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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 June 30, 2001
[ ] 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.
(Exact name of registrant 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 July 23, 2001: common stock - 66,665,631.
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RENTECH, INC.
FORM 10-Q QUARTERLY REPORT
THIRD QUARTER OF FISCAL 2001
Table of Contents
PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2001
and September 30, 2000 ............................................ 4
Consolidated Statements of Operations for the three and
nine months ended June 30, 2001 and 2000 .......................... 6
Consolidated Statement of Stockholders' Equity for
the nine months ended June 30, 2001 ............................... 7
Consolidated Statements of Cash Flows for the nine
months ended June 30, 2001 and 2000 ............................... 8
Notes to the Consolidated Financial Statements .................... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk ................. 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None .................................................... 21
Item 2. Change in Securities and Use of Proceeds .................................... 21
Item 3. Defaults Upon Senior Securities - None ...................................... 22
Item 4. Submission of Matters to a Vote of Security Holders ......................... 22
Item 5. Other Information - None .................................................... 22
Item 6. Exhibits and Reports on Form 8-K ............................................ 22
(a) Exhibits
(b) Form 8-K
Signatures .......................................................................... 23
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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
JUNE 30,
2001 September 30,
(UNAUDITED) 2000
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,509,376 $ 1,516,815
Accounts receivable, net of allowance
of $6,129 and $4,400 1,572,756 745,204
Other receivables 71,032 55,459
Receivable from related party 68,241 64,246
Inventories 214,858 117,866
Prepaid expenses and other current assets 154,443 106,480
------------- -------------
Total Current Assets 3,590,706 2,606,070
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PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $803,276 and $566,512 3,909,887 3,583,548
------------- -------------
OTHER ASSETS
Licensed technology, net of accumulated
amortization of $1,801,995 and $1,630,437 1,629,153 1,800,711
Capitalized software costs, net of accumulated
amortization of $165,590 and $0 1,105,763 851,610
Goodwill, net of accumulated amortization
of $372,605 and $302,248 1,034,548 1,104,905
Investment in ITN/ES 3,079,107 3,079,107
Investment in Dresser 1,842,135 1,842,135
Investment in Sand Creek 21,975 10,584
Technology rights, net of accumulated
amortization of $103,388 and $83,039 184,358 204,707
Deposit for acquisition 1,326,743 1,019,465
Deposits, receivable and other assets, net of $167,206
allowance for doubtful accounts 595,467 359,750
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Total Other Assets 10,819,249 10,272,974
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Total Assets $ 18,319,842 $ 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)
JUNE 30,
2001 September 30,
(UNAUDITED) 2000
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 406,314 $ 358,885
Accrued payroll 412,573 78,005
Accrued liabilities 72,142 78,817
Contract liability 750,000 --
Current portion of long-term debt 50,836 243,553
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Total Current Liabilities 1,691,865 759,260
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LONG-TERM LIABILITIES
Long-term debt, net of current portion 1,023,106 990,107
Lessee deposits 7,103 9,248
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Total Long-Term Liabilities 1,030,209 999,355
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Total Liabilities 2,722,074 1,758,615
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COMMITMENTS
STOCKHOLDERS' EQUITY
Series B convertible preferred stock - $10 par value; 800,000 shares
authorized; 613,886 shares issued and converted, none outstanding -- --
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; 66,665,631 and 62,824,228 shares
issued and outstanding 666,653 628,240
Additional paid-in capital 36,439,305 32,925,887
Unearned compensation (30,831) (49,829)
Accumulated deficit (21,477,359) (18,800,321)
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Total Stockholders' Equity 15,597,768 14,703,977
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Total Liabilities and Stockholders' Equity $ 18,319,842 $ 16,462,592
============= =============
See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUES:
Product sales $ 758,959 $ 668,515 $ 1,736,114 $ 1,526,377
Service sales 1,555,249 615,745 3,766,323 1,596,600
