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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1331 17TH STREET, SUITE 720
DENVER, COLORADO 80202
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(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 preceding
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 February 13, 2001: common stock - 63,291,728.
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RENTECH, INC.
FORM 10-Q QUARTERLY REPORT
FIRST QUARTER OF FISCAL 2001
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2000
and September 30, 2000....................................... 4
Consolidated Statements of Operations for the three
months ended December 31, 2000 and 1999...................... 6
Consolidated Statement of Stockholders' Equity for
the three months ended December 31, 2000..................... 7
Consolidated Statements of Cash Flows for the three
months ended December 31, 2000 and 1999...................... 8
Notes to the Consolidated Financial Statements............... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None............................................ 21
Item 2. Change in Securities................................................ 21
Item 3. Defaults Upon Senior Securities - None.............................. 21
Item 4. Submission of Matters to a Vote of Security Holders - None.......... 21
Item 5. Other Information - None............................................ 21
Item 6. Exhibits and Reports on Form 8-K.................................... 21
(a) Exhibits - None
(b) Form 8-K
Signatures.................................................................. 22
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
the federal securities laws, as well as historical and current facts. These
forward-looking statements include those relating to the Rentech GTL Technology;
the continued development of the Rentech GTL Technology to increase its economic
efficiency and use; market acceptance of the technology; ability to obtain
financing for plants using the Rentech GTL Technology; ability to economically
construct or retrofit these plants; the timing by which plants may be
constructed and begin production; ability to obtain low-cost feedstocks and to
economically operate the plants; successful operation of the plants; the market
value and acceptance of the liquid hydrocarbon products; revenues from the
Rentech GTL Technology; market acceptance of and the anticipated revenues from
the stains and sealers produced by OKON, Inc.; the market demand and anticipated
revenues from the mud logging services provided by Petroleum Mud Logging, Inc.;
ability to obtain needed capital; and statements about business strategies,
future growth, operations and financial results. These statements often can be
identified by the use of terms such as "may," "will," "should," "expect,"
"believe," "anticipate," "estimate," "intend," "plan," "project," "approximate"
or "continue," or the negative thereof. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we
caution readers not to place undue reliance on any forward-looking statements.
Those statements represent our best judgment as to what may occur in the future.
Forward-looking statements, however, are subject to risks, uncertainties and
important factors beyond our control that could cause actual results and events
to differ materially from historical results of operations and events and those
presently anticipated or projected. Important factors that could cause actual
results to differ from those reflected in the forward-looking statements include
the risks of overruns in costs of constructing, retrofitting and operating
commercial plants using the Rentech GTL Technology, problems with mechanical
systems in the plants that are not directly related to the Rentech GTL
Technology, dangers associated with construction and operation of gas processing
plants like those using the Rentech GTL Technology, risks inherent in making
investments and conducting business in foreign countries, protection of
intellectual property rights, competition, difficulties in implementing our
business strategies, and other risks described in this report.
As used in this Quarterly Report on Form 10-Q, the terms "we," "our"
and "us" mean Rentech, Inc., a Colorado corporation and its subsidiaries, unless
the context indicates otherwise.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
DECEMBER 31, SEPTEMBER 30,
2000 2000
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(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,359,800 $ 1,516,815
Accounts receivable, net of allowance
of $5,330 and $4,400 743,533 745,204
Other receivables 82,059 101,025
Receivable from related party 63,306 64,246
Inventories 140,776 117,866
Prepaid expenses and other current assets 271,863 106,480
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Total Current Assets 2,661,337 2,651,636
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PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $640,290 and $566,512 3,578,022 3,583,548
------------ ------------
OTHER ASSETS
Licensed technology, net of accumulated
amortization of $1,687,623 and $1,630,437 1,743,525 1,800,711
Capitalized software costs, net of accumulated
amortization of $23,655 and $0 827,955 851,610
Goodwill, net of accumulated amortization
of $325,700 and $302,248 1,081,453 1,104,905
Investment in ITN/ES 3,079,107 3,079,107
Investment in Dresser 2,017,135 2,017,135
Investment in Sand Creek -- 10,584
