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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

OR

Commission File Number 0-19260

RENTECH, INC.

(Exact name of registrant in its charter)

1331 17th Street, Suite 720

Denver, Colorado 80202

(Address of principal executive offices)

(303) 298-8008

(Issuer’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has 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  ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  x.

The number of shares outstanding of each of the issuer’s classes of common equity, as of February 12, 2003: common stock—72,192,667.

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RENTECH, INC.

Form 10-Q Quarterly Report—First Quarter of Fiscal 2003

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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. (OKON); the market demand and anticipated revenues from the mud logging services provided by Petroleum Mud Logging, Inc. (PML); the ability of REN Corporation (REN) to complete its sales orders; 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.

Consolidated Balance Sheets

(Continued on following page.)

See notes to consolidated financial statements.

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RENTECH, INC.

Consolidated Balance Sheets

(Continued from previous page.)

See notes to consolidated financial statements.

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RENTECH, INC.

Consolidated Statements of Operations

(Unaudited)

See notes to consolidated financial statements.

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RENTECH, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

See notes to consolidated financial statements.

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RENTECH, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Continued on following page.)

See notes to consolidated financial statements.

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RENTECH, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Continued from previous page.)

For the three months ended December 31, 2002 and 2001, the Company made cash interest payments of $93,527 and $30,783. Excluded from the statements of cash flows for the three months ended December 31, 2002 and 2001 were the effects of certain non-cash investing and financing activities as follows:

See notes to consolidated financial statements.

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RENTECH, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 1 – Description of Business and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with 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 accounting principles generally accepted in the United States of America for complete financial statements. The accompanying statements should be read in conjunction with the audited financial statements included in the Company’s September 30, 2002 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, 2002 are not necessarily indicative of the results that may be realized for the full fiscal year ending September 30, 2003.

Management’s Plans

From the Company’s inception on December 18, 1981 through December 31, 2002, the Company has incurred losses in the amount of $32,294,812. For the quarter ended December 31, 2002, the Company recognized a $1,391,171 net loss. If the Company does not operate at a profit in the future, the Company may be unable to continue its operations at the present level.

The Company has been successful in the past in obtaining equity financing. For the years ended September 30, 2002, 2001 and 2000, the Company received net cash proceeds from the issuance of common stock of $1,456,724, $2,332,005 and $6,951,913. For the years ended September 30, 2002, 2001 and 2000, the Company has received cash proceeds from the issuance of convertible preferred stock of $500,000, $793,673 and $150,000.

In order to achieve its objectives as planned for fiscal 2003, the Company has secured commitments through debt and equity securities which it believes will meet all of its expected cash requirements for fiscal 2003. The Company does not expect to use convertible preferred stock to fund its cash requirements for fiscal 2003. In addition, the Company is negotiating to sell all or some of the assets of Sand Creek Energy, LLC, a company in which Rentech has a 50% interest. The Company believes that its current available cash, revenues from operations, additional debt and equity financing and the potential sale of assets will be sufficient to meet its cash operating requirements through September 30, 2003.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 1 – Description of Business and Summary of Significant Accounting Policies (continued)

Cash Equivalents

The Company considers highly liquid investments purchased with original maturities of three months or less and money market accounts to be cash equivalents.

Inventories

Inventories consist of raw materials, work-in-process and finished goods and are valued at the lower of cost (first-in, first-out) or market.

Capitalized Software

The Company has capitalized its internal use software in accordance with Statement of Position 98-1. Capitalized software costs include fees paid to Dresser Engineering Company for software development in the amount of $851,611 and $96,081 in capitalized software costs acquired from the acquisition of REN, net of accumulated amortization of $631,376. The Company has a 5% interest in Dresser Engineering and Constructors, Inc., which is the parent company of Dresser Engineering Company. The capitalized software costs are being amortized over a three-year period using the straight-line method.

Licensed Technology

Licensed technology represents costs incurred by the Company primarily for the retrofit of a plant used 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 fifteen years.