Royalty income 60,000 60,000 180,000 200,000
Rental income 34,608 31,414 92,646 92,003
------------ ------------ ------------ ------------
Total Revenues 2,408,816 1,375,674 5,775,083 3,414,980
------------ ------------ ------------ ------------
COST OF SALES:
Product sales 429,582 307,681 826,393 733,192
Service sales 1,326,836 496,120 2,978,140 1,323,608
------------ ------------ ------------ ------------
Total Cost of Sales 1,756,418 803,801 3,804,533 2,056,800
------------ ------------ ------------ ------------
GROSS PROFIT 652,398 571,873 1,970,550 1,358,180
OPERATING EXPENSES:
General and administrative 945,304 1,654,181 3,704,526 3,608,334
Research and development 99,787 329,726 147,816 559,250
Depreciation and amortization 198,884 111,246 534,932 329,731
Loss on disposal of assets -- -- -- 9,142
------------ ------------ ------------ ------------
Total Operating Expenses 1,243,975 2,095,153 4,387,274 4,506,457
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (591,577) (1,523,280) (2,416,724) (3,148,277)
OTHER INCOME (EXPENSE):
Interest income 34,692 61,266 101,938 99,657
Interest expense (22,230) (33,057) (71,449) (107,749)
Equity in loss of investee (113,758) (236,089) (290,803) (305,910)
------------ ------------ ------------ ------------
Total Other Income (Expense) (101,296) (207,880) (260,314) (314,002)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET LOSS (692,873) (1,731,160) (2,677,038) (3,462,279)
------------ ------------ ------------ ------------
Dividends on preferred stock -- -- 466,180 89,612
------------ ------------ ------------ ------------
LOSS APPLICABLE TO COMMON STOCK $ (692,873) $ (1,731,160) $ (3,143,218) $ (3,551,891)
------------ ------------ ------------ ------------
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 65,467,127 61,970,497 64,180,873 56,009,496
------------ ------------ ------------ ------------
PER SHARE LOSS:
Basic and diluted $ (0.01) $ (0.03) $ (0.05) $ (0.06)
============ ============ ============ ============
See notes to consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended June 30, 2001 (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, net of
offering costs of $39,808 -- -- 2,000,000 20,000 1,840,192
Common stock issued for exercise of options
and warrants -- -- 518,027 5,180 530,820
Preferred stock issued for cash, net of
offering costs of $109,713 88,888 888,888 -- -- (109,713)
Common stock issued for conversion of
preferred stock (88,888) (888,888) 1,123,376 11,233 877,655
Common stock issued for deposit on
business acquisition -- -- 200,000 2,000 242,000
Deemed dividends on convertible
preferred stock of $466,180 -- -- -- -- --
Warrants for convertible preferred stock
redeemed for cash -- -- -- -- (2,084)
Options granted/earned for services -- -- -- -- 134,548
Net loss for the nine months ended June 30, 2001 -- -- -- -- --
-------- ---------- ----------- --------- ------------
Balances, June 30, 2001 (unaudited) -- $ -- 66,665,631 $ 666,653 $ 36,439,305
======== ========== =========== ========= ============
Total
Unearned Accumulated Stockholders'
Compensation Deficit Equity
------------ ------------ -------------
Balances, October 1, 2000 $ (49,829) $(18,800,321) $ 14,703,977
Common stock issued for cash, net of
offering costs of $39,808 -- -- 1,860,192
Common stock issued for exercise of options
and warrants -- -- 536,000
Preferred stock issued for cash, net of
offering costs of $109,713 -- -- 779,175
Common stock issued for conversion of
preferred stock -- -- --
Common stock issued for deposit on
business acquisition -- -- 244,000
Deemed dividends on convertible
preferred stock of $466,180 -- -- --
Warrants for convertible preferred stock
redeemed for cash -- -- (2,084)
Options granted/earned for services 18,998 -- 153,546
Net loss for the nine months ended June 30, 2001 -- (2,677,038) (2,677,038)
------------ ------------ -------------
Balances, June 30, 2001 (unaudited) $ (30,831) $(21,477,359) $ 15,597,768
============ ============ =============
See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended June 30, 2001 2000
- ---------------------------------- ------------- -------------
OPERATING ACTIVITIES:
Net Loss $ (2,677,038) $ (3,462,279)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 664,619 454,716
Increase in allowance for doubtful accounts 1,729 --
Services paid with options and warrants 153,546 351,999
Loss on disposal of assets -- 9,142
Equity in loss of investee 290,803 305,910
Changes in operating assets and liabilities:
Increase in accounts receivables (829,281) (203,443)
Increase in other receivables and
receivable from related party (19,568) (144,978)
Increase in inventories (96,992) (14,749)
(Increase) Decrease in prepaids and other current assets (47,963) 24,627
Increase in interest receivable (63,278) --
Increase in accounts payable and other
accrued liabilities 375,322 149,146
Decrease in lessee deposits (2,145) --
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Net Cash Used in Operating Activities (2,250,246) (2,529,909)