Technology rights, net of accumulated
amortization of $89,822 and $83,039 197,924 204,707
Deposit for acquisition 973,899 973,899
Deposits, receivable and other assets, net of
$167,206 allowance for doubtful accounts 259,751 184,750
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Total Other Assets 10,180,749 10,227,408
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Total Assets $ 16,420,108 $ 16,462,592
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See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
DECEMBER 31, September 30,
2000 2000
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(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 447,494 $ 358,885
Accrued payroll 315,409 78,005
Accrued liabilities 82,496 78,817
Current portion of long-term debt 132,432 243,553
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Total Current Liabilities 977,831 759,260
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LONG-TERM LIABILITIES
Long-term debt, net of current portion 984,339 990,107
Lessee deposits 9,248 9,248
Investment in Sand Creek 7,187 --
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Total Long-Term Liabilities 1,000,774 999,355
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Total Liabilities 1,978,605 1,758,615
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COMMITMENTS
STOCKHOLDERS' EQUITY
Series B convertible preferred stock - $10 par value; 800,000 shares
authorized; 44,444 and 0 shares issued and outstanding; $10 per share
liquidation value; $440,000 (net of $97,506 in deemed dividends) 346,934 --
Series C participating preferred stock - $10 par value; 500,000
shares authorized; no shares issued or outstanding -- --
Common stock - $.01 par value; 100,000,000 shares
authorized; 63,291,728 and 62,824,228 shares
issued and outstanding 632,915 628,240
Additional paid-in capital 33,646,849 32,925,887
Unearned compensation (43,600) (49,829)
Accumulated deficit (20,141,595) (18,800,321)
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Total Stockholders' Equity 14,441,503 14,703,977
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Total Liabilities and Stockholders' Equity $ 16,420,108 $ 16,462,592
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See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended
December 31,
2000 1999
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REVENUES:
Product sales $ 461,902 $ 471,259
Service sales 959,933 464,297
Royalty income 60,000 80,000
Rental income 30,982 29,688
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Total Revenues 1,512,817 1,045,244
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COST OF SALES:
Product sales 243,173 214,511
Service sales 800,024 367,097
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Total Cost of Sales 1,043,197 581,608
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GROSS PROFIT 469,620 463,636
OPERATING EXPENSES:
General and administrative 1,544,651 866,776
Research and development 38,132 116,996
Depreciation and amortization 142,775 121,663
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Total Operating Expenses 1,725,558 1,105,435
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LOSS FROM OPERATIONS (1,255,938) (641,799)
OTHER INCOME (EXPENSE):
Interest income 35,082 5,133
Interest expense (26,948) (38,239)
Equity in loss of investee (93,470) --
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Total Other Income (Expense) (85,336) (33,106)
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NET LOSS (1,341,274) (674,905)
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Dividend requirement on preferred stock 2,533 99,252
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LOSS APPLICABLE TO COMMON STOCK $ (1,343,807) $ (774,157)
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BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 63,229,373 50,467,090
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PER SHARE LOSS:
Basic and diluted $ (0.02) $ (0.02)
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See notes to consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Three Months Ended December 31, 2000 (Unaudited)
Convertible
Preferred Stock Common Stock Additional
Series B Par Paid-in
Shares Amount Shares Value Capital
------ ------ ------ ----- ----------
Balances, October 1, 2000 -- $ -- 62,824,228 $628,240 $ 32,925,887
Common stock issued for cash on options and
warrants exercised -- -- 467,500 4,675 516,325
Preferred stock issued for cash, net of offering
costs of $50,111 44,444 444,440 -- -- (50,107)
Deemed dividends on convertible
preferred stock -- (97,506) -- -- 97,506
Dividends on convertible preferred stock -- -- -- -- (32)
Options granted/earned for services -- -- -- -- 157,270
Net loss for the three months ended December 31, 2000 -- -- -- -- --
------ --------- ---------- -------- ------------
Balances, December 31, 2000 (unaudited) 44,444 $ 346,934 63,291,728 $632,915 $ 33,646,849
====== ========= ========== ======== ============
Total
Unearned Accumulated Stockholders'
Compensation Deficit Equity
------------ ----------- -------------
Balances, October 1, 2000 $(49,829) $(18,800,321) $ 14,703,977
Common stock issued for cash on options and
warrants exercised -- -- 521,000
Preferred stock issued for cash, net of offering
costs of $50,111 -- -- 394,333
Deemed dividends on convertible
preferred stock -- -- --
Dividends on convertible preferred stock (32)
Options granted/earned for services 6,229 -- 163,499