Goodwill

Goodwill, which relates to the acquisition of OKON in 1997, the acquisition of PML in 1999 and the acquisition of REN in 2001, is no longer being amortized, and is tested annually for impairment in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets.

Production Backlog

In connection with the acquisition of REN in 2001, the Company acquired certain production backlog arising from existing sales contracts. The production backlog was amortized over one year, the term of the contracts.

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 1 – Description of Business and Summary of Significant Accounting Policies (continued)

Non-Compete Agreement

In connection with the acquisition of REN in 2001, the Company entered into non-compete agreements with certain employees of REN. The non-compete agreements are being amortized over the term of the non-compete agreements of five years.

Property, Equipment, Depreciation and Amortization

Property and equipment is stated at cost. Depreciation and amortization expense are computed using the straight-line method over the estimated useful lives of the assets, which range from three to thirty years, except for leasehold improvements, which are amortized over the shorter of the useful life or the remaining lease term. Maintenance and repairs are expensed as incurred. Major renewals and improvements are capitalized. When property and equipment is retired or otherwise disposed of, the asset and accumulated depreciation or amortization is removed from the accounts and the resulting profit or loss is reflected in operations.

Investment in INICA, Inc.

The Company has a 10% investment in INICA, Inc. The investment is stated at cost. The investment is evaluated periodically for impairment and is carried at the lower of cost or estimated 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 and identifiable intangibles 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.

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 1 – Description of Business and Summary of Significant Accounting Policies (continued)

Accrued Liabilities

The Company accrues significant expenses that occur during the year in order to match expenses to the appropriate period. These include audit and legal fees, as well as payroll expenses such as bonuses and vacation.

Revenue Recognition

Sales of water-based stains sealers and coatings are recognized when the goods are shipped to the customers, as all goods are shipped FOB shipping point.

Revenues from oil and gas field services are recognized at the completion of the service.

Laboratory research revenues are recognized as the services are provided.

Revenue from the manufacture of industrial automation systems is recognized based upon the percentage of completion method of accounting and per the terms of customer contracts.

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.

Rental income is recognized monthly as per the lease agreement, and is included in the alternative fuels segment as a part of service revenues.

Accounting for Fixed Price Contracts

Revenues from fixed price contracts are recognized on the percentage-of-completion method for projects in which reliable estimates of the degree of completion are possible. If reliable estimates are not available, the completed contract method is used. For contracts accounted for under the percentage-of-completion method, the amount of revenue recognized is the percentage of the total contract price that the cost expended to date bears to the anticipated final total cost, based upon current estimates of the cost to complete the contract. Contract cost includes all labor and benefits, materials unique to or installed in the project, subcontract costs and allocations of indirect costs. General and administrative costs are charged to expense. Provisions for estimated losses on uncompleted contracts are provided for when determined, regardless of the completion percentage. As contracts can extend over one or more accounting periods, revisions in costs and earnings estimated during the course of the work are reflected during the accounting period in which the facts that require such revisions become known. Project managers make significant assumptions concerning cost estimates for labor hours, consultant hours and other project costs. Due to the uncertainties inherent in the estimation process, and the potential changes in customer needs as projects progress, it is at least reasonably possible that completion costs for some uncompleted projects may be further revised in the near-term and that such revisions could be material.

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 1 – Description of Business and Summary of Significant Accounting Policies (continued)

Cost of Sales Expenses

Cost of sales expenses include direct materials, direct labor, indirect labor, employee fringe benefits and other miscellaneous costs to produce water-based stains, sealers and coatings, to manufacture industrial automation systems and to complete oil and gas field services and technical services.

General and Administrative Expenses

General and administrative expenses include employee’s salaries and fringe benefits, travel, consulting, occupancy, public relations and other costs incurred in each operating segment.

Research and Development Expenses

Research and development expenses include direct materials, direct labor, indirect labor, employee fringe benefits and other miscellaneous costs incurred to develop and refine certain technologies employed in the respective operating segment. These costs are expensed as incurred.