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INVESTING ACTIVITIES:
Purchase of property and equipment (467,252) (392,987)
Payment for capitalized software costs (419,743) --
Increase in investments (302,194) (541,664)
Proceeds from disposal of property and equipment -- 31,687
Increase in deposits and other assets (49,763) (288,809)
------------- -------------
Net Cash Used in Investing Activities (1,238,952) (1,191,773)
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FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock, net 779,175 166,660
Proceeds from issuance of common stock, net 2,396,192 6,929,961
Payment for deferred offering costs (185,954) (605,169)
Redemption of preferred stock and warrants to purchase common stock (2,084) (285,000)
Proceeds from contract liability 750,000 --
Payment on long-term debt and notes payable (255,570) (308,572)
------------- -------------
Net Cash Provided by Financing Activities 3,481,759 5,897,880
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,439) 2,176,198
Cash and Cash Equivalents,
Beginning of Period 1,516,815 308,182
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Cash and Cash Equivalents,
End of Period $ 1,509,376 $ 2,484,380
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See notes to consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2001 (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 and nine months ended June 30,
2001 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 amounts paid
for software development which is being amortized over a three year period using
the straight-line method. The Company has capitalized $419,743 in capitalized
software costs during the current fiscal year.
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 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. The Company has also paid a deposit of $175,000 toward the purchase of an
additional 5% investment in Dresser. The Company has not received formal
transfer of the additional investment in Dresser.
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.
Deferred Offering Costs - Deferred offering costs include
professional fees directly related to the Company's proposed future equity
offering. If the offering is successful, costs incurred will be offset against
the proceeds of the offering. If the offering is unsuccessful, such costs will
be expensed.
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. For the
nine months ended June 30, 2001 and 2000, total stock options of 8,074,300 and
8,003,000, and total stock warrants of 3,992,977 and 3,981,305 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
2000 balance sheet in order for it to conform to the 2001 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
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and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, amended by SFAS No. 137
and SFAS No. 138, 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 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.
In July 2001, the FASB issued SFAS No. 141, "Business
Combinations", SFAS No. 141 improves the transparency of the accounting and
reporting for business combinations by requiring that all business combinations
be accounted for under a single method - the purchase method. This Statement is
effective for all business combinations initiated after June 30, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". This statement applies to intangibles and goodwill acquired
after June 30, 2001, as well as goodwill and intangibles previously acquired.
Under this statement goodwill as well as other intangibles determined to have an
infinite life will no longer be amortized; however these assets will be reviewed
for impairment on a periodic basis. This statement is effective for the Company
for the first quarter in the fiscal year ended September 2002. Management is
currently evaluating the impact that this statement will have on the Company's
financial statements.
3. STOCKHOLDERS' EQUITY
Common Stock - For the nine months ended June 30, 2001, the Company
issued 518,027 shares of its common stock upon the exercise of stock options and
stock warrants for cash proceeds of $536,000, and 2,000,000 shares of its common
stock for cash proceeds of $1,900,000, net of $39,808 in offering costs. In
February 2001, the Company issued 200,000 shares of its common stock with a
market value of $244,000 as part of a deposit which will be used to acquire a
majority interest in Ren Corporation ("Ren"). Upon closing of this transaction,
the majority of the advance will be applied to the purchase price. If the
transaction does not close, REN must repay the advance plus 8% accrued interest
no later than six months from the date of the Company's written notice that the
purchase will not be completed. The final agreement is subject to the Company's
due diligence, the funding of the purchase and approval by the management of
each company.
