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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended September 30, 2003

For the Transition Period from              to             

Commission File No. 0-19260

RENTECH, INC.

(Exact name of registrant as specified in its charter)

1331 17th Street, Suite 720

Denver, Colorado 80202

(Address of principal executive offices)

Telephone number: (303) 298-8008

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Preferred Stock Purchase Rights

(Title of Class)

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x.    No  ¨.

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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

Aggregate market value of voting and non-voting common equity held by nonaffiliates at March 31, 2003: $35,646,600

Common stock outstanding at December 26, 2003: 82,128,677

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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; obtaining paying customers for licenses of the technology; financing for plants using the Rentech GTL Technology; ability to economically construct new plants or retrofit existing gas 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 exploiting 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 oil and gas field services provided by Petroleum Mud Logging, Inc.; the ability of REN Corporation 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,” “might,” “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 Annual Report on Form 10-K, the terms “we,” “our” and “us” mean Rentech, Inc., a Colorado corporation and its subsidiaries, unless the context indicates otherwise.

PART I

ITEM 1. BUSINESS

OVERVIEW

We are engaged in the gas-to-liquids (GTL) business, which is the process of converting gases made from carbon-bearing materials into liquid hydrocarbons. We have developed and own a patented and proprietary process for the conversion of synthesis gas produced from natural gas, coal, refinery bottoms, industrial off-gas and other hydrocarbon feedstocks into clean, sulfur-free, and aromatic-free alternative fuels, naphthas and waxes. The ability of our GTL technology (Rentech GTL Technology) to convert this broad range of materials is one important advantage of our technology compared to other GTL technologies. Our patented, iron-based catalyst provides several other advantages that reduce the costs of Rentech GTL Technology. Based on successful demonstrations of our technology, we believe it

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is ready for use on a commercial basis in the proper circumstances. While there are no commercial-scale GTL process plants that use Rentech GTL Technology now in existence, we believe there is the potential for the use of Rentech GTL Technology in a significant number of plants around the world. This opportunity stems from the growing, worldwide demand for energy, especially environmentally clean energy, combined with large supplies of available feedstocks for our process.

The focus of our business is licensing the Rentech GTL Technology to oil and gas companies, operators of industrial gas plants, owners of other carbon-bearing feedstocks, and other members of the energy industry. In some instances, we may invest with others to acquire equity interests in plants that would use our technology. We might seek to acquire interests in one or more existing industrial gas plants that are underutilized because of depressed markets for their products or for other reasons. It might be feasible to convert these plants to use Rentech GTL Technology to produce liquid hydrocarbons.

We grant licenses in exchange for license fees and ongoing royalties to be charged for each barrel of liquid hydrocarbons produced by process plants that use Rentech GTL Technology. After we grant a license, our licensees are responsible for financing, constructing and operating their own plants to use the licensed technology. They must also acquire their own feedstock and sell the products that their plants produce.

In October 1998, we granted a license to Texaco Energy Systems, Inc., now a division of ChevronTexaco Corporation, for use of the Rentech GTL Technology. We have also provided engineering designs and technical services, under contract, for Texaco and some of our other licensees and potential licensees. They are using this information to consider the feasibility of constructing one or more plants to use our technology.

We intend to continue providing engineering design and technical services for our licensees when they design and construct their plants. To assist our licensees, we may also contract to provide our operational support services during startup of licensed plants. In addition, we may reserve the right to contract for the engineering and supply of the synthesis gas conversion reactors that are essential for use of the Rentech GTL Technology. The reactors must be specially configured for each plant according to the composition of the synthesis gas to be converted and the products desired. When plants are constructed and in operation, we will sell our patented catalyst, which is a necessary component of our conversion process, to our licensees.

We have granted several licenses in exchange for license fees. Our licensees are in various stages of evaluating the Rentech GTL Technology, seeking financing, and planning how to proceed. Because there are no process plants now in operation that use the Rentech GTL Technology, we are not receiving royalties from production of liquid hydrocarbons or revenues from sales of our catalyst.

An important part of our business strategy has been to acquire other businesses to generate revenues. Our intent is to help support our core business related to the Rentech GTL Technology during the period before its commercial use is established. In pursuit of this strategy, we have acquired interests in several other businesses that are not related to gas-to-liquids. OKON, Inc., based in the Denver metropolitan area, is our wholly-owned subsidiary. It manufactures and sells environmentally clean stains, sealers and coatings that are used on masonry, concrete and wood surfaces. Petroleum Mud Logging, Inc., located in Oklahoma City, Oklahoma, is another wholly-owned subsidiary. It provides well logging services to the oil and gas industry. We acquired 56 percent of REN Corporation as of August 1, 2001. REN, based in Stillwater, Oklahoma, manufactures computer-controlled testing equipment systems for manufacturers of industrial products. We lease office and warehouse space located in our research and development facility in Denver to a third party. These interests are described subsequently in this item under the heading “OTHER BUSINESSES.”

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SUBSEQUENT EVENT

On October 29, 2003, after the end of the fiscal year, we entered into a services agreement with Clean Coal Power Resources, Inc. By this agreement, we are to provide technical engineering services to Clean Coal in support of its proposed project to use our gas-to-liquids technology for production of clean-burning fuels from Clean Coal’s coal located in Southern Illinois.

Clean Coal intends to develop a large coal mine and construct a coal gasification plant to produce synthesis gas from the coal. The synthesis gas would be used to generate electrical power as well as to serve as feedstock to a plant using our technology.

A schedule for us to start our engineering work has not been determined. Use of our technology with Clean Coal’s project will require negotiation of terms of a license agreement between us and Clean Coal.

FINANCIAL INFORMATION ABOUT OUR BUSINESS SEGMENTS

Financial information about our business segments is given in Note 16 of our financial statements attached to this report.

FISCHER-TROPSCH TECHNOLOGY

The Rentech GTL Technology is based upon the Fischer-Tropsch conversion process that was originally developed in Germany during the 1920s to create synthetic transportation fuels. The Fischer-Tropsch (F-T) process was subsequently used by several German companies in commercial-scale industrial plants constructed with government funding. These plants first manufactured synthesis gas, a mixture of hydrogen and carbon monoxide, from coal. The synthesis gas was converted through the F-T process into liquid hydrocarbons, principally diesel fuel. German production of diesel fuel by this method peaked at about 16,000 barrels per day in 1944, but it was not cost competitive with conventional motor fuels. After the end of World War II, the German companies discontinued active production. Soon after the war, the South African government started work on F-T development. That effort led to the F-T process now owned by South African Synthetic Oil, Ltd. (Sasol), which is presently used in four plants in South Africa. Those plants produce approximately 180 thousand barrels per day of liquid hydrocarbons.

After World War II, the U.S. Bureau of Mines and several U.S. companies conducted research and development on Fischer-Tropsch processes. All of those U.S. efforts were ultimately abandoned because domestic and imported oil and conventionally refined liquid hydrocarbons were available in the United States at costs lower than those for the F-T synthetic fuels. As petroleum imports became readily available after World War II, F-T research went into decline. The Arab oil embargo of 1973 created fuel shortages, and that crisis renewed interest by several companies in F-T technology. This stimulated new research, primarily in the United States. The principal goal of the research was to develop F-T processes that produced synthetic diesel fuel at costs competitive with conventional diesel fuel. Several companies, including ours, began work then, or by the early 1980s, to develop proprietary F-T processes. The other companies include Exxon, the Royal Dutch/Shell group, BP/Amoco, all of which are major oil companies, and Syntroleum Corp, among others. Sasol continues to operate three of its F-T plants in South Africa and to license its technology for use in that country in a fourth GTL facility, the Mossgas plant. Each of these companies, except Sasol, uses a cobalt catalyst for its own proprietary F-T process.

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Dr. Charles B. Benham, a founder of Rentech, started to conduct research on Fischer-Tropsch processes at the Naval Weapons Center in China Lake, California, starting in 1973. He continued similar research later at the Solar Energy Research Institute in Golden, Colorado. Dr. Mark S. Bohn, another founder of Rentech, participated in Dr. Benham’s F-T research at the Solar Energy Research Institute. Based on the pioneering work of Dr. Benham and Dr. Bohn, we developed our own F-T technology in the early 1980s. Like Sasol’s, our F-T process uses an iron-based catalyst.

The Fischer-Tropsch process is a chemical process by which carbon-bearing materials are converted into synthetic liquid hydrocarbons. The first step in the process is to reform hydrocarbon feedstocks, by one of several commercially available processes, into synthesis gas, a mixture of hydrogen and carbon monoxide. The synthesis gas, sometimes called syngas, is then converted through the F-T process into a slate of several liquid products in a reactor vessel where the syngas reacts with the catalyst. The process includes three stages:

DEVELOPMENT OF THE RENTECH GTL TECHNOLOGY

The ability of the Rentech GTL Technology to convert carbon-bearing gases into valuable liquid hydrocarbons was first established in our original pilot plant. This was a small, skid-mounted system operated periodically between 1982 and 1985. This capability was again demonstrated in our second and larger pilot plant operated during 1989. Additional confirmation of several significant aspects of the Rentech GTL Technology was obtained from tests conducted between 1991 and 1998 in a third pilot plant. We continue to use our third pilot plant at our F-T testing laboratory to further advance development of the Rentech GTL Technology and to develop F-T data in response to inquiries from our licensees and prospective licensees.