Advertising Costs

The Company recognizes advertising expense when incurred.

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) applicable to common stock 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, 2002 and 2001, total stock options of 4,902,766 and 4,494,766, total stock warrants of 4,140,836 and 3,992,977, total Series B convertible preferred stock of 0 and 458,516 and total long-term convertible debt of 4,425,898 and 0 were not included in the computation of diluted loss per share because their effect was anti-dilutive.

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 1 – Description of Business and Summary of Significant Accounting Policies (continued)

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and accounts receivable. The Company’s cash is in demand deposit accounts placed with federally insured financial institutions. Such deposit accounts at times may exceed federally insured limits. The Company has not experienced any losses on such accounts. Concentrations of credit risk with respect to accounts receivable are higher due to a few customers dispersed across geographic areas. The Company reviews a customer’s credit history before extending credit and establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other information. Generally, the Company does not require collateral from its customers.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Fair values of accounts receivables, other current assets, accounts payable, accrued liabilities and other current liabilities are assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair value or they are receivable or payable on demand.

Long-Term Debt and Long-Term Convertible Debt

The carrying amount of convertible debt and other debt outstanding also approximates their fair value as of December 31, 2002 and 2001, because interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company.

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 1 – Description of Business and Summary of Significant Accounting Policies (continued)

Stock Option Plan

The Company applies Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees”, and related interpretations in accounting for all stock option plans. Under APB Opinion 25, compensation cost is recognized for stock options issued to employees when the exercise price of the Company’s stock options granted is less than the market price of the underlying common stock on the date of grant. Statement of Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” requires the Company to provide pro forma information regarding net loss as if compensation cost for the Company’s stock options plans had been determined in accordance with the fair value based method prescribed in SFAS No. 123. To provide the required pro forma information, the Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model. The Company applies Financial Accounting Standards Board (“FASB”) Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation (“FIN 44”). FIN 44 clarifies the application of APB Opinion 25 for certain issues related to stock issued to employees.

Comprehensive Loss

Comprehensive loss is comprised of net loss and all changes to the consolidated statement of stockholders’ equity except those changes made due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the three months ended December 31, 2002 and 2001, the Company had no items of comprehensive loss other than net loss; therefore, a separate statement of comprehensive loss has not been presented for these periods.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective June 30, 2003 for the Company. The Company believes the adoption of this statement will have no material impact on its consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company does not expect the adoption of this statement to have a material effect on the Company’s financial statements.

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 1 – Description of Business and Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

In October 2002, the FASB issued SFAS No. 147 “Acquisitions of Certain Financial Institutions” SFAS No. 147 amends FASB Statements No. 72 and 144 and FASB Interpretations No. 9. The Company does not expect the adoption of this statement to have any material effect on the Company’s financial statements.

In November 2002, the FASB published interpretation No, 45 “Guarantor’s Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. The Interpretation expands on the accounting guidance of Statements No. 5, 57, and 107 and incorporates without change the provisions of FASB Interpretation No. 34, which is being superseded. The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor’s fiscal year-end. The disclosure requirements in the Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company does not expect the adoption of this statement to have any material effect on the Company’s financial statements.

In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure”. This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation” to provide alternative methods of transition for an entity that voluntarily changes to the fair value method of accounting for stock-based compensation. In addition, SFAS 148 amends the disclosure provision of SFAS 123 to require more prominent disclosure about the effects of an entity’s accounting policy decisions with respect to stock-based employee compensation on reported net income. The effective date for this statement is for fiscal years ended after December 15, 2002. The Company does not expect the adoption of this statement to have a material effect on the Company’s financial statements.

Note 2 – Inventories

Inventories consist of the following:

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 3 – Investment in INICA, Inc.