Preferred Stock - In December 2000, the Company issued for cash
44,444 shares of Series B convertible preferred stock ("preferred stock") for
$394,337, net of $50,107 in offering costs. The Company recorded a deemed
dividend of $100,006 when it issued the preferred stock as the preferred stock
was convertible at a discount into common stock of the Company. In March 2001,
the Company issued for cash and a subscription receivable 44,444 shares of
preferred stock for $384,838, net of $59,606 in offering costs. The Company
recorded a deemed dividend of $366,174 when it issued the preferred stock as the
preferred stock was convertible at a discount into common stock of the Company.
The subscription receivable was repaid in April 2001. During the second quarter
of 2001, the holder converted all of its preferred stock into 1,123,376 shares
of common stock. The original conversion period was 120 days, however, the
Company requested that the holder convert the preferred stock earlier.
Stock Options - During February 2000, the Company entered into a
consulting agreement under which 480,000 stock options were granted. For the
nine months ended June 30, 2001, the Company recorded $114,828 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 Nine Months Ended
June 30, June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Paint $ 758,959 $ 668,515 $ 1,736,114 $ 1,526,377
Alternative Fuels 818,187 210,062 1,942,957 590,997
Mud Logging Services 797,062 465,683 2,003,366 1,205,603
Real Estate 34,608 31,414 92,646 92,003
------------ ------------ ------------ ------------
$ 2,408,816 $ 1,375,674 $ 5,775,083 $ 3,414,980
------------ ------------ ------------ ------------
Operating income (loss):
Paint $ 45,997 $ 157,728 $ 117,923 $ 160,839
Alternative Fuels (734,421) (1,734,465) (2,723,948) (3,287,365)
Mud Logging Services 88,729 10,189 183,195 (73,508)
Real Estate 8,118 43,268 6,106 51,757
------------ ------------ ------------ ------------
$ (591,577) $ (1,523,280) $ (2,416,724) $ (3,148,277)
------------ ------------ ------------ ------------
Depreciation and amortization:
Paint $ 27,757 $ 71,190 $ 83,269 $ 122,741
Alternative Fuels 173,637 56,727 455,543 211,818
Mud Logging Services 29,454 29,293 86,243 82,828
Real Estate 13,265 13,050 39,564 37,329
------------ ------------ ------------ ------------
$ 244,113 $ 170,260 $ 664,619 $ 454,716
------------ ------------ ------------ ------------
Equity in net loss of investees:
Alternative Fuels $ (113,758) $ (236,089) $ (290,803) $ (305,910)
------------ ------------ ------------ ------------
Expenditures for additions and
long-lived assets:
Paint $ -- $ 46,604 $ -- $ 46,604
Alternative Fuels 371,084 171,285 741,059 239,429
Mud Logging Services 136,771 34,021 235,829 106,954
Real Estate -- -- 5,959 --
------------ ------------ ------------ ------------
$ 507,855 $ 251,910 $ 982,847 $ 392,987
------------ ------------ ------------ ------------
Investment in equity method investees:
Alternative Fuels $ 21,975 $ 58,703 $ 21,975 $ 58,703
------------ ------------ ------------ ------------
Total assets:
Paint $ 1,625,458 $ 1,495,799 $ 1,625,458 $ 1,495,799
Alternative Fuels 12,978,057 11,862,628 12,978,057 11,862,628
Mud Logging Services 2,072,880 1,636,182 2,072,880 1,636,182
Real Estate 1,643,447 1,674,640 1,643,447 1,674,640
------------ ------------ ------------ ------------
$ 18,319,842 $ 16,669,249 $ 18,319,842 $ 16,669,249
============ ============ ============ ============
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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 had the
right to evaluate and acquire up to one-half of the Company's 50% interest in
Sand Creek Energy LLC. This agreement expired on April 15, 2001.
During the nine months ended June 30, 2001, the Company contributed
$302,194 to SCE and recognized $290,803 related to its equity in SCE's loss. As
of June 30, 2001, the Company has recorded a $21,975 investment in SCE.