Use of the Rentech GTL Technology in a small, commercial-scale GTL plant was successfully demonstrated in 1992 and 1993. This plant, the Synhytech plant located at Pueblo, Colorado, had a designed capacity of 235 barrels of liquid hydrocarbons per day. Our licensee, Fuel Resources Development Company (Fuelco), had full control of the supply of feedstock gas and the construction and operation of the plant. We designed the F-T reactors and provided our catalyst for use in the F-T reactors. Fuelco decided to construct the plant at the Pueblo municipal landfill. Fuelco selected that location to allow it to use, at minimal cost, the methane in the landfill gas that was generated each day from the

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decomposition of the landfill material, and also to take advantage of tax credits then available for preventing release of these carbon-bearing gases into the atmosphere. When Fuelco started the plant, Fuelco determined that the volume of landfill gas it captured was inadequate to operate the plant on an economic basis. An additional problem was that the energy content of the gas that Fuelco did collect had only approximately one-twelfth of the energy content that Fuelco had initially projected. In January 1992, despite the insufficiency of the feedstock, Fuelco operated the plant at reduced capacity and produced liquid hydrocarbons through use of our technology. The Rentech GTL Technology, including the F-T reactors and catalyst, performed as expected. In mid-1992, due to the lack of adequate feedstock from the landfill, inability to obtain low-cost pipeline gas as an alternative feedstock, and a desire of Fuelco’s parent, Public Service Company of Colorado (PSCo), to return to its core business, Fuelco closed the plant.

By the terms of a negotiated settlement between PSCo and us, ownership and control of the Synhytech plant, plus cash, was then transferred to us. In order to further evaluate performance of the Rentech GTL Technology at a plant of this size, we decided to operate the plant for a short period of time. We made extensive modifications to improve the safety and reliability of several mechanical systems of the plant that did not involve Rentech GTL Technology. We decoupled the landfill gas source from the plant, and added a temporary supply of natural gas supplied by pipeline. In July and August 1993, we operated the plant continuously for three weeks. The results confirmed that the Rentech GTL Technology operated successfully. This demonstration confirmed our success in several areas that are key to the use of our technology. These were the ability to control the reactor temperature and its hydrodynamics, the amount of feedstock that was converted to liquid hydrocarbons, and our ability to produce the desired products.

We decided to close the Synhytech plant at the end of 1993 because no cost-efficient source of permanent feedstock was available. In 1995, we sold the plant to Donyi Polo Petrochemicals Pty, our licensee for India. Donyi Polo dismantled the plant in 1996 and shipped the components to India for possible reassembly and reuse.

The use of the Rentech GTL Technology in the Synhytech plant at Pueblo demonstrated that the technology can be successfully used in commercial-scale plants to produce the desired products. Because of the lack of low-cost gas feedstock for the plant, the economic feasibility of the Rentech GTL Technology was not established by those operations.

FEATURES OF THE RENTECH GTL TECHNOLOGY

We believe that the Rentech GTL Technology represents a significant enhancement of the Fischer-Tropsch process first conceived and used in Germany. Our technology is based on the original F-T technology, with several developments that make it unique. Special unique aspects of our technology are the formulation of our catalyst, the method of deployment of the catalyst in the synthesis gas reactor, design of the reactor and configuration of the process. These features are proprietary to us, and some of them are patented by us.

Perhaps the most important feature of any gas-to-liquids technology is the cost of each barrel of liquid hydrocarbons produced by plants using the technology. The cost per barrel includes the cost of the feedstock, the amortized cost of the plant that uses Rentech GTL Technology, and the operating cost of the plant. For widespread acceptance of any GTL technology, we anticipate that the cost per barrel probably must not be much more than the cost of similar, conventionally refined oil and gas products. While we believe the Rentech GTL Technology can be cost-effective, the costs of our products will not be reliably established until a commercial-scale plant using our technology is in production.

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We have conducted extensive tests on many aspects of the Rentech GTL Technology. These studies were conducted in our three pilot plants and the Synhytech plant, in our development laboratory, and at several other facilities. The results lead us to believe that our technology is both economic to use and works as intended. We believe the Rentech GTL Technology can be successfully used in commercial size plants.

Based on an independent study by Chem Systems, a division of IBM, we anticipate that our technology is not significantly more costly, and may be no more expensive, than the GTL technology offered by the most cost effective of the other GTL processes. An abstract of the ChemSystems report is published at www.chemsystem.com/store under methane refineries.

The Rentech GTL Technology uses an iron-based catalyst. While over 90% of current GTL production depends on use of iron-based catalysts, as demonstrated in Oil & Gas Investor, July 2002, our strongest competition now is with owners of cobalt-based GTL technologies. We compete with them for contracts with owners of feedstock who seek to evaluate the application of a particular GTL technology with their source of feedstock. An important aspect of our catalyst is that it operates on feedstock having wide ranges of hydrogen-to-carbon ratios. This enables our technology to work with most carbon-bearing materials, including those that contain some sulphur. We believe that cobalt catalysts, which are used in most other GTL processes, can only be used efficiently to convert so-called sweet (sulphur-free) natural gas to liquid hydrocarbons. The capabilities of our iron-based catalyst, enable the Rentech GTL Technology to convert gases, liquids or solids that contain carbon materials into liquid hydrocarbons. It is also less expensive than cobalt catalysts, because the raw materials for the iron catalyst are readily available.

Our GTL technology uses a slurry reactor for the key Fischer-Tropsch conversion step. A slurry reactor is less expensive to construct and operate than the alternatives of fixed bed and fluidized bed reactors.

OUR GAS-TO-LIQUIDS PRODUCTS

Our synthetic liquid hydrocarbon products are similar to analogous products derived from crude oil refining, but have environmental benefits that traditional refinery products do not possess. Because of the way they are produced, GTL products are less polluting, and the products are substantially free of contaminants usually found in crude oil, such as sulphur, aromatics, nitrogen and heavy metals. The virtual absence of these contaminants substantially reduces harmful air emissions from vehicles that use these products. We anticipate that these environmental benefits could lead to sales of our diesel fuel at a premium, compared to conventional diesel fuel.

Vehicle engine tests of our synthetic diesel product conducted by independent labs show it is clean-burning. GTL products are free of sulfur, eliminating the release into the atmosphere of harmful sulfurous oxide (SO). Our diesel product is also free of chemical compounds known as aromatics, which are believed to be carcinogenic.

Our diesel fuel can be used directly or as a blending component with conventionally refined petroleum diesel to reduce harmful emissions. Moreover, we believe our diesel can be used in currently available diesel engines without any modifications.

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SOURCES OF FEEDSTOCKS FOR THE RENTECH GTL TECHNOLOGY

Economic use of Rentech GTL Technology requires substantial quantities of inexpensive carbon-bearing gases, liquids or solids that can be economically converted into feedstock gases. The licensees of our technology are responsible for obtaining their own supplies of carbon-bearing feedstock.

Many types of carbon-bearing materials are suitable sources of feedstock for the Rentech GTL Technology. Several of these materials are in abundant supply worldwide.

Natural gas is one of the most important feedstocks for the Rentech GTL Technology. There are vast worldwide sources of this gas. The U.S. Department of Energy has reported that there are estimated worldwide gas reserves in excess of 5,000 trillion cubic feet as of January 1, 2001. In 2003, the World LNG/GTL Review stated that as much as 4,500 trillion cubic feet, more gas than the world has consumed to date, is stranded from any viable market, having little or no economic value.

Many large, known natural gas reservoirs around the world are presently not economical to develop because they are stranded in remote locations too far from markets for economic transportation in the gaseous state. Stranded gas refers to gas in identified reservoirs for which there is no profitable market because the gas cannot be economically transported, usually because of the costs of transportation, over a great distance, to a market where it might be used.

As reported in the Oil & Gas Investor for July 2002, and many other publications, GTL technologies may provide a means of utilizing carbon-bearing resources that are currently unmarketable, either because they are stranded in remote locations or flared from oil field wells.

Stranded reserves may be suitable sources of low-cost feedstock for plants using our technology that may be constructed near the reserves. After conversion of the natural gas or other feedstock into liquid hydrocarbons, the liquid products can be transported in trucks, tankers and pipelines like conventional liquid hydrocarbons.

Other natural gas produced in association with oil fields may be flared or vented into the atmosphere or re-injected into the oil field because the natural gas lacks value due to its remote location. The fact that these resources are stranded makes them potential sources of inexpensive feedstock for Rentech GTL Technology.