On May 29, 1998, the Company acquired a 10% ownership in INICA, Inc., which is engaged in developing and commercializing emerging technologies, for $3,079,107. In the agreement to acquire an ownership interest in INICA, the Company agreed to repurchase its shares used as part of the purchase price if the market value falls below $0.40. As of December 31, 2002, the Company has not re-acquired any shares under this provision and the Company does not believe that there will be an obligation to re-acquire its shares in the future. The Company’s 10% ownership in INICA includes a 10% ownership interest in the 33% ownership interest of INICA in Global Energy Holdings, LLC. The other 67% owner of Global Energy Holdings, LLC is Millennium Holdings, Inc. (“Millennium”), a wholly owned subsidiary of UniSource Energy Corporation. Global Energy Holdings, LLC was established to manufacture and market flexible photovoltaic (PV) modules. The Company’s investment with INICA also enabled the Company to acquire interests in other technology ventures with INICA, all of which are owned by Infinite Power Solutions, Inc. INICA owns 33% of Infinite Power Solutions and Millennium owns the other 67%. The Company and INICA have reached an agreement under which the Company would exchange its 10% ownership in INICA for a 2.375% ownership in Global Energy Holdings, LLC and a 3.75% ownership in Infinite Power Solutions, Inc. The exchange is subject to approval by Millennium Energy Holdings, Inc.

Note 4 – 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 do not expect to use the Sand Creek plant for commercial production of liquid hydrocarbons. Instead, the Company may sell some or all of the assets of SCE. The Company is offering the site, including all improvements, for sale.

The owner of the facility is SCE, which is 50 percent owned by Rentech Development Corp., a wholly owned subsidiary of the Company, and 50 percent owned by RFC-Sand Creek Development, LLC, a wholly-owned subsidiary of Republic Financial Corporation. In connection with the acquisition of the facility, SCE assumed certain commitments with third parties. The Company and Republic guaranteed the full and punctual performance and payment by SCE of all of SCE’s obligations with respect to this facility. SCE received an unconditional release from Public Service Company of Colorado and Conoco on October 16, 2001 for certain natural gas purchase obligations of the facility. As a result, the aggregate liability of the Company under this guaranty was reduced from $4,000,000 to $0.

For the three months ended December 31, 2002 and 2001, the Company has contributed $41,094 and $68,940 to SCE and has recognized $56,423 and $86,966 related to its equity in SCE’s losses. As of December 31, 2002 and September 30, 2002, the Company had a $17,462 and a $17,966 receivable due from SCE. As of December 31, 2002 and 2001, SCE had no short-term or long-term debt.

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 5 – Long-Term Convertible Debt

On February 25, 2002, the Company issued four convertible long-term notes totaling $2,250,000 to existing stockholders of the Company. The notes bear interest at 8.5% and mature on February 25, 2006, with all unpaid principal and interest due at that time. Monthly payments on the notes of $19,526 commenced on April 1, 2002. The notes are convertible into no more than 4,500,000 shares of the Company’s common stock, less two shares for every dollar of principal reduction of the notes paid in the form of cash. Until the first anniversary date of the notes, the Lenders may elect to convert part or all of the principal balance into common stock at a conversion price of $.50 per share if the market price of the common stock on the conversion date is $.50 per share or higher. Conversion will not be permitted during the first year if the market price on the conversion date is less than $.50 per share. At any time following the first anniversary date of the notes, the Lenders may elect to convert part or all of the principal balance into common stock at a conversion price of $.50 per share, provided, however, that no conversions shall be made if the market price is less than $.50 per share on the conversion date. Starting on the first day of the thirteenth calendar month following the date of the notes, and continuing on the first day of each succeeding month until the notes are paid in full, principal in the amount of one-thirty-sixth of the declining principal balance of the notes shall automatically convert into the Company’s common stock at a conversion price of $.50 per share. If the average daily market price for the seven trading days preceding the first day of such calendar month is less than $.50 per share, the difference between $.50 per share and the average of the seven trading days preceding the date of conversion shall be multiplied by the number of shares issued to the Lenders as a result of the conversion, and the resulting dollar amount shall be added to the principal balance of the notes. The notes are secured by the assets of OKON, Inc., including the capital stock of that company.