6. CONTRACT LIABILITY
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 ("GTL") 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
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$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 financing for conversion 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. On
February 9, 2001, the Company received the first $750,000 payment as per the
terms of the contract. The payment is recorded as a current contract liability.
7. SUPPLEMENTAL DATA TO STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 2001 and 2000, the Company made
cash interest payments of $71,203 and $107,749.
Excluded from the statements of cash flows for the nine months ended
June 30, 2001 and 2000 were the effects of certain non-cash investing and
financing activities as follows:
Nine Months Ended June 30, 2001 2000
- ----------------------------------------------------------------------- ---------- -----------
Issuance of common stock for conversion of convertible
preferred stock and dividends $ 888,888 $ 1,299,082
Issuance of common stock for deposit on potential business
acquisition $ 244,000 $ 400,000
Purchase of equipment financed with a capital lease obligation $ 95,852 $ --
Issuance of common stock for prepaid expenses $ -- $ 106,240
Issuance of stock options for unearned compensation $ -- $ 137,549
Issuance of warrants for offering costs $ -- $ 33,257
Issuance of warrants for acquisition costs in business acquisition $ -- $ 16,281
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED JUNE 30,
2001 AND 2000
RESULTS OF OPERATIONS
Revenues. We had revenues from product sales, service sales, royalty
income, and rental income for the nine months ended June 30, 2001 and 2000 of
$5,775,083 and $3,414,980, 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
$1,736,114 and $758,959 for the nine and three months ended June 30, 2001. This
compares to revenues from this segment of $1,526,377 and $668,515 for the nine
and three months ended June 30, 2000. The increase of 14% in revenues for the
nine and three months ended June 30, 2001 from this segment was primarily due to
the introduction of new products, addition of new customers and increased
marketing activities.
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, engineers and technicians who staff our development and
testing laboratory.
Service sales in the amount of $2,003,366 and $797,062 were derived
from contracts for the mud logging services provided by our subsidiary,
Petroleum Mud Logging, Inc., during the nine and three months ended June 30,
2001. Our mud logging service revenues for this period increased by $797,763 and
$331,379 over the service revenues of $1,205,603 and $465,683 during the nine
and three months ended June 30, 2000. The increases in mud logging service
revenues were due primarily to increased demand for our mud logging services,
particularly for new wells drilled for natural gas. In response, we outfitted
eight of our 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 2000. In addition, we have purchased several new units to increase our
capacity in order to meet increased demand for these services. In addition, we
increased the daily rates for these services.
Service sales 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 $1,762,957 and $758,187
during the nine and three months ended June 30, 2001 as compared to $390,997 and
$150,062 during the nine and three months ended June 30, 2000. The increases of
351% and 405% in revenue for the nine and three months ended June 30, 2001 was
primarily due to the addition of several new customers and the increase in
services provided to existing customers. 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 $180,000 and $60,000 for the nine
and three months ended June 30, 2001, as compared to $200,000 and $60,000 for
the nine and three months ended June 30, 2000.
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 $92,646 and $34,608 in revenue for
the nine and three months ended June 30, 2001 as compared to $92,003 and $31,414
for the nine and three months ended June 30, 2000.
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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 nine
and three months ended June 30, 2001, the combined cost of sales increased by
85% and 119% to $3,804,533 and $1,756,418 from $2,056,800 and $803,801 for the
comparable periods from the prior year. The increase of $1,747,733 and $952,617
relates almost entirely to costs associated with the addition of new revenues
from these three business segments.
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 nine and
three months ended June 30, 2001, our cost of sales for the paint segment
increased by $93,201 and $121,901 to $826,393 and $429,582, as compared to the
comparable periods in 2000. These increases of 13% and 40% are almost entirely
related to the increase in revenues, and during the current quarter, to the
start-up costs associated with using a third party filler to produce certain
products.