Still other natural gas reserves are unmarketable due to the presence of diluting gases, including carbon dioxide or nitrogen. These low-energy content gases may be suitable feedstock for the Rentech GTL Technology because our iron-based catalyst can use a wide variety of feedstocks, including many of the diluents.

Potential feedstocks for the Rentech GTL Technology include the heavy high-sulphur residual fuels created at crude oil refineries. These petroleum coke materials are commonly referred to as refinery residues or refinery bottoms. Some refinery residues, unless they are treated at considerable expense, must be disposed of as hazardous materials. If the residues are gasified, that is, transformed into synthesis gas, they could be converted by our process into GTL products. The synthesis gas resulting from refinery residues is characterized by a low hydrogen-to-carbon monoxide ratio. That makes it a suitable feedstock for conversion into liquid hydrocarbons by the application of our iron-based GTL technology.

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Other important sources of feedstock for our process are coal, coalbed methane gas, and industrial waste gases. Some low grade coal deposits and high sulphur coal deposits that are uneconomic for coal mining may be economic for use as feedstock for the Rentech GTL Technology.

APPLICATIONS OF THE RENTECH GTL TECHNOLOGY

The Rentech GTL Technology can convert synthesis gas produced from a broad range of carbon-bearing feedstocks, whether they are gases, liquids, or solids, into liquid hydrocarbon products. The gas feedstocks include natural gas and industrial off-gases. The liquid feedstocks include heavy crude oil and refinery byproducts. The solid feedstocks include coal and petroleum coke. The Rentech GTL Technology can be applied in both new and existing petrochemical and industrial plants. For example, our technology would enable refineries to more fully utilize heavier crude oil and refinery bottoms to produce an improved slate of higher-value products. Potential benefits to the refiner include co-production of gas-to-liquids products, together with steam and electrical power; and a reduction in waste disposal costs.

Some industrial gas plants are currently uneconomic. This is due, in some situations, to an oversupply of the products, resulting in low prices. In other circumstances, the uneconomic conditions may result from the impact of environmental regulations applicable to the original products. We anticipate that some of these plants, particularly those with larger production capacities, could be converted to use our technology to produce GTL products.

A high priority for the Rentech GTL Technology includes remote or stranded reserves of natural gas as well as natural gases associated with producing crude oil fields that are currently being flared, re-injected into the reservoir or merely left in the ground un-produced. We believe that increasing environmental and regulatory pressures to reduce the wasteful flaring of natural gas, the economic attractiveness of monetizing stranded assets, and the growing need for cleaner fuels will lead to increased interest of oil and gas producers in this application. Our technology makes feasible on-site conversion of these resources into liquid hydrocarbons that can be more easily and cost-effectively transported to market.

BUSINESS STRATEGY FOR THE RENTECH GTL TECHNOLOGY

Our business strategy is to achieve commercial use of our technology in commercial gas-to-liquids projects as soon as practical. That commercial use would expand our revenue and earnings through increased license fees and engineering contracts, as well as providing royalties on production of liquid hydrocarbons and revenues from sales of our catalyst.

Our business goal is to achieve successful use of Rentech GTL Technology in a commercial-scale GTL plant as soon as practical. This could occur through construction of a new plant or retrofitting an existing industrial plant. We believe the results will demonstrate economic use of the technology. Economic operation of a plant would likely encourage others to build commercial plants using the Rentech GTL Technology, and the commercialization of the Rentech GTL Technology would probably be accelerated.

For new plants, we intend to focus on small to medium-sized projects, with production capacities ranging from 500 to 20,000 barrels per day of GTL products. While our technology would enable us to pursue larger projects, we believe that small to medium size projects are economic to operate, less costly to construct, and represent a substantial portion of the near-term GTL market.

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Our business strategy focuses on selling licenses to oil and gas companies and other providers of energy. These licensees would construct their own new plants for use with feedstocks that they own or acquire.

We believe that there are substantial numbers of potential users of the Rentech GTL Technology who could benefit from its use, particularly because of several trends impacting the energy, transportation and environmental industries. These factors include the following circumstances arising from legislative and regulatory mandates and from changes in the energy arena:

We believe that retrofitting existing industrial gas plants to use the Rentech GTL Technology may be a cost effective method for producing GTL products. Some industrial gas plants have the front-end equipment in place to prepare synthesis gas. That equipment can be used to manufacture synthesis gas for the Rentech GTL Technology. In addition, these established plants have other facilities that could be used as they are. These include boiler feed water systems, control rooms, fire protection, product transportation facilities, security fencing and governmental permits. To retrofit a plant, we would add our synthesis gas conversion reactors to the existing front-end system. This would be much simpler than building a new plant. While some industrial plants cannot be economically converted, we believe others could be retrofitted to use our technology at significantly less expense than constructing a new plant to use the Rentech GTL Technology.

We own a 50% interest in the Sand Creek methanol plant in the Denver area. The plant is closed and not in operation. We completed a feasibility study of the basic engineering and design work that would be required to convert this plant from a methanol facility to a GTL facility that uses the Rentech GTL Technology. Considering the relatively high costs for natural gas that prevails in the Denver area, the small size of the plant and the limited production it would generate, we believe that the Sand Creek plant could not be economically converted and used for commercial production of GTL products. We and our co-owner are seeking a buyer for the plant.

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LICENSES, CONTRACTS AND JOINT VENTURES FOR THE RENTECH GTL TECHNOLOGY

We exploit the Rentech GTL Technology by granting licenses for its use. License agreements are generally granted in exchange for license fees, engineering design fees, and production royalties. The royalties are based upon a percentage of gross proceeds from sales of the liquid hydrocarbons produced through use of the Rentech GTL Technology or upon some other measure of product value. Licensees may be granted either exclusive or non-exclusive rights to use the Rentech GTL Technology in identified countries or other geographic areas. The license fees and terms are individually negotiated and may vary.

We expect that most plants that will use Rentech GTL Technology will be constructed and owned by licensees at no cost to us. We may also provide contract engineering, operational and other technical services to licensees during construction and startup phases of a new plant. We may supplement our licensing fees and royalties with direct investments in gas-to-liquids plants and facilities. Our licenses provide that we are entitled to revenues from sales of our catalyst whenever the Rentech GTL Technology is used, whether in plants licensed directly by us or sublicensed by our licensees.

Our licensees are responsible for financing, constructing and operating their own conversion plants that use the Rentech GTL Technology. Licensees will also be required to pay for our catalyst and may be required to pay for our synthesis gas reactor modules that may be supplied by us or our fabricator to meet the special design specifications required for each plant. It is the licensee’s obligation to obtain the feedstock material, either carbon bearing solids, liquids or gases, to be fed into the licensee’s plant. Each licensee is also responsible for marketing the liquid hydrocarbon products produced from its licensed plant.

The successful use of the Rentech GTL Technology by licensees largely depends upon their ability to successfully finance, design, construct and operate commercial scale plants using the technology. Their ability to obtain low-cost feedstock is essential to economical use of the technology. They must obtain adequate financing, construct plants specifically designed for the chemical composition of the feedstock, and assure that the plant equipment and machinery is mechanically adequate. Licensees are also responsible for obtaining governmental permits and for successfully operating their plants. In remote locations, licensees may be required to add supporting infrastructure such as roads and utilities.

Our belief that our technology can be cost effective and that commercial grade plants using the technology can be profitably operated depends upon several key factors. These include the availability of low cost feedstock, the economic efficiency of the technology, and market demand for the end products at profitable prices.

Conversion plants that use the Rentech GTL Technology may be designed to produce from several thousand up to 50,000 or more barrels per day of product. The smaller plants are expected to be assembled from modular systems that are trucked into remote locations where inexpensive sources of feedstock may be available. Plants with the largest production capabilities may have to be constructed directly at the sites where they are to be operated. The cost of constructing conversion plants will vary depending upon production capacity; available infrastructure such as electrical power, water supplies, roads, gas pipelines and other utilities; location; cost of financing; whether the feedstock is a gas or carbon-bearing solid that must first be converted to synthesis gas; and other factors.

The designs of plants for use of the Rentech GTL Technology are complex. Each design must be developed to fit the chemical composition of the feedstock and must also be tailored to produce the desired products. Business dealings in foreign countries, the ability of licensees to obtain financing for

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construction of plants, and the complexity of design are factors that may result in delays in schedules for financing, design, construction and startup of operations of a plant following the initial decision to proceed with construction.

Revenues related to the Rentech GTL Technology represented approximately 9%, 30%, and 20% of our revenues during the fiscal years ended September 30, 2003, 2002, and 2001, respectively.

In October 1998, we granted a technology license to Texaco Natural Gas, Inc. (now Texaco Energy Systems, Inc., a division of ChevronTexaco Corporation). The license granted Texaco the right to use our Rentech GTL Technology in gas-to-liquids plants where natural gas or solid or liquid hydrocarbons are used as feedstock. After the merger of Texaco, Inc., the parent company, with Chevron Corporation (ChevronTexaco) in 2001, Texaco Energy Systems (Texaco) surrendered its exclusive right to use our technology with solid and liquid feedstocks.