Note 6 – Lines of Credit

On February 25, 2002, the Company entered into a $1,000,000 business line of credit agreement with Premier Bank through its 56% owned subsidiary, REN. The line of credit matures on March 1, 2003, at which time all unpaid principal and interest is due. The line of credit bears interest at prime plus 1.5% (5.75% at December 31, 2002), and interest is accrued monthly. Payments of principal are tied to the receipt of accounts receivable from Caterpillar, Inc. by REN. On February 27, 2002, the Company purchased a $500,000 certificate of deposit with Premier Bank, to be used as collateral on the line of credit. The $500,000 certificate of deposit is shown as restricted cash on the Company’s balance sheet. Interest on the certificate of deposit is paid to the Company on a monthly basis, and the certificate matured on December 31, 2002. The certificate will remain with Premier Bank until the line of credit matures. The line of credit is also collateralized by the first deed of trust on the real property of Petroleum Mud Logging, Inc. and REN. The line of credit is guaranteed by Rentech, Petroleum Mud Logging, Inc. and the minority shareholder of REN. The balance of this line of credit at December 31, 2002 was $570,841.

On September 27, 2002, the Company entered into a $500,000 business line of credit agreement with the Bank of Denver. The line of credit is due on demand. If no demand is made, the line of credit matures on June 1, 2003, at which time all unpaid principal and interest is due. The line of credit bears interest at the Bank of Denver Base Rate plus 0.5% (6.75% at December 31, 2002), and interest is accrued monthly. The

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 6 – Lines of Credit (continued)

line of credit is collateralized by all inventory, accounts receivable and equipment of Rentech. In addition, the line of credit it guaranteed by the building in which our research and development laboratory resides, 1,000,000 shares of the Company’s common stock consisting of 200,000 shares each owned by five officers of the Company and the residence of one of the officers of the Company. The balance of this line of credit at December 31, 2002 was $500,000.

Note 7 – Stockholders’ Equity

Common Stock

During the three months ended December 31, 2002, the Company issued 2,000 shares of its common stock upon the exercise of stock options for cash proceeds of $820. The Company also issued 300,000 shares of its common stock in payment for directors fees for fiscal 2002 as well as prepayment for directors fees for fiscal 2003 and fiscal 2004. The Company will not distribute the shares attributable to fiscal 2003 and fiscal 2004 until the end of each fiscal year.

Note 8 – Commitments and Contingencies

Employment Agreements

The Company has entered into various employment agreements with five of its officers that extend from January 1, 2001 to December 31, 2003. In the event that the Company terminates an officer’s employment for any other reason other than for cause, the Company shall pay the officer his compensation for the remainder of the term or one year, whichever is greater. In addition, the Company has employment agreements with three other officers with expiration dates from March 31, 2003 through August 31, 2004. These three employment agreements with the other officers provide for various settlements upon termination of employment. One employment agreement indicates that no additional obligation exists upon termination of employment unless it is related to the event of death; then the Company shall continue to pay the employee’s estate the employee’s salary for the remainder of the term. The second employment agreement indicates that in the event that the Company terminates the officer’s employment for any other reason other than for cause, the Company shall pay the officer his compensation for the remainder of the term. The third employment agreement indicates that if the officer’s employment with the Company terminates for any reason, the officer will receive twelve months of compensation in addition to any accrued vacation. The employment agreements set forth annual compensation to the eight officers of between $52,000 and $238,383 each. The Company’s total future obligations under employment agreements as of December 31, 2002 are $761,669 (2003) and $273,026 (2004). Compensation is adjusted annually based on the cost of living index. During fiscal 2000, the Company began to defer the payment of a portion of the compensation of certain officers of the Company. The deferral has continued through December 31, 2002. As of December 31, 2002 and September 30, 2002, the Company had deferred compensation of $473,985 and $419,036.