Cost of sales for mud logging services were $1,439,131 and $593,511 for
the nine and three months ended June 30, 2001, up from $732,611 and $286,058 for
the comparable periods from the prior year. These increases of $706,520 and
$307,453 are directly related to the increase in revenues of this segment and
are 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 were $1,539,009 and $733,325
during the nine and three months ended June 30, 2001, up from $590,997 and
$210,062 for the nine and three months ended June 30, 2000. These increases of
$948,012 and $523,263 are 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 nine and three months ended June
30, 2001 was $1,970,550 and $652,398, as compared to $1,358,180 and $571,873 for
the comparable periods of 2000. The increases of $612,370 and $80,525 result
from the combined contributions of additional revenues of all of our business
segments, including an increase in product sales by our paint segment (up 14%),
and increased service revenues from our mud logging and technical services
segments (up 136% and 153%). These additions to gross profit were offset by
corresponding increases in costs of sales of 13% and 40% for the paint segment
and increases of 125% and 167% for our mud logging and technical services
segments. Cost of sales for the paint segment increased as gross profit
decreased for the segment primarily because of start-up costs associated with
using a third party filler to produce certain products. Cost of sales for the
mud logging and technical services segments increased at a lower rate than the
related gross profit for the nine month period and increased at a higher rate
for the three month period ended June 30, 2001 due to the recent costs related
to putting more mud logging units into the field, and to the additional costs
incurred 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 $3,704,526 and $945,304 for the nine and three months ended June
30, 2001, up $96,192 and down $708,877 from the nine and three months ended June
30, 2000 when these expenses were $3,608,334 and $1,654,181. The increase for
the nine month period 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. The decrease for the three month period is
attributable to more efficient operations, utilization of employee time to GTL
technical services projects and the lack of a $334,921 one-time charge for
options granted for consulting services as occurred in fiscal 2000.
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Depreciation and Amortization. Depreciation and amortization expense
for the nine and three months ended June 30, 2001 was $664,619 and $244,113. Of
these amounts, $129,687 and $45,229 were included in cost of sales. Depreciation
and amortization expense for the nine and three months ended June 30, 2000 was
$454,716 and $170,260, of which $124,985 and $59,014 were 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 $147,816
and $99,787 for the nine and three months ended June 30, 2001, decreased by
$411,434 and $229,939 from the corresponding periods of 2000, when this expense
was $559,250 and $329,726. 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 nine and
three months ended June 30, 2001 were $4,387,274 and $1,243,975, as compared to
$4,506,457 and $2,095,153 for the corresponding periods of 2000, a decrease of
$119,183 and $851,178. These decreases in total operating expenses are a result
of the factors, previously described, that relate to operating expenses.
Loss From Operations. Loss from operations for the nine and three
months ended June 30, 2001 decreased by $731,553 and $931,703 to a loss of
$2,416,724 and $591,577, as compared to a loss of $3,148,277 and $1,523,280 for
the corresponding periods in 2000. The decreased losses are attributable to an
increase in gross profit contributed by our operating segments, and to a
decrease in general and administrative expenses for the three months ended June
30, 2001.
Other Income (Expense). Other income (expense) include interest income,
interest expense and equity in loss of investee.
Interest Income. Interest income for the nine and three months ended
June 30, 2001 was $101,938 and $34,692 compared to $99,657 and $61,266 for the
nine and three months ended June 30, 2000. The decreased interest income for the
three month period ended June 30, 2001 was due primarily to having fewer funds
invested in interest-bearing cash accounts.
Interest Expense. Interest expense for the nine and three months ended
June 30, 2001 was $71,449 and $22,230, decreased from $107,749 and $33,057 for
the nine and three months ended June 30, 2000. 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 nine and three months ended June
30, 2001, we recognized $290,803 and $113,758 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. This compares
to a loss of $305,910 and $236,089 for the nine and three months ended June 30,
2000, with the decrease for the three months primarily resulting from decreased
activities at the plant during the current fiscal year.
Total Other Expenses. Total other expense decreased to $260,314 and
$101,296 for the nine and three months ended June 30, 2001, a decrease of
$53,688 and $106,584 over total other expenses of $314,002 and
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$207,880 for the comparable nine and three months ended June 30, 2000. The
decrease in total other expenses resulted from the combination of the factors
previously described as other income (expense).