As revised in March 2003, the license grants Texaco, its affiliates and joint venturers nonexclusive right to use our technology with natural gas as well as with solid and liquid hydrocarbons, but provides no rights of exclusive use. Texaco has the right to sublicense the technology for use with solid and liquid hydrocarbons, but only to joint ventures in which it is a part owner. These rights of use may be applied anywhere in the world except India.

Royalties and license fees are payable by Texaco for use of the Rentech GTL Technology when a licensed use is made or a sublicense is granted to a joint venture. The rates for these charges are not fixed and remain to be negotiated with Rentech at those times.

Under the license, Texaco can use the Rentech GTL Technology in combination with Texaco’s proprietary gasification technology to produce liquid hydrocarbon products. These include transportation diesel fuel, naphtha, and specialty products. The Texaco gasification process is a proprietary technology for producing synthesis gas from a broad range of feedstocks including coal, petroleum coke, residual oils, and byproducts generated in refineries and chemical plants.

We retain the right to license to others the entire range of our technology. This includes use with natural gas, solid and liquid hydrocarbons, and any other carbon-bearing materials.

We received a license fee for granting the Texaco license. Texaco also paid us royalty fees each month through March 2003. If Texaco uses our technology, it is to pay for all costs of further developing, marketing and deploying its use of the Rentech GTL Technology.

On June 15, 1999, Texaco entered into a technical services agreement with us to follow up our 1998 licensing agreement. Under the 1999 contract, we performed tasks specified by Texaco for the integration of the Rentech GTL Technology with Texaco’s gasification process. The combination of these technologies would enable Texaco to use our technology with a broad range of feedstocks like coal, petroleum coke, residual oils and byproducts generated in refineries and chemical plants that can be gasified.

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We performed our technical and development work for Texaco at our development and testing laboratory in Denver. Our work on this contract was completed by the end of March 2003. Texaco paid us for our technical services and costs.

In August 1999, we, as part of a team led by Texaco, were selected by the U.S. Department of Energy to develop the data and designs for what the DOE calls a coproduction facility, or more specifically, an “Early Entrance Coproduction Plant” (EECP). As part of this project, Texaco plans to combine its gasification technology with the Rentech GTL Technology to enable it to produce both high quality transportation fuels and electricity from coal and petroleum coke at a coproduction plant.

The Texaco proposal was one of three proposals selected by the DOE in August 1999 to proceed on this program. The DOE’s contract is intended to encourage private industry to develop a set of entirely new multi-purpose energy plants that combine several energy processes into a single facility, and thus to facilitate the early entry of this new technology into the commercial marketplace. The DOE contract requires designs that enable highly efficient conversion of the energy in fossil fuels into the coproduction of electricity or heat as well as transportation fuels and chemicals.

The DOE made an award of approximately $14 million to Texaco’s project team, payable over the lifetime of the contract. We were paid by Texaco through the contract funds that it received from the DOE. The team members are using Texaco’s gasification technology, the Rentech GTL Technology, General Electric’s power generation design, Praxair’s oxygen plant design, and Kellogg, Brown and Root’s engineering capabilities. After feasibility studies and successful completion of an integrated design, the team is expected to develop an engineering design package for a fossil fuel plant to use the combined technology.

In the proposed EECP, approximately 1,235 short tons per day (stpd) of petroleum coke would be used to produce 55 megawatts of net electric power for export, approximately 617 barrels per day of Fischer-Tropsch (FT) products (finished high-melt wax, finished low-melt wax, FT diesel and FT naphtha), steam, and approximately 89 stpd of sulfur. Additionally, the Air Separation Unit (ASU) would produce nitrogen and oxygen for export.

The Phase I objective was to determine the feasibility and define the concept for the EECP located at a specific site, develop a Research, Development and Testing (RD&T) Plan and prepare a preliminary project financing plan. Phase I was completed, and the final Phase I concept report was issued in May 2001. In Phase I, a typical refinery site, Motiva Port Arthur, was identified as the potential EECP site. As a result of the merger between Texaco and Chevron, Texaco was required to sell its interest in the Motiva Enterprises LLC joint venture to Shell Oil Company and Saudi Refining Inc. The team has evaluated the impact of moving the proposed EECP to a ChevronTexaco refinery.

We have completed our part of the first phase of the DOE contract. That work consisted primarily of preparing a preliminary engineering design for the plant that would use the Rentech GTL Technology. We completed our part of the second phase by the end of March 2003. This phase focused on the development work that was identified during the first phase. We are not now working on the EECP project. We hope to be called on by the EECP team in the future to participate in preparing an engineering design package for an EECP plant.

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Our agreements with Texaco are important to us in several ways. Revenues from Texaco provided 8%, 20%, and 21% of our total revenues for the years ended September 30, 2003, 2002, and 2001. Texaco’s decision to study the use of the Rentech GTL Technology also has the potential to lead to additional revenues for us in the future from several sources. These revenues might include license fees and royalties paid by Texaco for use of our technology in the future, or payments by other members of the energy industry.

Since the Texaco license was revised in March 2003 to remove Texaco’s original rights to exclusive use of the Rentech GTL Technology with solids and liquid feedstocks, we have not been constrained from licensing it to others for use in those fields. This situation has resulted in new opportunities for us with liquid and solid carbon-bearing feedstocks. The liquid materials include heavy crude oil and refinery byproducts such as the so-called refinery bottoms. The solid materials are such hydrocarbons as coal and petroleum coke. Our prospective customers in this field include the following:

We believe that changing needs for clean energy in the U.S. make our technology beneficial to the energy industry. When our technology is used with the synthetic gas produced from coal or petroleum coke to produce electrical power, fuels and chemical feedstocks, the plant emissions are lower than those of conventional coal plants. Sulfur dioxide emissions are virtually eliminated, and the carbon dioxide can be sequestered rather than released into the atmosphere. In addition, use of more of the substantial coal reserves located within the United States for energy could provide more energy self-sufficiency than the country current possesses.

Since early 2003, several owners of coal resources or petroleum coke located within the United States have joined with us to evaluate the feasibility of using their feedstocks with the Rentech GTL Technology. These investigations are underway, and we have not obtained or received revenues based on them.

We are working with GTL Energy Limited, an Australian corporation, to develop a coal project in Australia. The proposed gas-to-liquids plant would use coal from a coal mine owned by Hazelwood Power, an electrical utility. Hazelwood currently mines the high quality coal to produce electrical power at its nearby power station. The proposal is to use the low-grade coal from the mine as feedstock for a gas-to-liquids plant to produce clean fuels. The project could be the first in Australia to use GTL technology with a coal feedstock for the production of clean, sulfur-free diesel and naphtha, as well as electrical power.

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The coal mine owned by Hazelwood Power offers several advantages for the proposed GTL plant. The mine has environmental permits and is in operation. The ore body is defined, and relatively inexpensive low-grade coal is available as feedstock.

Feasibility studies for the project are underway for construction of a plant designed to produce 10,000 barrels per day of GTL products. These tests include analysis of the low-grade coal to determine its suitability for upgrading to a premium grade, and thereafter, its suitability for a solid feedstock that would be gasified. The purpose of these tests is to determine whether the synthesis gas that results could be economically used as feedstock for the GTL plant.

If the feasibility studies are positive, we plan to enter into additional agreements with GTL Energy and Hazelwood Power to develop a design for the proposed plant, determine capital costs, and make other arrangements to proceed with the plant.

GTL Energy is the developer for the proposed plant. It is currently seeking the required funding. We have received no revenues from this project.

We are studying the development of a proposed project located in Bolivia, near Santa Cruz. Our work is being undertaken jointly with a Bolivian company, GTL Bolivia. The proposal is to construct a GTL plant that would use natural gas as feedstock and would be designed to produce 10,000 barrels per day of GTL products.

A study on the technical feasibility of the project has been completed for us and GTL Bolivia by an international contractor with experience in GTL projects. The results of the study were positive.

GTL Bolivia and Rentech are jointly determining the markets that are available for the GTL Products to be produced. Based on this information, we would design the plant to produce the most marketable products. We are also, with GTL Bolivia, evaluating the economic feasibility for the proposed plant at 10,000 barrels per day. The results of this study are favorable.

We are proceeding with preliminary engineering design work. This effort involves pre-Front End Engineering and Design (pre-FEED). The data that results is necessary for determining the governmental permits that would be required for us to proceed with this project.

We have no contracts related to this project. During fiscal 2003, we received $40,059 in revenue from our work on this project.

We are working on development of a plant to use the Rentech GTL Technology in Indonesia. It would be located in the Matindek Block, Central Sulawesi, Indonesia. The proposed plant would be designed to produce 16,500 barrels per day of GTL products from natural gas.

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Our efforts are being conducted jointly with Sri Gas International Ltd., an Indonesian oil and gas firm. Pertamina, the largest Indonesian privately owned oil and gas company, anticipates that it would provide the natural gas feedstock.

Sri Gas and Pertamina are seeking financing for the project. If the necessary capital would be available, we expect to join with Sri Gas and Pertamina to undertake additional studies and other steps to advance this proposed plant. We have received no revenues related to this project.

We are working on several other proposals for use of the Rentech GTL Technology. We are participating in some feasibility studies with other companies that propose to use their mineral resources as feedstock, or to provide their engineering services or financing capabilities to the proposed projects. These discussions are in preliminary stages, and no plans to proceed have been made at this time.

One of the proposals is to construct a floating gas to liquids production system for use offshore to process natural gas that is now flared from offshore oil wells now in production. This type of gas resource is now stranded because there are no current means to bring it to market. We have completed a pre-feasibility study for a company that is investigating the use of a floating GTL plant. The company is currently presenting the concept to interested parties that have a need for such a facility. We have received no revenues from this project, and there are no plans to proceed at this time.

We entered into a letter of intent in October 1999 to grant a license to Oroboros AB, a Swedish corporation headquartered in Gateborg, Sweden. This has enabled Oroboros to investigate the feasibility of using the Rentech GTL Technology for the industrial off-gas produced by Oroboros’s steel plant located at Oxelosund, Sweden or other steel mills.

Oroboros plans to produce what it refers to as eco-paraffin, sometimes called ecodiesel. According to an assessment by Oroboros, the cost of producing eco-paraffin will be lower than for other alternative fuels, such as reformulated diesel fuel, currently available in Sweden. Additionally, Oroboros has stated that no engine modifications are necessary for vehicles that use eco-paraffin.

Oroboros has applied to the Swedish government to designate the eco-paraffin it would produce as a clean fuel that is entitled to tax credits in Sweden. Oroboros believes that tax credits are necessary to make the project economical. Oroboros has stated it anticipates it will receive a tax credit equivalent to about $.60 a gallon. Oroboros believes that cost advantage and a few other changes in regulatory requirements will enable it to proceed to retrofit the plant to use the Rentech GTL Technology. If those changes are made, we anticipate that Oroboros will proceed with its project. No schedules have been announced for beginning construction, completing construction, or start up of operations of a proposed GTL plant for Oroboros. We have received no revenues from this relationship.

In September 1992, we granted exclusive rights to ITN, Inc., a Colorado corporation, to market the Rentech GTL Technology in India. ITN, Inc. is owned by Dr. Mohan S. Misra, who also owns a majority of INICA, Inc., formerly ITN Energy Systems, Inc. See “INVESTMENT IN ADVANCED TECHNOLOGIES.” in this report. ITN, Inc. is entitled to 20% of our royalty, license fee or other revenues from plants in India.

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Through the efforts of ITN, Inc., we granted a license in 1994 to Donyi Polo Petrochemicals Ltd., an Indian company, for a plant in India using the Rentech GTL Technology. Donyi Polo proposed to build a 360 barrel per day plant, designed to use flared gas in the state of Arunachal Pradesh in northeastern India. We received $300,000 in fiscal year 1996 for the basic engineering design of the plant. We also received $120,000 as license fees in fiscal year 1998. If a plant is constructed and operated, the license agreement provides for royalty payments to us for seven years after commencement of production from the plant. The license allows Donyi Polo to construct and operate its own manufacturing plant, using our technology, to produce catalyst for its plant.

Donyi Polo has not announced a decision to proceed with completion of the Indian plant. We do not expect additional engineering design contracts, license fees or other revenues from it in the foreseeable future.

MARKETING LICENSES OF THE RENTECH GTL TECHNOLOGY

We market licenses of our Rentech GTL Technology for use to owners of existing industrial gas plants as well as to owners of natural gas feedstock who would construct, finance, and own their plants. To facilitate business development, we often meet with oil and gas companies, refiners, owners of fossil fuel resources, and others involved in the energy industry. Our senior officers are frequent participants and speakers at gas-to-liquids seminars and energy conferences. We employ one person whose primary duties are marketing. The features of the Rentech GTL Technology have become generally known to major oil and gas companies and others throughout the energy industry.

In order to increase our marketing capability, we have formed strategic alliances with several significant engineering firms. Each of these firms has an international presence and has experience in fields related to the Rentech GTL Technology. Each of them is seeking situations where our technology could be used in GTL plants and they could obtain contracts to provide their respective engineering services.

We are targeting customers and markets for our Rentech GTL Technology that are diversified and worldwide. We have approached owners of energy sources in the following industries:

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In June 2001, we designated BC Projectos, Ltd., a Brazilian engineering firm, as our exclusive engineering representative in Brazil. BC Projectos is a large engineering firm with experience in the field of cogeneration plants, thermoelectric power generation and energy optimization studies.

Together with BC Projectos, we intend to jointly identify projects for use of the Rentech GTL Technology, especially in Brazil. We will conduct feasibility studies, identify potential joint venture parties and financing, and cooperatively provide detailed engineering support for the projects. We have received no revenues from this relationship.

In February 2000, we made an arrangement with Jacobs Engineering UK Limited, an international engineering company, for joint marketing of the Rentech GTL Technology and Jacobs’ engineering services. We are marketing our combined capabilities to potential customers in several locations throughout the world.

We are targeting customers who would use our joint services in new natural gas plants as well as in existing industrial gas plants that would be retrofitted for our technology. During fiscal 2003 and 2002, we received revenues totaling approximately $46,894 and $61,148, respectively, as a result of feasibility studies we performed for potential licensees introduced to us through Jacobs Engineering.

In February 2001, we engaged Petrie Parkman & Co. to assist us as our financial advisor in accelerating commercial use of the Rentech GTL Technology. Petrie Parkman is an investment banker in the oil and gas industry. The focus of the engagement is to bring substantial capital and oil and gas industry experience to bear on the commercialization of the Rentech GTL Technology. Under consideration are various options including formation of one or more joint ventures with strategic industry partners, a merger, or a sale of all or part of our assets.

We believe that the time when GTL technology will be used commercially is approaching. Several major oil companies have announced that they intend to construct GTL projects at various places around the world. Other significant members of the energy industry have not announced efforts to apply GTL technology. Some of them are undertaking research and development in the field of gas to liquids technology. Many industry members have no GTL technology. Those companies without the technology may not be able to license or develop a competitive GTL process that does not infringe upon the patented technology of others. We believe our patented technology is mature and offers these companies an opportunity to apply GTL technology.

By September 30, 2001, Petrie Parkman had completed its study and analysis of the field of GTL technology, including the Rentech GTL Technology. Petrie Parkman is now making contacts and continuing to assist us in advancing our goal of realizing commercial use of the Rentech GTL Technology. We have received no revenues from this relationship.

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Either on our own or through Petrie Parkman, we are presently engaged in exploratory discussions with several potential licensees. The sources of feedstock that they own vary from several types of stranded natural gas to differing sources of industrial off-gas. The projects would be located at sites scattered around the world. The plants being discussed would range in production capacity from about 2,000 to 50,000 barrels per day of liquid hydrocarbons. None of these possibilities have developed into specific proposals or license negotiations. We have contracted to perform studies on the feasibility of the proposals for a few of these potential licensees. It is too early in the study process for us to know whether or not one or more of these proposals will result in a license followed by construction of a plant to use the Rentech GTL Technology.

PRODUCTS FROM GTL PRODUCTS

Plants using the Rentech GTL Technology can be designed and configured to produce a variety of liquid hydrocarbon products. The principal products of the Rentech GTL Technology process are:

Our sulfur-free diesel fuel and naphthas might be good feedstocks for fuel cells when those potential new products are ready for the market. This is not expected to occur in the next few years.

The synthetic products resulting from use of the Rentech GTL Technology will compete with traditional petroleum products and synthetic liquid hydrocarbon products produced by other Fischer-Tropsch technologies. To a great extent, competition will be based upon price, and the price at which liquid hydrocarbons can be produced by use of the Rentech GTL Technology has not yet been established. Experience with Fischer-Tropsch technology by others since its development in the 1920s has indicated that earlier versions of the technology could not economically produce synthetic fuels. We believe that our enhancements and variations of the basic Fischer-Tropsch technology allow the Rentech GTL Technology to be cost-effective in some situations.

Products resulting from the Rentech GTL Technology, like other Fischer-Tropsch processes, are environmentally benign relative to analogous products produced from crude oil refining. GTL products are free of the sulphur, aromatics, nitrogen and heavy metals that are typically found in crude oil. For example, our clean burning diesel fuel has excellent combustion qualities and can help reduce harmful

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exhaust emissions. Likely uses of our diesel include use as a blending stock to improve the quality of commonly available diesel fuel and as a blending component for upgrading low quality stock that would otherwise be used in lower value fuel oil.

Rentech Diesel Fuel

Laboratory tests designed to determine the properties of the diesel produced by the Rentech GTL Technology have been conducted by independent testing agencies. These tests indicate that our diesel fuel is a high-grade diesel fuel with environmental advantages compared to diesel fuel derived from crude oil. Compared to Commercial No. 2 diesel fuel, our diesel fuel has four properties that make it less polluting. These are an absence of sulphur, zero percent aromatics by volume, a higher cetane number, and a lower 90% distillation temperature.

Independent third-party tests of our diesel fuel, both in vehicles and engine test stands, were completed by the High Altitude Research Center, Denver, Colorado (under high altitude conditions), and by Detroit Diesel, Michigan, and the California Air Resources Board, (under low altitude conditions). Our diesel fuel demonstrated significant reductions in harmful exhaust gas emissions and improved combustion characteristics as measured by its higher cetane value.

We believe our clean burning diesel fuel could help users meet the increasingly stringent requirements for cleaner fuels. A series of federal statutes known as the Clean Air Act Amendments of 1990 and the Energy Policy Act of 1992 and related executive orders have established benchmarks for reductions in harmful exhaust emissions within the United States. We believe our diesel fuel exceeds all current and proposed federal and state diesel emissions requirements. This includes new requirements adopted by the U.S. Environmental Protection Agency and those adopted by the California Air Resources Board.

In January 2001, the EPA adopted new rules to drastically reduce the sulfur content in diesel fuel by 2007. The standards require reduction of the sulfur content of diesel from the 2001 level of 500 parts per million to 15 parts per million by 2007, a 97% reduction. The EPA regulations also require manufacturers of diesel engines to reduce harmful air emissions from diesel engines used in tractor-trailers, buses and other heavy trucks by 95% over 2001 levels by 2007. According to the EPA, the result would be significantly healthier air for all persons in the United States, with less sooty, thin particular matter that causes respiratory illness.

Energy and transportation groups representing oil and gas refiners, oil companies, trucking companies and others oppose the new EPA rule for diesel fuel, arguing that it will be costly and require technology that may not be available. We believe that the Rentech GTL Technology is ready for commercial use and could help by providing clean burning diesel fuel.

The diesel fuel fraction produced by use of the Rentech GTL Technology is an excellent blending stock to upgrade non-specification fuels or to improve the quality of the commercial diesel currently being produced in refineries. Blending with our diesel fuel lowers the aromatic and sulphur content and increases the cetane index of commercial diesel. We have patented the blending of our F-T diesel with conventional diesel to reduce harmful emissions.

From 1993 to 1997, several California refiners used the Fischer-Tropsch fuel produced by Shell at its plant in Malaysia to blend with conventional diesel. The blend reduced the percentage of aromatics in the fuel. These sales ended because of an explosion in December 1997 at the plant in the air processing unit.

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Unlike alternative fuels such as methanol and compressed natural gas, we believe our diesel fuel can be used in conventional compression ignition engines without any engine or vehicle modification. Fuel mileage may be slightly decreased, although minor engine adjustments are expected to increase the fuel mileage to the level provided by conventional diesel fuel. Before our diesel could be said to be a practical alternative to conventional diesel fuel, long-term wear tests on engines fueled by the diesel are necessary. Our diesel fuel can be manufactured and distributed through the nation’s existing refining and transportation infrastructures.

Most of the diesel fuel produced throughout the world is refined from crude oil. As of 2001, the total worldwide demand for diesel fuel was estimated at 22.3 million barrels per day, according to the Energy Information Administration. As of June 9, 2003, Diesel Fuel News forecasted worldwide growth in demand of diesel and heating oil at an average rate of 2.2% per year. The largest market is in the U.S., where in 2001 the demand was approximately 4.0 million barrels per day. The demand for diesel vastly exceeds the potential volume of GTL diesel that could be produced by all the Fischer-Tropsch technologies. Thus, the comparatively small amount of GTL diesel that may be produced by us and others will have no impact on prices for conventionally produced diesel. This means that GTL diesel will have to compete with the prevailing diesel price in the future. We do, however, anticipate that our GTL diesel may command a premium, as Shell’s GTL diesel did when purchased by the California refineries during the 1993 to 1997 period.

We have no arrangements by which vehicle manufacturers have approved the use of our fuel and no arrangements for the sale of our products. We are not aware of any reason why our fuel would not be readily saleable, especially for use as a blending stock for conventional diesel.

In 2000, Congress designated domestically produced GTL fuels made from natural gas as an alternative fuel under the Energy Policy Act of 1992. The designation of GTL fuels, such as those produced by use of our GTL technology, could lead to reduction of the federal excise taxes and road taxes that apply to conventional fuels. The designation could reduce costs of GTL fuels. That might provide an incentive for users of diesel fuel to switch to cleaner burning GTL fuels. It could also reduce the expensive capital costs that government agencies must otherwise undertake to modify their vehicle fleets to meet the emission goals of the Energy Policy Act.

RESEARCH AND DEVELOPMENT

We own a development and testing laboratory located in Denver. Our pilot plant, consisting of a bubble column slurry reactor, is located at this site. The laboratory contains state-of-the-art equipment and support facilities for development of Fischer-Tropsch technology. Our laboratory staff now consists of ten employees. We believe that this facility provides us with a resource for development and testing that is unmatched in the field of gas-to-liquids technology.

Two of our founders, Dr. Charles Benham and Dr. Mark Bohn, are directly responsible for development of the Rentech GTL Technology. Together with another of our founders, Dennis L. Yakobson, our President and Chief Executive Officer, Dr. Benham and Dr. Bohn and our research and development engineers and technicians continue to work toward improving our technology and developing new applications.

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Our principal efforts at the laboratory are now focused on increasing the efficiency of our catalyst. We are also developing additional catalysts, attempting to increase the amount of the feedstock that is converted into liquid hydrocarbons, and working on other ways of reducing the cost of our process. The lab work is concentrated on achieving commercial use of the Rentech GTL Technology with as many types of hydrocarbon feedstocks as are available.

We joined with Texaco Energy Systems, Inc., a licensee, to demonstrate use of our technology at the La Porte plant in Texas in 2000. Texaco leased the use of this plant from the U.S. Department of Energy on a short-term basis to conduct a joint demonstration with us of the results of using the Rentech GTL Technology. The plant is a pilot plant, with a capacity of four barrels of product per day. The results from this use of our technology were successful.

During the fiscal years ended September 30, 2003, 2002, and 2001, we spent $747,081, $701,201, and $190,905, respectively, on research and development activities on the Rentech GTL Technology. During each of the same fiscal years, we received revenues from third parties for research and development activities on the technology of $776,658, $2,354,550, and $2,212,432, respectively.

RISKS RELATING TO THE RENTECH GTL TECHNOLOGY

•    CONSTRUCTION AND OPERATION OF COMMERCIAL-SCALE PLANTS THAT USE THE RENTECH GTL TECHNOLOGY REQUIRE LARGE AMOUNTS OF CAPITAL. FINANCING IN SUCH AMOUNTS MAY NOT BE AVAILABLE TO OUR LICENSEES OR TO US.

Many of our licensees and potential licensees may not be able to obtain the large amounts of capital or financing that will be required to construct and operate commercial-scale plants that use the Rentech GTL Technology. We believe this situation has slowed and, in some instances, will continue to delay use of the Rentech GTL Technology. Significant delays may occur before we realize substantial revenues, if any, from operating plants.

•    OUR ABILITY TO CONTINUE TO MARKET WITH THE RENTECH GTL TECHNOLOGY, TO IMPROVE IT, AND TO ASSIST OUR LICENSEES AND POTENTIAL LICENSEES IN IMPLEMENTING USE OF THE TECHNOLOGY REQUIRE SIGNIFICANT AMOUNTS OF CAPITAL OR FINANCING THAT MAY NOT BE AVAILABLE TO US.

We have expended and will continue to expend substantial funds to research and develop our technologies and business, especially the Rentech GTL Technology. If adequate funds are not available, our marketing and licensing efforts would be materially hampered. We might have to delay or to eliminate expenditures for certain of our capital projects or to license to third parties the rights to commercialize aspects of technologies that we would otherwise seek to exploit ourselves.

•    DEVELOPMENT OF GTL PLANTS TO USE OUR TECHNOLOGY IS A LONG AND COMPLICATED PROCESS. EVEN IF A DECISION IS MADE TO PROCEED WITH A PROJECT, THE EXTENSIVE DESIGN, CONSTRUCTION AND OTHER WORK REQUIRED TO OPEN A PLANT WOULD DELAY COMMERCIAL USE OF OUR TECHNOLOGY. IT WOULD ALSO DELAY OUR RECEIPT OF REVENUES RELATED TO THE TECHNOLOGY.

Until we achieve agreements for developing a project, we will not receive adequate revenue from our operations to pay our overhead expenses and operating costs. We have exhausted our available capital funds and have only limited options for obtaining the necessary capital to sustain our operations without contracts for development of one or more projects.

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•    OUR ABILITY TO CONTINUE TO BENEFIT FROM THE RENTECH GTL TECHNOLOGY DEPENDS UPON PROPER CONSTRUCTION AND OPERATION OF PLANTS THAT USE THE TECHNOLOGY ON A COMMERCIAL SCALE.