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Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 8 – Commitments and Contingencies (continued)

Retirement Plans

On January 1, 1998, the Company established a 401(k) plan. Employees who are at least 21 years of age are eligible to participate in the plan and share in the employer matching contribution. The employer is currently matching 75% of the first 6% of the participant’s salary deferrals. All participants who have completed 1,000 hours of service and who are employed on the last day of the plan year are eligible to share in the non-matching employer contributions. Employer matching and non-matching contributions vest immediately in years in which the plan is not top heavy. During years in which the plan is top heavy, employer matching and non-matching contributions vest 100% after three years of service. The Company contributed $39,461 and $26,833 to the plan during the three months ended December 31, 2002 and 2001.

Operating Leases

The Company leases office space under a non-cancelable operating lease, which expires October 31, 2003, with a renewal option for an additional five years. The Company also leases office and warehouse space for its OKON operation, under a lease, which expires during March 2005. The Company also has various operating leases, which expire through August 2004.

Litigation

Rentech owns 56 percent of Ren Corporation, which produces automated systems that test equipment produced by manufacturers of industrial equipment. A judgment was entered on October 29, 2002, in a civil action Ren Corporation brought against Case Corporation to collect an account receivable. The contract had been awarded in January 1998, before Rentech’s acquisition of its interest in Ren. The judgment, entered in the U.S. District Court for Oklahoma, denied Ren’s collection claim and awarded judgment in favor of Case Corporation on its claim against Ren for a breach of a condition of the contract. The judgment is in the amount of $325,795 plus costs and interest. Ren intends to appeal the judgment. Judgment amounts payable after appeal, if any, are payable out of the 44 percent of Ren Corporation that is not owned by Rentech.

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RENTECH, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 9 – Costs and Estimated Earnings on Uncompleted Contracts

The costs and estimated earnings related to uncompleted contracts are summarized as follows:

Included in the accompanying balance sheet under the following captions:

There were no amounts included in accounts receivable at December 31, 2002 or 2001 for amounts billed but not collected in accordance with retainage provisions of contracts.

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RENTECH, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 10 – Goodwill and Other Intangibles

Effective October 1, 2001, the Company elected early adoption of SFAS No. 142, which is permitted for entities with fiscal years beginning after March 15, 2001. As of October 1, 2001, the Company had $1,281,807 in unamortized goodwill. In accordance with the provisions of SFAS No. 142, the Company has ceased amortization of goodwill from the acquisitions of OKON and PML and has not amortized goodwill from the acquisition of REN. In accordance with SFAS No. 142, the Company has six months from the initial date of adoption to complete a transitional impairment test of goodwill. The second step of the goodwill impairment test measures the amount of the impairment loss (measured as of the beginning of the year of adoption), if any, and must be completed by the end of the Company’s fiscal year. The Company completed an impairment test as of September 30, 2002 and determined that there is no impact on the Company’s financial position and results of operations, as goodwill is not impaired. Goodwill will be tested annually and whenever events and circumstances occur indicating that goodwill might be impaired. Upon the adoption of SFAS No. 142, the Company evaluated the useful lives of its existing identifiable intangible assets and determined that the existing useful lives are appropriate.

The Company recorded $151,646 in amortization expense during the three months ended December 31, 2002, and estimates expense of approximately $454,000 during the remainder of the fiscal year ended September 30, 2003, and approximately $369,000, $290,000 and $290,000 in each of the fiscal years ending September 30, 2004, 2005 and 2006.

The following table summarizes the activity in goodwill for the periods indicated:

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RENTECH, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 10 – Goodwill and Other Intangibles (continued)

The following table summarizes the activity for intangible assets subject to amortization:

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RENTECH, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2002 (Unaudited)

Note 10 – Goodwill and Other Intangibles (continued)

The following table summarizes the effect of SFAS No. 142 on loss applicable to common stock per share loss: