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Recent Filings: Dec 1997 (Annual Rpt) | Feb 1998 (Qtrly Rpt) | May 1998 (Qtrly Rpt) | Aug 1998 (Qtrly
Rpt)
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August 12, 1998
RENTECH INC /CO/ (RNTK)
Quarterly Report (SEC form 10QSB)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE, 30, 1998
AND
Results of Operations.
For the three and nine months ended June 30, 1998, the Company recorded losses of
$392,993 and $1,433,061, compared to net losses of $97,619 and $645,152 for the
comparable periods in 1997. The increase for 1998 is primarily due to increases in general
and administrative expenses and interest expense, which includes a non-cash interest charge
of approximately $45,000 relating to discount on convertible notes payable. These
increases are partially offset by profit from the operations of the Company's Okon
subsidiary which was acquired in March 1997.
Revenues of $586,451 and$1,381,800 were recognized during the three months and nine
months ended June 30, 1998 from net sales of water-based paints, sealers and coatings by
the Company's Okon subsidiary. Revenues of $608,432 and 718,249 were recognized by
the Company during the three months and nine months ended June 30, 1997. The Company
acquired Okon in March 1997.
During the three and nine months ended June 30,1998, cost of sales related to water-based
paints, sealers and coatings was $258,456 and $627,290 as compared to $302,715 and
340,526 for the three and nine months ended June 30,1997 because of the contribution of
Okon which was acquired in March 1997.
Gross profit increased to $327,995 and $754,510 for the three month and nine month
periods ended June 30, 1998 compared to a gross profit of $305,717 and $377,723 for the
three month and nine month period ended June 30,1997 because of the contribution of
Okon which was acquired in March 1997.
General and administrative expenses increased to $645,947 and $1,828,127 for the three
month and nine month period ended June 30,1998, compared to $328,013 and $822,661
for the comparable periods in 1997. This increase is due to expenses associated with Okon
which were not included in the prior periods, increased costs associated with public
relations, and increased salary and benefit costs.
Depreciation and amortization increased for the nine month periods ended June 30, 1998
compared to the nine months ended March 31,1997 primarily due to depreciation of
Okon's equipment and amortization of goodwill acquired when Okon was purchased in
March 1997. The increase of $18,025 in the three month period ended June 30, 1998
compared to prior year reflects the purchase of additional equipment in 1998.
Loss from operations for the three month and nine month periods ended June 30, 1998
increased to $405,098 and $1,340,946 from losses of $91,417 and $640,321 reported for
the comparable periods in 1997. The $313,681 increase in loss from operations for the
three months ended June 30,1998 compared to the same period in 1997 primarily reflects
the increase of $317,934 in general and administrative expenses and the increase of
$18,025 in depreciation and amortization, which were partially offset by the increase in
gross revenues of $21,981 attributable to Okon. The $700,625 increase in loss from
operations for the nine month period ended June 30,1998 compared to the same period in
1997 primarily reflects the increase of $1,005,466 in general and administrative expenses
and the increase of $286,764 in cost of sales and the increase of $71,946 in depreciation
and amortization, which were only partially offset by the increase in total revenues of
$663,551 of which $668,800 was attributable to Okon which was acquired in March
1997.
Interest income was higher during the three month and nine month periods ended June 30,
1998 as compared to the same periods of 1997 because of the Company's increase in cash
on hand.
Interest expense during the nine month periods ended June 30, 1998 was $113,793
compared to $8,017 during comparable 1997 periods due to interest charges relating to the
addition of $1,310,500 in debt after June 30, 1997. The remaining debt was discharged
early in the three month period ended June 30, 1998 resulting in interest charges of $2,635
compared to $7,894 in the comparable period in 1997.
LIQUIDITY AND CAPITAL RESOURCES.
At June 30, 1998, the Company had working capital of $939,842 as compared to a
working capital deficit of $675,630 at September 30, 1997. The $1,625,472 increase in
working capital is due to the net proceeds of preferred stock issued for $1,800,000 in cash,
net proceeds of common stock issued for $654,786 and the net proceeds of an additional
$60,000 in convertible notes payable, less the repayment of notes payable in the amount of
$690,000 as well as to the ongoing losses from operations. The convertible notes payable
in the amount of $620,500 were converted into the Company's common stock in April
1998. Convertible preferred stock in the amount of $300,000 and accumulated dividends
was converted to common stock in June 1998.
To achieve its stated plan to grow, diversify and acquire new businesses, the Company
negotiated the placement of 200,000 shares of Series A Preferred Stock at $10.00 per share
together with warrants to purchase 200,000 shares of Series B Preferred Stock and, at the
option of the Company, up to an additional 600,000 shares of Series B Preferred Shares at
$10.00 per share; or a commitment by the purchaser of up to $10,000,000. As of March
31, 1998 the Company has sold 200,000 shares of its Series A Preferred Stock at $10 per
share. The net proceeds were $1,800,000. The Series A Preferred Stock pays a dividend of
9% per year and is convertible over 18 months into common stock at the lesser of the
average closing bid price of the common stock for the five trading days preceding the sale
of preferred shares, or 82,5% of the average closing bid for the five trading days preceding
the conversion of the Series A Preferred Stock into common stock. The warrants provide
for the purchasers, during the 18 months after purchase of the Series A Preferred Stock, to
purchase, and the Company to sell, 200,000 shares of Series B Preferred Stock for an
additional $2,000,000 and provide the Company during the same period the option to sell
to the purchasers an additional 600,000 shares of Series B Preferred Stock at $10.00 per
share. The Company has no obligation to sell any of the 600,000 shares of the Series B
Preferred Stock to the purchasers. The Company does not have to sell any of the 800,000
shares of Series B Preferred Stock to the purchasers if certain conditions occur, primarily
related to volume and the price of the common stock in the market. The Company has no
obligation to sell any of the 800,000 shares of Series B Preferred Stock if the average daily
share price for the common stock for the 10 trading days prior to the sale is less than $1.00
per share. The Series B Preferred Stock pays a dividend of 9% per year and is convertible
into common stock until December 31, 1999 at 82.5% of the average closing bid for the
five trading days preceding the date of conversion.
During the period the Company issued 200,000 shares of Series A Preferred Stock at
$10.00 per share together with warrants to purchase 200,000 shares of Series B Preferred
stock and, at the option of the Company, up to an additional 600,000 shares of Series B
Preferred Stock at $10.00 per share. Net proceeds from issuance of the Series A Preferred
Stock was $1,800,000. The Series A Preferred Stock pays a dividend of 9% per year and is
convertible over 18 months into common stock at the lesser of the average closing bid
price of the common stock for the five trading days preceding the sale of the preferred
shares, or at 82.5% of the average closing bid for the five trading days preceding the
conversion of the Series A Preferred Stock into common stock. During the period the
Company recorded a deemed dividend of $581,098 with respect to the discount and
recorded accrued dividends of $72,074 with respect to the 9% dividend on the Series A
Preferred Shares. During June 1998, 30,000 shares of Series A preferred stock including
accrued dividends were converted into 309,789 shares of common stock.
The warrants provide for the purchasers, during the 18 months after purchase of the Series
A Preferred Stock,
to purchase and the Company to sell, 200,000 shares of the Series B Preferred Stock and
provide the Company during the same period the option to sell to the purchasers an
additional 600,000 shares of the Series B Preferred Stock at $10.00 per share. The
Company has no obligation to sell any of the 600,000 shares of the Series B Preferred
Stock to the purchasers. The Company does not have to sell any of the 800,000 shares of
the Series B Preferred Stock to the purchasers if certain conditions occur, primarily related
to volume and the price of the common stock in the market. The Company has no
obligation to sell any of the 800,000 shares of the Series B Preferred Stock if the average
daily share price for the common stock for the 10 trading days prior to the sale is less than
$1.00 per share. The Series B Preferred Stock pays a dividend of 9% per year and is
convertible into common stock until December 31, 1999 at 82.5% of the average closing
bid for the five trading days preceding the date of conversion. On July 20, 1998 the
Company issued 100,000 Series B Preferred stock for $1,000,000 in cash before offering
costs of $100,000. The Series B Preferred Stock is convertible into common stock at a
discount. The Company recorded a deemed dividend of $24,060 with respect to the
discount.
The Company expects to realize income during the next 9 months from its license granted
for the plant at Arunachal Pradesh in India. The Company expects to receive license fees in
the amount of $240,000, and additional fees for engineering services are expected though
not yet under contract. Income from royalties associated with the India plant are not
expected until after the completion of construction and startup and operation of the plant.
The Company is discussing other proposals made by several energy companies, including
Texaco Natural Gas, Inc. for exploitation of the Company's gas-to-liquids technology
through licenses or other business ventures. No assurances can be made that these
discussions will result in either business ventures or revenues to the Company, or when
such results might occur.
The Company has deferred tax assets with a 100% valuation allowance at June 30,1998
and September 30, 1997. Management is not able to determine if it is more likely than not
that the deferred tax assets will be realized.
The over-the-counter markets for securities such as the Company's Common Stock
historically have experienced extreme price and volume fluctuations. These broad market
fluctuations, variations in the Company's results of operations, and other economic and
industry trends may adversely affect the market price of the Company's common stock.
Although the common stock is listed for quotation on the NASDAQ SmallCap Market,
there are no assurances that the common stock will meet the minimum bid price of $1 or
other listing requirements. Accordingly there can be no assurance that the common stock
will remain eligible for quotation on SmallCap Market. In the event of ineligibility and
delisting, the ability of shareholders to sell their stock and the value of the stock would be
adversely affected.
Analysis of cash flow
As discussed under "Results of Operations," the Company had net losses of $1,433,061
and $645,152 respectively for the nine months ended June 30, 1998 and 1997. The 1998
non-cash expenses include a $45,621 charge for interest on convertible notes payable
satisfied with the issuance of common stock. The period ended June 30, 1998 includes
depreciation on Okon's equipment and amortization of goodwill acquired when Okon was
purchased in March 1997 which is not included in the comparable prior period.
Operating assets and liabilities included no changes in restricted cash for the 1998 period
as compared to a $25,000 decrease in the 1997 period.
There was a $145,345 increase in accounts receivable during the nine months ended June
30,1998 compared
to a $234,107 increase during the comparable 1997 period.
The nine month period ended June 30, 1998 reflects no change in property tax receivable
compared to a $71,813 decrease for the 1997 period. There was a $21,640 increase in
prepaids and other current assets during the nine month period ended June 30, 1998
compared to an increase of $22,841 during the comparable 1997 period.
Accounts payable and other accrued liabilities increased by $50,049 during the nine months
ended June 30, 1998 compared to a $99,137 increase for the comparable 1997 period.
During the nine month period ended June 30, 1998 $1,229,565 cash was used by operating
activities compared to a net cash usage of $514,580 for the comparable period of 1997.
The Company purchased $60,721 in equipment during the nine months ended June 30,
1998 compared to purchases of $12,941 during the comparable 1997 period. During the
period the Company invested $230,000 in cash with ITN/ES as an initial payment regarding
a joint venture as described in the investment in ITN/ES note. On May 27, 1998, the
Company entered into a letter of intent to purchase a Rocky Mountain based manufacturing
and machining company. The Company has made a $50,000 deposit on the potential
purchase of this business. This potential purchase is subject to due diligence and financing
requirements. There are no assurances that the Company will acquire this company.
The Company financed its operating and financing activities by net proceeds of $60,000
from issuance of convertible notes payable, net proceeds of $1,800,000 from issuance of
$2,000,000 in preferred stock and net proceeds of $654,787 from issuance of $708,345 in
common stock during the 1998 period compared to proceeds of $1,265,535 from preferred
stock and $782,508 from common stock offset by the $352,350 redemption of preferred
stock during comparable periods in 1997.
Cash increased in the nine months ended June 30, 1998 by $254,500 compared to a
decrease of $15,860 for the comparable periods of 1997. These changes increased the
ending cash balance to $645,987 at June 30, 1998 from $391,487 at September 30, 1997.
The 1997 changes decreased the $210,486 September 30, 1996 balance to $194,626 at
June 30, 1997.
YEAR 2000
the Company could experience difficulties with the year 2000 Issue in the future. The year
2000 Issue is the result of computer programs that are written using two digits rather than
four to define the applicable year. Any computer programs that affect the Company's
activities and that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations that depend upon such date-sensitive software or
computer hardware. The potential problems include, among other things, a temporary
inability to process transactions, send invoices, transfer funds, or engage in similar normal
business activities.
Based upon a recent assessment, the Company believes the software it uses would present
limited year 2000 Issues. The Company believes that its activities do not rely upon
date-sensitive computer software or hardware for its own activities. The Company has been
unable to evaluate whether the software and computer equipment used by third parties with
whom it conducts business, including potential licensees, are Year 2000 compliant. If they
are not, then the Company may experience delays and difficulties in receiving funds from
them, and in paying funds necessary to satisfy the Company's various financial and legal
obligations, among other problems. These and related difficulties,
especially if the Year 2000 Issue causes problems and system failures for other businesses
upon which the Company relies, could have material adverse consequences for the
Company and its financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standard No.130
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting
Standard No.131 "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners and
distribution to owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that displays with the same
prominence as other financial statements. SFAS 131 supersedes Statement of Financial
Accounting Standard No. 14 "Financial Reporting for Segments of a Business Enterprise."
SFAS 131 establishes standards of the way the public companies report information about
operating segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to the public.
It also establishes standards for disclosure regarding products and services, geographical
areas and major customers. SFAS 131 defines operating segments as components of a
company about which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for periods beginning after
December 15, 1997 and require comparative information for earlier years to be restated.
Because of the recent issuance of these standards, management has been unable to fully
evaluate the impact if any, the standards may have on future disclosures. Results of
operations and financial position, however, will be unaffected by the implementation of
these standards.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other postretirement benefits and requires additional
information on changes in the benefit obligations and fair values of plan assets that will
facilitate financial analysis. SFAS No. 132 is effective for years beginning after December
15, 1997 and requires comparative information for earlier years to be restated, unless such
information is not readily available. Management believes the adoption of this statement
will have no material impact on the Company's financial statements.
The Financial Accounting Standards Board has recently issued Statements of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities ("SFAS No.133")". SFAS No. 133 establishes standards for recognizing all
derivative instruments including those for hedging activities as either assets or liabilities in
the statement of financial position and measuring those instruments at fair value. This
statement is effective for fiscal years beginning after June 30, 1999. The Company has not
yet determined the effect of SFAS No. 133 on its financial statements
Recent Filings: Dec 1997 (Annual Rpt) | Feb 1998 (Qtrly Rpt) | May 1998 (Qtrly Rpt) | Aug 1998 (Qtrly
Rpt)
More filings for RNTK available from EDGAR Online |