Net loss for the three months ended December 31, 2000 -- (1,341,274) (1,341,274)
-------- ------------ ------------
Balances, December 31, 2000 (unaudited) $(43,600) $(20,141,595) $ 14,441,503
======== ============ ============
See notes to the consolidated financial statements
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, (Unaudited) 2000 1999
- --------------------------------------------------- ----------- -----------
OPERATING ACTIVITIES:
Net Loss $(1,341,274) $ (674,905)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 184,854 148,326
Services paid with options 163,499 --
Equity in loss of investee 93,470 --
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivables 1,671 (70,331)
Decrease in other receivables and receivable from
related party 19,906 59,378
(Increase) Decrease in inventories (22,910) 10,605
(Increase) in prepaids and other current assets (165,383) (54,737)
Increase (Decrease) in accounts payable
and other accrued liabilities 329,660 (19,805)
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Net Cash Used in Operating Activities (736,507) (601,469)
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INVESTING ACTIVITIES:
Purchase of equipment (68,252) (91,787)
Increase in investment (75,699) --
Increase in deposits and other assets -- (14,419)
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Net Cash Used in Investing Activities (143,951) (106,206)
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FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock, net 394,333 150,000
Proceeds from issuance of common stock, net 521,000 1,477,417
Payment for deferred offering costs (75,001) --
Redemption of preferred stock -- (285,000)
Payment on long-term debt and notes payable (116,889) (39,162)
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Net Cash Provided by Financing Activities 723,443 1,303,255
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (157,015) 595,580
Cash and Cash Equivalents,
Beginning of Period 1,516,815 308,182
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Cash and Cash Equivalents,
End of Period $ 1,359,800 $ 903,762
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See notes to consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 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-Q. 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, 2000 annual report on Form
10-K. 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, 2000 are not
necessarily indicative of the results that may be expected for the full fiscal
year ending September 30, 2001.
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.
Capitalized Software - Capitalized software represents fees paid to
Dresser Engineering for software development which will be amortized over a
three year period using the straight-line method.
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.
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.
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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.
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 three-months ended December 31, 2000 and 1999, total stock
options of 8,074,300 and 3,265,700, total stock warrants of 4,085,171 and
1,830,014 and total convertible preferred stock of 458,516 and 0 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 statement of operations in order for them to conform to the 2000
presentation. Such reclassifications have no impact on the Company's 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. The
adoption of this statement did not have an impact on the Company's consolidated
financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation" ("FIN 44"), which was
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
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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 has no material impact on the Company's financial condition,
results of operations or cash flows.
In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements" which provides additional guidance in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 is effective as of the fourth quarter of fiscal year ending September
30, 2001. Management believes the adoption of this bulletin will have no
material impact on the Company's financial statements.
3. STOCKHOLDERS' EQUITY
Common Stock - For the three months ended December 31, 2000, the
Company issued 467,500 shares of its common stock upon the exercise of stock
options and stock warrants for cash proceeds of $521,000.
Preferred Stock - In December 2000, the Company issued for cash 44,444
shares of Series B convertible Preferred stock for $394,333, net of $50,107 in
offering costs. The Company recorded a deemed dividend of $100,006 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.
The holders of the Series B convertible preferred stock can convert their
preferred stock 120 days after issuance.
Stock Options - 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.
For the three months ended December 31, 2000, the Company recorded
$137,550 in consulting expense from the issuance of these stock options.
During December 2000, the Company granted 350,000 options to certain
employees, directors and individuals who have provided contract services to the
Company. The Company recorded expense of $19,720 as a result of 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.
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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.
