31, 1999 as compared
to no rental income for the comparable period in 1998.
During the quarter ended December 31, 1999, costs of sales increased to
$581,608 as compared to $174,137 for the three months ended December 31, 1999.
The $407,471 increase relates almost entirely to costs associated with increases
in revenues as detailed above. During the quarter ended December 31, 1999, costs
of sales related to water-based paints, sealers and coatings was $214,510 a
$23,495 increase as compared to the quarter ended December 31, 1998 which is
attributable to the increase in sales of water-based paints, sealers and
coatings.
The gross profit of $463,636 for the quarter ended December 31, 1999 as
compared to $387,151 in the quarter ended December 31, 1998 is a result of new
revenues and an increase in sales of water-based paints, sealers and coatings.
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<PAGE> 13
During the three months ended December 31, 1999, general and administrative
expenses increased by $37,255 over the comparable quarter ended December 31,
1998. The increase is caused by $116,238 in expenses associated with PML and
$20,631 which were not included in the comparable prior period, offset by
reclassification of Fischer-Tropsch expenses to cost of sales from general and
administrative expenses in the three months ended December 31, 1999.
Depreciation and amortization increased by $20,072 during the quarter ended
December 31, 1999 compared to the quarter ended December 31, 1998. This is
primarily due to the depreciation on purchases of additional equipment for the
laboratory during fiscal 1999 and depreciation and amortization of assets
acquired with the purchase of PML in June, 1999.
Research and development expense increased by $44,259 during the quarter
ended December 31, 1999 over the comparable period ended December 31, 1998. This
is primarily due to the Company's undertaking of new research and development
work to accelerate the commercial use of the Rentech GTL Technology.
Loss from operations for the quarter ended December 31, 1999 increased by
$25,101 to a loss of $641,799 compared to a loss of $616,698 for the quarter
ended December 31, 1998. The increased loss is primarily due to increases in
expenses of $101,586 offset by an increase in gross profit contributed by the
Company's GTL alternative fuel segment resulting from technical services revenue
received in fiscal 1999 and an operating profit from PML and the real estate
operation.
Total other expense increased by $65,309 for the quarter ended December 31,
1999 over the comparable three months ended December 31, 1998. Interest income
decreased by $27,300 for the quarter ended December 31, 1999 compared to the
prior year due to the decrease in the average amount of cash on hand in the
three months ended December 31, 1999 compared to the three months ended December
31, 1998. Interest expense increased by $38,009 for the three months ended
December 31, 1999 compared to the three months ended December 31, 1999 as a
result of debt incurred acquiring PML and the real estate operation.
Liquidity and Capital Resources.
At December 31, 1999, the Company had working capital of $851,325 as
compared to working capital of $115,457 at September 30, 1999. The $735,836
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 $1,477,417, less
cash redemption of preferred shares for $285,000 as well as to the ongoing
losses from operations.
On October 12, 1999, the Company began a private placement offering of up
to $7,500,000 of its securities according to the terms of its private placement
memorandum. 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.
First Union Securities is the private placement agent for this offering. As of
January 12, 2000 the Company has raised $2,122,000 from this private placement
offering. The cash received from this private placement, the cash generated from
the Company's subsidiary operations, the cash generated from the Texaco contract
and the Texaco royalty fees 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., formerly known as Texaco Natural Gas, Inc.,
for commercialization of Rentech's GTL Technology.
The Company has net deferred tax assets with a 100 percent valuation
allowance at September 30, 1999 and 1998. 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
$674,905 and $584,495 respectively for the three months ended December 31, 1999
and 1998. The period ended December 31, 1999 includes depreciation on the rental
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<PAGE> 14
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 $70,331 increase in accounts receivable during the three months
ended December 31, 1999 compared to a $125,692 decrease during the comparable
1998 period. The increase in 1999 is due to an increase in sales volume for PML
for the month of December 1999 as compared to the month of September 1999. The
decrease in 1998 is due to a decrease in sales volume for Okon for the month of
December 1998 as compared to the month of September 1998.
The first fiscal quarter reflects the collection of other receivables in
the amount of $59,378. There was no activity in the comparable prior year's
quarter.
Prepaids and other assets increased by $54,737 during the first fiscal
quarter compared to a $29,341 increase for the comparable 1998 period. The
increase in 1999 is primarily due to annual payment for insurance.
Accounts payable decreased by $19,805 during the three months ended
December 31, 1999 compared to a $100,749 decrease for the comparable 1998
period.
During the first quarter of fiscal 1999 $601,469 cash was used by operating
activities compared to a net cash usage of $498,065 for the comparable period of
1998.
The Company purchased $91,787 in equipment during the first quarter of
fiscal 1999 compared to purchases of $161,673 during the comparable 1998 period.
Deposits and other assets increased by $14,419 during the first quarter of
1999 as compared to a $102,665 increase during the comparable 1998 period. The
increase in 1998 is due to payments of deposits for planned acquisitions.
During the first quarter of fiscal 1999 $106,206 cash was used by investing
activities compared to a net cash usage of $264,138 for the comparable period of
1998.
The Company financed a portion of its activities by net proceeds of
$150,000 from issuance of 16,666 shares of preferred stock and $1,477,417 from
issuance of its common stock during the 1999 period compared to proceeds of
$234,194 from common stock during comparable periods in 1998.
During the quarter ended December 31, 1999 the Company redeemed 23,832
shares of its preferred shares for $285,000 and paid $39,162 in principal
payments against its long-term debt. There were no similar payments during the
comparable 1998 period.
Cash increased during the first quarter of fiscal 1999 by $595,580 compared
to a decrease of $528,009 for the comparable periods of 1998. These changes
increased the ending cash balance to $903,762 at December 31, 1999 from $308,182
at September 30, 1999. The 1998 changes decreased the $3,056,379 September 30,
1998 balance to $2,528,370 at December 31, 1998.
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 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.
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<PAGE> 15
The Company, like most other companies, is faced with the Year 2000 Issue,
which is the result of computer programs that are written using two digits
rather than four to define the applicable year. Any computer programs that
affect the Company's activities and that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations that depend upon such date-sensitive software or computer hardware.
The potential problems include, among other things, a temporary inability to
process transactions, send invoices, transfer funds, or engage in similar normal
business activities. The problems caused by the Year 2000 Issue may be
exacerbated and cause widespread business disruption because of the
interdependence of computer and telecommunications systems in the United States
and throughout the world.
The Company has completed an initial assessment of Year 2000 compliance for
its own information technology and business infrastructure. Based upon this
assessment, the Company believes its computer software, hardware and embedded
technology would present limited Year 2000 Issues. The Company believes that its
activities do not rely upon date-sensitive computer software, hardware or
embedded technology for its own activities. The Company has been unable to
evaluate whether the software, hardware and embedded technology used by third
parties with whom it conducts business, including licensees, joint venture
parties, and potential licensees, are Year 2000 compliant. If third parties who
do business with the Company or governmental regulatory agencies fail to timely
remediate their Year 2000 Issues, then the Company may experience business
interruptions, and in the worst case, the inability to engage in normal business
operations for an unknown length of time. The effect of these and related
difficulties on the Company's operations, income and financial condition could
be materially adverse. To date, the Company's assessment of the Year 2000 Issue
has not resulted in material costs. The Company does not believe that any
material expenditures will be required to complete its assessment.
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.
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<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Change in Securities and Use of Proceeds.
The following table shows information concerning all sales of the Company's
equity securities sold by the Company during the period covered by this report
that were not registered under the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
Total Exemptions
Date Securities Securities Offering Total Class of From
of Sale Sold Sold Price Commissions Purchasers Registration
- ------- ---- ---- ----- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nov 18, 1999 Common 2,500,000 $1,500,000 75,000 Accredited Rules 505,506,
Stock Section 4(6)
Dec 4, 1999 Common 166,667 $ 100,000 5,000 Accredited Rules 505, 506,
Stock Section 4(6)
</TABLE>
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.
Ex. 27 - Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K dated October 12, 1999; Item 2, Acquisition or Disposition
of Assets.
Form 8-K dated November 15, 1999; Item 5, Other Events.
Form 8-K dated November 23, 1999; Item 5, Other Events.
-16-
<PAGE> 17
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: February 14, 2000 /s/ Dennis L. Yakobson
-- -----------------------------------------
Dennis L. Yakobson, President
Dated: February 14, 2000 /s/ James P. Samuels
-- -----------------------------------------
James P. Samuels, Vice President-Finance
and Chief Financial Officer
-17-
<PAGE> 18
EXHIBIT INDEX
<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> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 903,762
<SECURITIES> 0
<RECEIVABLES> 445,014
<ALLOWANCES> 2,600
<INVENTORY> 79,877
<CURRENT-ASSETS> 1,774,628
<PP&E> 3,446,303
<DEPRECIATION> 390,643
<TOTAL-ASSETS> 13,924,765
<CURRENT-LIABILITIES> 923,303
<BONDS> 1,642,533
0
1,061,660
<COMMON> 526,191
<OTHER-SE> 10,224,584
<TOTAL-LIABILITY-AND-EQUITY> 13,924,765
<SALES> 471,259
<TOTAL-REVENUES> 1,045,244
<CGS> 214,510
<TOTAL-COSTS> 1,687,043
<OTHER-EXPENSES> 33,106
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 38,239
<INCOME-PRETAX> (674,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> (674,905)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (674,905)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