Net Loss. For the nine and three months ended June 30, 2001, we
experienced a net loss of $2,677,038 and $692,873 compared to net losses of
$3,462,279 and $1,731,160 for the nine and three months ended June 30, 2000. The
$785,241 and $1,038,287 decrease in net loss for the nine and three months ended
June 30, 2001 resulted primarily from the increase in gross profit and decrease
in operating expenses of all of our business segments.
Dividends on Convertible Preferred Stock. Dividends 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 nine months ended June 30, 2001 and 2000, we issued
convertible preferred stock, and we were required to calculate a deemed dividend
in both periods. During the nine months ended June 30, 2001, we recorded
dividends of $466,180 compared to $89,612 during the nine months ended June 30,
2000.
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 $3,143,218 or $.05 per share and $692,873 or $.01 per share
for the nine and three months ended June 30, 2001 as compared to $3,551,891 or
$.06 per share and $1,731,160 or $.03 per share for the nine and three months
ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, we had working capital of $1,898,841 as compared to
working capital of $1,846,810 at September 30, 2000. The relatively small
increase in working capital is primarily due the significant increase in trade
receivables, with a corresponding decrease due to the use of cash for
operations.
As of June 30, 2001, we had $3,590,706 in cash and other current
assets, including net accounts receivable of $1,572,756. At that time, our
current liabilities were $1,691,865. We had long-term liabilities of $1,030,209.
Most of our long-term liabilities relate to our mortgage on our laboratory
facility, which is due on March 1, 2029. We purchased the facility in February
1999.
The primary source of our liquidity has been equity capital
contributions. We added additional sources of liquidity through cash flow
generated by the operations of OKON, Inc. and Petroleum Mud Logging, Inc., the
license agreement with Texaco and billings for technical services relating to
the Rentech GTL Technology.
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 an effort 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
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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 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 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 an increase in the market price of our stock, the
underwriter has agreed to use its best efforts to sell $75 million to $100
million of our common stock. 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
may 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 could 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.
Based upon the possibility that the proposed public offering may not be
completed, we have retained a financial advisor in order to help the Company
evaluate and possibly implement one or more transactions involving a sale,
merger, exchange or other disposition of the Company's securities or assets in
order to achieve the above described objectives of the Company.
ANALYSIS OF CASH FLOW
Operating Activities. Operating activities produced net losses of
$2,677,038 and $3,462,279 for the nine month periods ended June 30, 2001 and
2000, respectively. The cash flows used in operations for those periods resulted
from the following operating activities.
Depreciation and Amortization. Depreciation and amortization are
non-cash expenses. These expenses increased during the nine months ended June
30, 2001 by $209,903, compared to the nine months ended June 30, 2000. The
increase is primarily due to the addition of equipment for our development and
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testing laboratory and for our mud logging business segment, and for software
capitalized at the end of fiscal 2000.
Stock Options and Warrants Issued for Services. We issued stock options
and warrants for services in the amounts of $153,546 and $351,999 for the nine
months ended June 30, 2001 and 2000, 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 $290,803 during the nine month period ended June 30, 2001. 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 improvements to the
technology. We acquired our investment in the plant during the second quarter of
fiscal year 2000, and the $305,910 loss during the nine months ended June 30,
2000 was comparable.
Changes in Operating Assets and Liabilities. The changes in operating
assets and liabilities result from the following factors.
Accounts Receivable. Accounts receivable increased by $829,281 and
$203,443 for the nine months ending June 30, 2001 and 2000, respectively.
Accounts receivable increased during the nine month periods primarily due to
increased revenues from all of our business segments.
Accounts Payable and Other Accrued Liabilities. Accounts payable and
other accrued liabilities increased by $375,322 and $149,146 during the nine
month periods ended June 30, 2001 and 2000, respectively, which reflects our
increases in levels of operations.
Net Cash Used in Operating Activities. The total net cash used in
operations decreased to $2,250,246 during the nine months ended June 30, 2001,
as compared to $2,529,909 for the nine months ended June 30, 2000. The decrease
reflects increased gross profits and decreased operating expenses during the
current fiscal year.