Three Months Ended
December 31,
------------------------------
2000 1999
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Revenues:
Paint $ 461,902 $ 471,259
Alternative Fuels 423,007 182,900
Mud Logging Services 596,926 361,397
Real Estate 30,982 29,688
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$ 1,512,817 $ 1,045,244
============ ============
Operating income (loss):
Paint $ (31,650) $ 70,220
Alternative Fuels (1,286,013) (699,138)
Mud Logging Services 47,170 (21,829)
Real Estate 14,555 8,948
------------ ------------
$ (1,255,938) $ (641,799)
============ ============
Depreciation and amortization:
Paint $ 27,666 $ 26,932
Alternative Fuels 115,762 84,218
Mud Logging Services 28,376 25,947
Real Estate 13,050 11,229
------------ ------------
$ 184,854 $ 148,326
============ ============
Equity in net loss of investees:
Alternative Fuels $ (93,470) $ --
============ ============
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Expenditures for additions and long-lived assets:
Paint $ -- $ --
Alternative Fuels 19,834 72,524
Mud Logging Services 48,418 19,263
------------ ------------
Real Estate --
------------ ------------
$ 68,252 $ 91,787
============ ============
Investment in equity method investees:
Alternative Fuels $ (7,187) $ --
============ ============
Total assets:
Paint $ 1,457,281 $ 1,501,336
Alternative Fuels 11,551,430 9,180,254
Mud Logging Services 1,761,339 1,558,513
Real Estate 1,650,058 1,684,662
------------ ------------
$ 16,420,108 $ 13,924,765
============ ============
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.
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.
During the three months ended December 31, 2000, the Company
contributed $75,699 to SCE and recognized $93,470 related to its equity in SCE's
loss. As of December 31, 2000, the Company has recorded a $(7,187) investment in
SCE.
6. SUPPLEMENTAL DATA TO STATEMENTS OF CASH FLOWS
For the three months ended December 31, 2000 and 1999, the Company made
cash interest payments of $26,948 and $38,239.
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Excluded from the statements of cash flows for the three months ended
December 31, 2000 and 1999 were the effects of certain non-cash investing and
financing activities as follows:
Three Months Ended December 31, 2000 1999
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Issuance of common stock for prepaid expenses $ -- $106,240
Issuance of common stock for conversion of preferred stock
and dividends $ -- $210,257
Increase in accrued dividends $ 32 $22,114
7. SUBSEQUENT EVENT
On January 18, 2001, the Company was granted a services contract by the
Wyoming Business Council, Energy Section, Investment Ready Communities Division
("WBC"). Under the contract, Rentech will receive $800,000 to finance a
Gas-to-Liquids feasibility study within the State. The WBC funding will be used
to evaluate two potential GTL projects utilizing Rentech's patented and
proprietary Fischer-Tropsch Gas-to-Liquids technology. Phase I involves studying
the feasibility of retrofitting a portion of an existing methanol facility in
Wyoming. Phase II entails the study of the feasibility of constructing a
separate greenfield plant at the same site. Rentech estimates that it will take
approximately six to nine months to complete the study. If the Company
determines that it is not feasible to proceed with the conversion of the
facility, the Company will repay the grant at the rate of 120% of the original
$800,000 for a total of $960,000 over a period of time not to exceed six years.
The repayment will be from a 5% share of royalties from the conversion of
methanol facilities to Rentech GTL technology worldwide. If the Company chooses
to proceed with the conversion and/or purchase of the methanol facility in
Wyoming, the Company will repay WBC the $800,000 at the time of the financial
closing of the facility. In addition, the Company will provide to WBC a royalty
of $.15/ barrel of Rentech Fisher Tropsch liquid produced from the facility
after conversion is complete using the Rentech GTL technology. The royalty will
be paid for the first four years of commercial operation of the facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
RESULTS OF OPERATIONS
Revenues. We had revenues from product sales, service revenues, royalty
income, and rental income as of December 31, 2000 and 1999 of $1,512,817 and
$1,045,244, respectively.
Product Sales. Our product sales were realized from sales of
water-based stains, sealers and coatings by our subsidiary, OKON, Inc. through
which we conduct this paint business segment. These sales produced revenues of
$461,902 for the three months ended December 31, 2000. This compares to revenues
from this segment of $471,259 for the three months ended December 31, 1999. The
decrease of 2% in revenues from this segment was primarily due to adverse
weather conditions in certain key states during the first quarter of fiscal
2001.
Service Sales. Service sales are provided by two of our business
segments. The segments are the mud logging subsidiary and the technical services
related to the Rentech GTL Technology. The technical services are provided
through the scientists and technicians who staff our development and testing
laboratory.
Service sales in the amount of $596,926 were derived from contracts for
the mud logging services provided by our subsidiary, Petroleum Mud Logging,
Inc., during the three months ended December 31, 2000. Our mud logging service
revenues for this period increased by $235,529 over the service revenues of
$361,397 during the three months ended December 31, 1999. The increase in mud
logging service revenues was due primarily to increased demand for our mud
logging services, particularly for new wells drilled for natural gas. In
response, we outfitted several of our unused mud log vehicles with new equipment
and were thereby able to expand our services while having more units in the
field than during the corresponding period of 1999.
Service revenues also included revenue earned for technical services
provided to certain customers with regard to the Rentech GTL Technology. Our
service revenues for these technical services were $363,007 during the three
months ended December 31, 2000 as compared to $102,900 during the three months
ended December 31, 1999. The increase of 253% in revenue was primarily due to
the addition of several new customers for which these technical services were
provided at our development and testing laboratory.
Royalty Income. Royalty income consisted of royalties that we earned as
a result of our October 1998 license of the Rentech GTL Technology to Texaco.
Under the agreement, we received royalties of $60,000 and $80,000 for the three
months ended December 31, 2000 and 1999, respectively.
Rental Income. We leased part of our development and testing laboratory
building in Denver to two tenants. These tenants provided rental income to us.
Rental income from this facility contributed $30,982 in revenue for the three
months ended December 31, 2000 as compared to $29,688 for the three months ended
December 31, 1999.
Cost of Sales. Our cost of sales includes costs for our paint business
products as well as for our mud logging and technical services. During the three
months ended December 31, 2000, the combined cost of sales increased by 79% to
$1,043,197 from $581,608 for the comparable period from the prior year. The
increase of $461,589 relates almost entirely to costs associated with the
addition of new revenues from these three business segments.
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Cost of sales for product sales are the costs of sales of our paint
business segment for sales of stains sealers and coatings. During the three
months ended December 31, 2000, our cost of sales for the paint segment
increased by $28,662 to $243,173, as compared to the comparable period in 1999.
This increase of 13% is almost entirely related to the additional costs
associated with the new production facility.
Cost of sales for mud logging services was $437,017 for the three
months ended December 31, 2000, up from $264,197 for the comparable period of
1999. This increase of $172,820 is directly related to the increase in revenues
of this segment and is primarily due to the addition of more mud logging
vehicles and field employees to operate them as we expanded to meet the growth
in demand for mud logging for new natural gas wells.
Cost of sales for technical services was $363,007 during the quarter
ended December 31, 2000, up from $102,900 for the quarter ended December 31,
1999. This increase of $260,107 is primarily due to our expanded range of
technical services provided. We added additional engineers and technicians to
staff our development and testing laboratory which increased salaries and the
related overhead expenditures for the technical services segment.
Gross Profit. Our gross profit for the quarter ended December 31, 2000
was $469,620, as compared to $463,636 for the comparable period of 1999. The
increase of $5,984 results from the combined contributions of additional
revenues of all of our business segments, including a decrease in product sales
by our paint segment (down 2%), and increased service revenues from our mud
logging and technical services segments (up 107%). These additions to gross
profit were offset by corresponding increases in costs of sales of 13% for the
paint segment and of 118% for our mud logging and technical services segments.
Cost of sales for the paint segment increased at a higher rate than gross profit
for the segment because of the expenses of increased fixed expenses associated
with the new space. Cost of sales for the mud logging and technical services
segments increased at a higher rate than the related gross profit due to the
costs related to putting more mud logging units into the field, and to the costs
added at the development and testing laboratory.
Operating Expenses. Operating expenses consist of general and
administrative expense, depreciation and amortization expense and research and
development expense.
General and Administrative Expenses. General and administrative
expenses were $1,544,651 for the three months ended December 31, 2000, up
$677,875 from the three months ended December 31, 1999 when these expenses were
$866,776. The increase is attributable to an increase in business volume which
includes expenses related to the hiring of additional laboratory technicians for
our technical services segment, increased office staffing and the inflationary
impact on existing employee salaries. In addition, the increase resulted from
certain non-recurring expenses, which include a one-time increase in accrued
salaries and bonuses in the amount of $212,679 and options granted to
independent contractor consultants in lieu of cash payments in the amount of
$163,499.
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Depreciation and Amortization. Depreciation and amortization expense
for the quarter ended December 31, 2000 was $184,854. Of this amount, $42,079
was included in cost of sales. Depreciation and amortization expense for the
quarter ended December 31, 1999 was $148,326, of which $26,663 was included in
cost of sales. The increase in depreciation and amortization expense is
attributable to the additional equipment acquired for our mud logging segment
and for the development and testing laboratory, and to the amortization of
software capitalized at the end of fiscal 2000.