Investing Activities. Investing activities during the nine month
periods ended June 30, 2001 and 2000 included purchases of property and
equipment of $467,252 and $392,987, respectively, primarily for our development
and testing laboratory and mud logging vehicles. These vehicles were specially
equipped for our mud logging business segment. In addition, investing activities
during the nine months ended June 30, 2001 included payments for capitalized
software costs in the amount of $419,743. The software will be used in the
commercialization of our GTL technology. Investing activities during the nine
month periods ended June 30, 2001 and 2000, respectively, also included $302,194
and $541,664 which were used to fund our 50% share of expenses of Sand Creek
Energy, LLC.
Financing Activities. Financing activities during the nine months ended
June 30, 2001 provided $2,396,192 in cash from the issuance of common stock
compared to $6,929,961 during the nine months ended June 30, 2000. During the
nine months ended June 30, 2001, we received net proceeds of $779,175 from the
issuance of convertible preferred stock as compared to net proceeds of $166,660
during the nine months ended June 30, 2000. We redeemed warrants to purchase
common stock during the nine months ended June 30, 2001 in the amount of $2,084.
We redeemed 23,832 shares of convertible preferred stock for $285,000 in cash
during the nine months ended June 30, 2000. During the nine months ended June
30, 2001, we received proceeds from a contract liability of $750,000, and we
repaid $255,570 in long-term debt obligations as compared to no such proceeds
during the nine months ended June 30, 2000 and the repayment of $308,572 in
long-term debt obligations during that period. During the nine months ended June
30, 2001, we paid $185,954
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in deferred offering costs for a proposed future equity offering, compared to
$605,169 of such payments during the nine months ended June 30, 2000. The net
cash provided by financing activities during the nine months ended June 30, 2001
was $3,481,759, compared to $5,897,880 in cash provided by financing activities
during the nine months ended June 30, 2000.
Cash decreased during the nine months ended June 30, 2001 by $7,439
compared to an increase of $2,176,198 during the nine months ended June 30,
2000. These changes decreased the ending cash balance to $1,509,376 at June 30,
2001 from $2,484,380 at June 30, 2000.
Net Deferred Tax Asset. The Company has a net deferred tax asset with a
100% valuation allowance as of June 30, 2001 as management is not able to
determine if it is more likely than not that the net deferred tax asset will be
realized.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk through interest rates related to
its investment of current cash and cash equivalents. These funds are generally
highly liquid with short-term maturities, and the related market risk is not
considered material. The Company's line of credit from a bank has a variable
interest rate. The Company's management believes that fluctuations in interest
rates in the near term will not materially affect the Company's consolidated
operating results, financial position or cash flow.
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.
Class of Total Exemptions
Date Securities Securities Offering Total Class of from
of Sale Sold Sold Price Commissions Purchasers Registration
------- ---------- ---------- ---------- ----------- ---------- ------------------
5/21/01 Common 2,000,000 $1,900,000 $0 Accredited Rules 505, 506
Stock Investors Section 4(2) & 4(6)
6/22/01 Common 50,526 $ 15,000 $0 Accredited Rules 505, 506
Stock(1) Investors Section 4(2) & 4(6)
(1) The common shares were issued upon the exercise of warrants granted
in 1997.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 8, 2001, the Company held its Annual Meeting of Shareholders.
Matters voted on at the meeting and the results of such voting are as
follows:
1. The election of two directors to hold office for terms expiring in
2004. The following persons were elected as directors of the Company
and received the number of votes set forth below:
Director For Withheld
-------- --- ----------
Ronald C. Butz 53,968,721 2,417,617
Douglas L. Sheeran 53,951,546 2,434,792
The terms of John J. Ball, John P. Diesel, Erich W. Tiepel and Dennis
L. Yakobson continue past this meeting.
2. To approve the adoption of the 2001 Stock Option Plan:
For: 51,067,052
Withheld: 4,900,873
Abstain: 418,413
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 April 12, 2001 reporting under Item 5,
Other Events
Form 8-K dated June 27, 2001 reporting under Item 5,
Other Events
Form 8-K dated June 28, 2001 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: July 23, 2001 /s/ Dennis L. Yakobson
-----------------------------------------------
Dennis L. Yakobson, President
Dated: July 23, 2001 /s/ James P. Samuels
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James P. Samuels, Vice President-Finance
and Chief Financial Officer
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