Research and Development. Research and development expense was $38,132
for the three months ended December 31, 2000, decreased by $78,864 over the
corresponding period of 1999, when this expense was $116,996. This decrease is
primarily due to the significant increase in billable work being performed at
the development and testing laboratory for customers which in turn decreased the
amount of cost related to research and development.
Total Operating Expenses. Total operating expenses for the quarter
ended December 31, 2000 were $1,725,558, as compared to $1,105,435 for the same
quarter of 1999, an increase of $620,123. The increase in total operating
expenses is a result of the factors, previously described, that relate to
operating expenses.
Loss From Operations. Loss from operations for the quarter ended
December 31, 2000 increased by $614,139 to a loss of $1,255,938, as compared to
a loss of $641,799 for the corresponding quarter in 1999. The increased loss is
primarily due to increases in operating expenses, partially offset by an
increase in gross profit contributed by our operating segments.
Other Income (Expense). Other income (expense) include interest income,
interest expense and equity in loss of investee.
Interest Income. Interest income for the three months ended December
31, 2000 was $35,082, increased from $5,133 for the three months ended December
31, 1999. The increased interest income was due to having more funds invested in
interest-bearing cash accounts and to interest earned from the note receivable
from Ren Corporation.
Interest Expense. Interest expense for the three months ended December
31, 2000 was $26,948, decreased from $38,239 for the three months ended December
31, 1999. The decrease in interest expense is primarily the result of the
pay-off of our indebtedness associated with purchase of the mud logging assets.
Equity in Loss of Investee. During the quarter ended December 31, 2000,
we recognized $93,470 in equity in loss of investee. This represents our 50%
share of the loss incurred by our joint venture in Sand Creek Energy LLC. The
LLC is holding and maintaining the mothballed Sand Creek methanol plant. We are
considering retrofitting this plant to use it as a large pilot plant for
continuing work with the Rentech GTL Technology. There was no comparable loss
during the quarter ended December 31, 1999 because we acquired our interest in
the plant in fiscal 2000.
Total Other Expenses. Total other expense increased to $85,336 for the
quarter ended December 31, 2000, an increase of $52,230 over total other
expenses of $33,106 for the comparable quarter ended December 31, 1999. The
increase in total other expenses resulted from the combination of the factors
previously described as other income (expense).
Net Loss. For the quarter ended December 31, 2000, we experienced a net
loss of $1,341,274 compared to a $674,905 net loss for the quarter ended
December 31, 1999. The $666,369 increase in net loss resulted primarily from a
combination of the factors previously described, including $376,177 in non-cash
expenses
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included in general and administrative expenses and depreciation and
amortization of $184,854 which includes the amortization of our capitalized
software costs.
Dividend Requirements on Convertible Preferred Stock. Dividend
requirements on convertible preferred stock is the imputed amount calculated
when there is a discount from fair market value of our common stock compared to
the conversion rate, plus the 9% dividend that accrues on the convertible
preferred stock. The dividends are deducted from net loss in order to arrive at
loss applicable to common stock. During the quarters ended December 31, 2000 and
fiscal 1999, we issued convertible preferred stock, and we were required to
calculate a deemed dividend in both years. During the quarter ended December 31,
2000, we recorded dividends of $2,533 compared to $99,252 during the quarter
ended December 31, 1999.
Loss Applicable to Common Stock. As a result of recording dividends on
convertible preferred stock as described above, the loss applicable to common
stock was $1,343,807 or $.02 per share and $774,157 or $.02 per share for the
three months ended December 31, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had working capital of $1,683,506 as compared
to working capital of $1,892,376 at September 30, 2000. The decrease in working
capital is primarily due to the use of cash for operations, investing activities
and payments on long-term debt.
As of December 31, 2000, we had $2,661,337 in cash and other current
assets, including accounts receivable of $743,533. At that time, our current
liabilities were $977,831. We had long-term liabilities of $993,587. Most of our
long-term liabilities relate to our mortgage on our laboratory facility which we
purchased in February 1999. The rental income from the facility is adequate to
fund the monthly mortgage payments. The mortgage is due on March 1, 2029.
The primary source of our liquidity has been equity capital
contributions. We added additional sources of liquidity through cash flow
generated by the purchase of OKON, Inc., the license agreement with Texaco,
billings for technical services relating to the Rentech GTL Technology and the
purchase of the assets that we operate through Petroleum Mud Logging, Inc.
Our principal needs for liquidity in the past have been to fund working
capital, pay for research and development of the Rentech GTL Technology, pay the
costs of acquiring and initially funding the paint and mud logging business
segments, invest in the advanced technologies of ITN Energy Systems, acquire
interests in Dresser Engineers & Constructors, Inc. and to provide deposits for
the potential acquisition of Ren Corporation.
We believe that our cash on hand and revenues from operations will be
sufficient to fund our operations at the present level through the end of fiscal
2001.
We anticipate needs for substantial amounts of new capital to acquire
and retrofit one or more methanol or other industrial gas plants to use the
Rentech GTL Technology, purchase property and equipment, and to continue
significant research and development programs for the GTL projects we are
considering. We expect to undertake these types of expenditures in efforts to
commercialize the technology in one or more plants in which we may acquire
partial ownership. Even if we succeed in obtaining construction loans secured by
the projects involving the plants to be retrofitted, we expect to need
significant amounts of capital as our required share of the total investment in
these projects. We may attempt to fund some of these project costs through sales
of some part of our ownership, if we have any, in any industrial gas plant that
we may attempt to retrofit. At this time, we own a one-half interest in one
plant, which is the mothballed Sand Creek methanol plant. We are not targeting
it for
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use as a commercial scale plant to use our technology. Instead, we are
considering plans to retrofit it for our use as a large pilot plant for
continued improvement of the Rentech GTL Technology.
We are considering proposals to acquire ownership interests or
leasehold rights in one or more of methanol or other industrial gas plants that
are presently under-utilized. Under these proposals, we would have to contribute
capital, alone or possibly in a joint venture with a present owner, to retrofit
a plant to use the Rentech GTL Technology. Our goal is to operate any converted
plant on a commercial basis and realize a new source of revenues for the
production and sale of liquid hydrocarbons.
At this time, we do not have access to capital needed to acquire or
retrofit an existing plant. In an effort to raise capital that could enable us
to retrofit one or more industrial gas plants, we have signed a non-binding
letter of intent with an underwriter for a registered public offering of our
common stock. Subject to market conditions, the underwriter has agreed to use
its best efforts to sell $75 million to $100 million of our common stock. We
anticipate that the offering would occur in the second half of fiscal year 2001.
We believe that a successful offering of this type would provide net proceeds
sufficient for us to acquire an ownership interest and management control of one
or more of these existing plants.
If this financing effort is completed and we are able to retrofit and
economically operate one or more plants in which we have acquired a share of
ownership, we anticipate two types of benefits. One of these would be new
revenues from our share of sales of liquid hydrocarbons. We also anticipate that
economic use of the Rentech GTL Technology in one or more of these plants would
lead to commercial use of our technology by others and additional revenues from
license fees, engineering services, royalties and catalyst sales.
If our proposed public offering of common stock is not completed, we
will not have the capital required to acquire interests in one or more
industrial gas plants. In addition, without these funds, our efforts to achieve
commercial use of the Rentech GTL technology by others may be delayed. We would
lose this opportunity to encourage others to use our technology on a commercial
basis and would have to depend upon their interest in building new plants,
without the benefit of having at least one commercial-scale plant in operation.
Therefore, our plan to generate new revenues from use of the technology would be
hindered and delayed.
ANALYSIS OF CASH FLOW
Operating Activities. Operating activities produced net losses of
$1,341,274 and $674,905 for the quarters ended December 31, 2000 and 1999,
respectively. The cash flows used in operations for those quarters resulted from
the following operating activities.
Depreciation and Amortization. Depreciation and amortization are
non-cash expenses. These expenses increased during the three months ended
December 31, 2000 by $36,528, compared to the three months ended December 31,
1999. The increase is primarily due to the addition of equipment for our
development and testing laboratory and for our mud logging business segment, and
for software capitalized at the end of fiscal 2000.
Stock Options Issued for Services. We issued stock options for services
in the amounts of $163,499 and $0 for the three months ended December 31, 2000
and 1999, respectively. These options were issued in lieu of cash to certain
independent contractor consultants for their services.
Equity in Loss of Investee. We recognized equity in loss of investee in
the amount of $93,470 during the quarter ended December 31, 2000. This
represents our 50% share of the loss incurred by our joint venture in Sand Creek
Energy LLC. The LLC is holding and maintaining the mothballed Sand Creek
methanol plant. We are considering retrofitting this plant to use the Rentech
GTL Technology as a large pilot plant for further
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improvements to the technology. We acquired our investment in the plant during
fiscal year 2000, and therefore there was no comparable amount during the
quarter ended December 31, 1999.
Changes in Operating Assets and Liabilities. The changes in operating
assets and liabilities result from the following factors.
Accounts Receivable. Accounts receivable decreased by $1,671 and
increased by $70,331 for the quarters ending December 31, 2000 and 1999,
respectively. Accounts receivable decreased during the quarter ended December
31, 2000 due to favorable collections. Accounts receivable increased during the
quarter ended December 31, 1999 primarily due to accounts receivable acquired
with our mud logging assets in June 1999 and accounts receivable arising from
the technical services provided to Texaco.
Accounts Payable and Other Accrued Liabilities. Accounts payable and
other accrued liabilities increased by $329,660 during the quarter ended
December 31, 2000, which reflects our decrease in working capital, and decreased
$19,805 during the quarter ended December 31, 1999, which reflects more prompt
payment of accounts payable by us.
Net Cash Used in Operating Activities. The total net cash used in
operations increased to $736,507 during the three months ended December 31,
2000, as compared to $601,469 for the three months ended December 31, 1999. The
increase reflects increased cash costs for general and administrative and other
operating expenses.
Investing Activities. Investing activities during the quarters ended
December 31, 2000 and 1999 included purchases of equipment of $68,252 and
$91,787, respectively, primarily for our development and testing laboratory and
mud logging vehicles, which were specially equipped for our mud logging business
segment. Investing activities during the quarter ended December 31, 2000 also
included $75,699 which was used to fund our 50% share of expenses of Sand Creek
Energy, LLC, as compared to no investment in that LLC during the quarter ended
December 31, 1999.
Financing Activities. Financing activities during the three months
ended December 31, 2000 provided $521,000 in cash from the issuance of common
stock compared to $1,477,417 during the three months ended December 31, 1999.
During the three months ended December 31, 2000, we received net proceeds of
$394,333 from the issuance of convertible preferred stock as compared to net
proceeds of $150,000 during the three months ended December 31, 1999. We did not
redeem any convertible preferred stock during the quarter ended December 31,
2000, compared to the redemption of 23,832 shares for $285,000 in cash during
the quarter ended December 31, 1999. During the quarter ended December 31, 2000,
we repaid $116,889 in long-term debt obligations as compared to $39,162 during
the quarter ended December 31, 1999. During the quarter ended December 31, 2000,
we paid $75,000 in deferred offering costs for a future equity offering,
compared to no such payments during the quarter ended December 31, 1999. The net
cash provided by financing activities during the quarter ended December 31, 2000
was $723,443, compared to $1,303,255 in cash provided by financing activities
during the quarter ended December 31, 1999.
Cash decreased during the three months ended December 31, 2000 by
$157,015 compared to an increase of $595,580 during the quarter ended December
31, 1999. These changes increased the ending cash balance to $1,359,800 at
December 31, 2000 from $903,762 at December 31, 1999.
Net Deferred Tax Asset. The Company has a net deferred tax asset with a
100% valuation allowance as of December 31, 2000 as management is not able to
determine if it is more likely than not that the net deferred tax asset will be
realized.
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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.
Class of Total Exemptions
Date Securities Securities Offering Total Class of from
of Sale Sold Sold Price Commissions Purchasers Registration
------- ---------- ---------- -------- ----------- ---------- ------------
Dec. 28, 2000 Series 1998-B 44,444 $444,440 $44,444 Accredited Rules 505, 506,
Convertible Investors Section 4(6)
Preferred Stock(1)
(1) The preferred shares are convertible into common stock at 82.5% of the
average closing bid price for the five trading days prior to
conversion.
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 October 2, 2000 reporting under Item 5,
Other Events
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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 13, 2001 /s/ DENNIS L. YAKOBSON
----------------------------------------
Dennis L. Yakobson, President
Dated: February 13, 2001 /s/ JAMES P. SAMUELS
----------------------------------------
James P. Samuels, Vice President-Finance
and Chief Financial Officer
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