Our business strategy calls for our licensees to construct and operate plants that use the Rentech GTL Technology on a commercial scale. These plants will rely on complex mechanical equipment and gas processing systems. We expect most plants to be owned, constructed, and operated by our licensees, but we may retrofit and operate some plants in which we obtain an ownership interest. Whether our licensees, and in a few instances, we, can properly design, construct and operate plants depends upon a number of factors. These include constructing plants that are properly designed by a licensee for the chemical composition of the feedstock obtained for the plant; the amount and quantity of the feedstock; design of the plant and its systems; mechanical adequacy of the plant equipment and machinery, whether related or unrelated to Rentech GTL Technology; availability and adequacy of roads, utilities, worker housing and other infrastructure at the plant site; the plant operator’s management and skills; and proper operating circumstances.

•    OUR ABILITY TO CONTINUE TO BENEFIT FROM THE RENTECH GTL TECHNOLOGY DEPENDS UPON ECONOMIC OPERATION OF PLANTS THAT USE THE TECHNOLOGY ON A COMMERCIAL SCALE.

Whether the Rentech GTL Technology can be cost effective so that commercial-scale plants using the technology can be profitably operated depends upon several factors. The principal conditions include adequate quantities of low-cost feedstock, the availability and cost of construction financing, the economic efficiency of the technology, and the market demand for the end products at profitable prices. Those qualities, especially the economic performance of the technology, have not yet been established. Poor economic results at plants using the Rentech GTL Technology would adversely impact our operating results and financial condition by depressing or eliminating our potential income from the technology.

•    OUR ABILITY TO CONTINUE TO BENEFIT FROM THE RENTECH GTL TECHNOLOGY DEPENDS UPON THE EFFORTS OF LICENSEES OF THE TECHNOLOGY. WE DO NOT CONTROL THEIR ACTIONS.

Except to the extent that we convert existing industrial gas plants, we do not intend, and do not have adequate capital, to finance, construct and operate our own commercial-scale plants. At this time, we do not have adequate capital or financing to retrofit an existing industrial gas plant. Successful use of the Rentech GTL Technology therefore depends upon our licensees. We will receive royalties and other revenues from operations only from plants that operate successfully and economically. Under our present and proposed license agreements, it is a licensee’s responsibility to obtain sources of feedstock that provide adequate supplies at inexpensive rates, conduct feasibility studies, recruit personnel who are skilled in designing, constructing and operating gas processing plants, obtain governmental approvals and permits, obtain sufficient financing on favorable terms for the large capital expenditures required, possibly construct infrastructure if not otherwise available at the plant site, market the products, and perform other significant tasks. Several licensees have allowed their licenses to expire because of their inability to meet one or more of these conditions for a plant. The ability of any licensee to accomplish these requirements, and the efforts, resources and timing schedules to be applied by a licensee, will be controlled by it.

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•    USE OF THE RENTECH GTL TECHNOLOGY BY LICENSEES DEPENDS UPON EVALUATIONS OF IT MADE BY THE FIRST INFLUENTIAL LICENSEES AS WELL AS SUCCESSFUL APPLICATIONS OF THE TECHNOLOGY IN THE FIRST SEVERAL COMMERCIAL-SCALE PLANTS.

If any influential licensee terminates its license or does not proceed to use the Rentech GTL technology, potential licensees are not likely to use the technology. If the first few plants to next use the Rentech GTL Technology are not commercially successful, we may be unable to obtain other licensees in the future. If licensees do not proceed with plants using the Rentech GTL Technology or do not successfully operate plants, our operating results and financial condition would be adversely affected.

•    OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY DEPENDS UPON OUR EXECUTIVE OFFICERS, AND THE CONTINUED IMPROVEMENT OF THE RENTECH GTL TECHNOLOGY DEPENDS UPON OUR SCIENTIFIC PERSONNEL. LOSS OF ONE OR MORE OF OUR KEY EMPLOYEES WOULD SUBSTANTIALLY HINDER OUR ABILITY TO EXPLOIT THE RENTECH GTL TECHNOLOGY.

Our success with our technology is substantially dependent upon the contributions of our executive officers and key scientific and technical employees. We believe that the management skills and industry relationships of our executive officers are important to implement our business strategy. At this stage of our development, economic success of the Rentech GTL Technology depends upon continued improvements to the technology, marketing and proper design of conversion plants and their startup in such a manner that achieves optimal plant operations. These efforts require knowledge, skills, and relationships unique to our key personnel. Moreover, to successfully compete through the Rentech GTL Technology, we will be required to engage in continuous research and development regarding processes, products, markets and costs. Loss of the services of our executive officers, our scientists or other key employees could have a material adverse effect on our business, financing, operating results and financial condition.

•    WE MUST CONTINUALLY DEVELOP IMPROVEMENTS TO OUR TECHNOLOGY AND MAKE ADVANCES AS COMPETING TECHNOLOGIES ARE IMPROVED AND THE MARKET CHANGES.

The market for advanced technology products is characterized by rapidly changing technology, new legislation and regulations, and evolving industry standards. The introduction of products embodying new technology, the adoption of new legislation or regulations, or the emergence of new environmental and industry standards could render our technology and future uses, if any, obsolete and unmarketable. Our success and growth will depend, in part, upon our ability to anticipate changes in technology, market needs, law, regulations, and industry standards; to continue to attract, retain and motivate qualified personnel; and to successfully develop and introduce new and enhanced advances to our technology on a timely basis. We will need to devote a substantial amount of our efforts to research and development as well as to sales and marketing. If we do not perform well to meet these requirements, our business operating results and financial condition would be adversely affected.

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•    WE EXPECT THAT A LARGE PORTION OF OUR LICENSEES WILL USE THE RENTECH GTL TECHNOLOGY IN FOREIGN COUNTRIES. THAT WILL SUBJECT US TO THE UNCERTAINTIES AND RISKS THAT SOMETIMES AFFECT OPERATIONS IN THOSE LOCATIONS.

We expect that licensees of the Rentech GTL Technology will construct plants in foreign countries where our licensees’ conduct of business and profitability of operations are at risk. The additional risks include rapid changes in political and economic climates; changes in foreign and domestic taxation; lack of stable systems of law; susceptibility to loss of protection of patent rights and other intellectual property rights; expatriation laws adversely affecting removal of funds; fluctuations of currency exchange rates; contract rights; labor disputes; the nationalization or appropriation of property without fair compensation; civil disturbances; and war. International operations and investments may also be negatively affected by laws and policies of the United States affecting foreign trade, investment and taxation. Any of these events could adversely impact our licensees and thereby adversely affect our operating results and financial condition.

INTELLECTUAL PROPERTY AND PATENTS

The success of our core business of GTL technology, as well as each of our subsidiary businesses, depends upon our intellectual property that we own and use in the conduct of the particular business. Our intellectual property gives us rights to exclusively exploit our technologies. If we lost rights to exclusively exploit an item of intellectual property, the financial results of the business involved, and our overall financial results, would be materially harmed.

To protect our proprietary rights, we rely primarily upon a combination of:

We own sixteen U.S. patents that protect our exclusive rights to exploit the Rentech GTL Technology. Our patents are granted for terms of twenty years from the date of the application to the U.S. Patent Office. Our first patent application was filed in 1992. Our latest application was filed this year. Our trade secrets and confidential proprietary information will remain our property for as long as we keep them secret and confidential. Our federal trademarks have initial terms of six years. They can be renewed within ten years from the initial date of filing and every ten years after that if we continue to use them with the sale of our products.

Use of the Rentech GTL Technology requires use of our patented catalyst. Our license arrangements authorize licensees to manufacture our catalyst for their respective conversion plants or to have the catalyst made for them by a manufacturer of their choice. We have no present plans to manufacture our own catalyst. We expect ultimately to grant a license, for which we would receive a license fee and royalties, to an independent catalyst manufacturer for manufacture and delivery of catalyst, or to grant a license to individual licensees of the technology to manufacture catalyst for their own use.

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Our United States patents related to the Rentech GTL Technology apply to our processes, applications of the process, products produced, and materials used as part of the Rentech GTL Technology. The patents include the overall gas-to-liquids conversion process; a method for cracking produced waxes; a method of making and activating a promoted iron catalyst for use in slurry synthesis reactors; production of a synthetic oxygenated diesel fuel; use of our oxygenated, sulphur and aromatic-free diesel fuel as an additive to conventional diesel fuel; and control of the tail gas from our process to maximize either the production of electricity from our tail gas, gas-to-liquids products, or a near-pure form of carbon dioxide. This type of carbon dioxide can be more readily sequestered, thereby reducing harmful emissions from electrical power plants and transportation vehicles.

Two of our patents include key elements of a process that enables our iron-based catalyst to compete with cobalt-based catalysts used by other F-T processes. These patents protect process steps that improve the carbon conversion efficiency of the Rentech GTL Technology by over 30%. Another patent covers our method for using high power electrical arcs, also called a plasma torch, to convert feedstock gas into synthesis gas. We believe the procedures subject to these patents make our process cost-effective for converting gases to liquids.

We have filed additional U.S. patent applications. One Australian patent has been issued. Several foreign patent applications based on one or more of the United States patents are pending.

OKON’s formulas for the manufacture of its stains, sealers and coatings are proprietary. They are maintained as trade secrets, and OKON has no patents. We rely upon confidentiality agreements with our employees and manufacturers of key components of our stains, sealers and coatings to protect these trade secrets.

Petroleum Mud Logging provides its services based upon an integrated system of computer software, skilled computer analysts who interpret the data and communications devices to readily transmit the information to the mineral owner. The essential elements of these programs and devices are proprietary. They are maintained as trade secrets, and PML has no patents. We rely upon confidentiality agreements to protect these trade secrets.

REN Corporation’s computer-controlled testing equipment depends upon computer software programs and proprietary computer hardware devices. The programs and hardware components are developed by REN’s employees. This proprietary information is maintained as trade secrets, and REN owns no patents. REN relies upon confidentiality agreements to protect its proprietary interests.

Protecting and enforcing our intellectual property position involves complex legal, scientific and factual questions and uncertainties. This may be especially true in foreign countries, which might become important users of the Rentech GTL Technology, but which generally do not provide as much protection of intellectual property rights as the United States. The lack of stable systems of law in some foreign countries could lead to rapid changes in political and economic climates, civil disturbances and other disruptions that affect operations. Our ability to protect and enforce our intellectual property position requires diligent actions by us to strictly maintain the confidentiality of our trade secrets and to protect our patents. If we do not, the value of our technologies that are affected would be severely limited.

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COMPETITION IN GTL TECHNOLOGY

Based on information from public announcements made by other companies and from other published information, our competitors in the gas-to-liquids field include several of the major oil and gas companies as well as a few smaller companies. All of the competing processes are based on Fischer-Tropsch technology. The fundamental differences between the various technologies are the catalyst and the synthesis gas reactors where the synthesis gas reacts with the catalyst.

Our principal competitors are companies that have developed their own Fischer-Tropsch technology and have operated full scale plants, or at least pilot plants, and who are actively seeking customers to license their technology or to use it on some shared basis. These other arrangements include use of the technology by a joint venture between the owner of the technology and the owner of a source of feedstock.

Additional competitors in the field are those who are developing Fischer-Tropsch technology, but who have not yet completed their research or tested their technology in an operating pilot plant. Those other competitors include several major oil and gas companies.

We believe that owners of competing GTL technologies which have demonstrated use of their technology have spent many years and large sums of money developing their technologies. We expect that others who may hope to develop new, competing GTL technologies will face similar requirements of time and money to enter the field. We anticipate that these factors and the patents that have been issued to us will make it difficult for others to enter the field using an iron-based catalyst.

Unlike iron-based Fischer-Tropsch technologies, the cobalt-based Fischer-Tropsch technologies are currently only used for the conversion of synthesis gas produced from natural gas. Cobalt-based technologies can be used to convert synthesis gas from liquids and solids, but such a plant requires the addition of expensive equipment that would likely cause reduced product yields and increased capital and operating costs.

The Rentech GTL Technology uses an iron-based catalyst, as does a major competitor. No claims of patent infringement have been made against us, and none, to our knowledge, have been made against the other user.

We believe our Fischer-Tropsch technology can successfully compete against the technology of the others who are engaged in the same business. We are one of five companies in the world that have operated a Fischer-Tropsch plant at larger than laboratory scale. Many of the others only use their technology for their own account or for projects in which they acquire an equity interest.

We believe that our patents protect several unique features of the Rentech GTL Technology, including our catalyst, that give us competitive advantages in costs and product yields over those of our competitors. Several properties of iron-based catalysts provide them significant advantages over cobalt catalysts. Our catalyst is less expensive than cobalt catalysts, and unlike them, the residue is not a hazardous waste. Our catalyst also works with feedstocks containing sulfur, which we think makes it the only feasible catalyst for industrial off-gases and substandard natural gas. Our iron-based catalyst has a broad range of application because it can convert synthesis gas from gas, liquid and solid feedstocks, unlike cobalt catalysts that do not work well with liquids and solids. We also believe that the conversion rate, that is, the amount of the feedstock that is converted into valuable liquid hydrocarbons, is as high for our patented catalyst as it is for cobalt catalysts.

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•    THE RENTECH GTL TECHNOLOGY MAY NOT COMPETE FAVORABLY WITH OTHER GTL TECHNOLOGIES. THAT WOULD LIMIT OUR ABILITY TO OBTAIN LICENSEES, AND WOULD SEVERELY REDUCE OUR REVENUES FROM THE TECHNOLOGY.

Because of increasing worldwide demand for fuels in general, and for the clean burning products of GTL technology in particular, as well as the large quantities of carbon-bearing gas, liquid and solid materials available as feedstock, there are economic incentives for businesses to develop and achieve significant market penetration for successful Fischer-Tropsch technology. Several major integrated oil companies and several smaller companies, have developed or are developing competing technologies. Most of these companies, especially the major oil companies, have significantly more financial and other resources than we do to spend on developing, promoting and using their technology. The U.S. Department of Energy has also sponsored a number of research programs in Fischer-Tropsch technology, some of which might potentially lower the cost of processes that compete with the Rentech GTL Technology. These companies, the Department of Energy, or others may develop technologies that will be more commercially successful or better accepted in the industry than our technology. This could render our technology obsolete. It would also have a material adverse effect on our results of operations and financial condition.

GOVERNMENTAL REGULATION OF THE RENTECH GTL TECHNOLOGY

Conversion plants using the Rentech GTL Technology and plants manufacturing our proprietary catalyst are subject to extensive federal, state and local laws, rules and regulations relating to protection of the environment and employee health and safety. Plants using our technology in foreign countries will be subject to the environmental and health and safety laws and regulations of those nations. Violations of these laws and regulations may subject violators to substantial government fines and criminal penalties as well as legal liabilities to third parties. Violators may be required to reduce the level of operations of their plants or to retrofit plants to lessen the environmental impact. Those changes could be costly. In the most extreme situations, the costs of environmental compliance could be prohibitively expensive.

Local, and sometimes federal governments, typically require that plant operators obtain a variety of governmental permits before construction and operation of the plants. These requirements will usually include permits regulating location of industrial plants, construction, air and water emissions, and disposal of byproducts. Obtaining the required permits could increase the costs of designing, constructing and operating plants using the Rentech GTL Technology. Obtaining the permits could also delay these activities. That would have the effect of increasing the overall costs of these plants.

OPERATING HAZARDS OF PLANTS USING THE RENTECH GTL TECHNOLOGY

Plants that use the Rentech GTL Technology process carbon bearing materials, including natural gas, into synthesis gas. Some plants will require the use of oxygen producing systems to convert the feedstock into synthesis gas. These gases, especially oxygen, are highly flammable and explosive. Severe personal injuries and material property damage may result. If such accidents did occur, we could have substantial liabilities and costs. We are not insured for these risks. Furthermore, accidents of this type would likely adversely affect operation of existing as well as proposed plants by increasing costs for safety features. Widespread market acceptance of the Rentech GTL Technology could be delayed by this situation.

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•    OPERATION OF GAS PLANTS THAT USE THE RENTECH GTL TECHNOLOGY INVOLVES RISKS OF MECHANICAL FAILURES AND FIRES AND EXPLOSIONS. FREQUENT OR SEVERE ACCIDENTS OF THIS TYPE AND THE RESULTING DAMAGES COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION.

We expect that use of the Rentech GTL Technology in some conversion plants will require oxygen producing systems to convert the feedstock into synthesis gas. This is the first step of the Fischer-Tropsch process, and it occurs before our GTL technology is applied. The oxygen producing systems, if required, will involve risk of accidents. Personal injuries to workers at the plant and property damage to the plant may result. The frequency and seriousness of accidents, injuries and damages will impact the marketability of the Rentech GTL Technology, and our licensees’ operating costs and insurability. Significant frequency or severity of such accidents could have a material adverse effect on our business, operating results and financial condition.

Compliance with health and safety requirements is not expected to require unusual capital expenditures by us or our licensees. Compliance with governmental regulations is the responsibility of the owners and operators of the plants, who will usually be our licensees. If we acquire a controlling interest and operate a plant, we would have to comply with applicable governmental regulations.

We believe that the Rentech GTL Technology does not present unusual issues of environmental compliance. Because our iron-based catalyst is not a hazardous or toxic material and is not regulated, we believe that the cost of governmental compliance will not be significantly affected by regulations governing hazardous materials. We also believe the non-hazardous nature of our catalyst gives our technology some advantages over our competitors that use a cobalt catalyst. To the extent that a cobalt catalyst is not reused and consumed in the process, it is a regulated material.

OTHER BUSINESSES

Our wholly-owned subsidiary is engaged in the business of manufacturing and marketing water-based wood stains, concrete stains, block pluggers and other water repellent sealers on a wholesale basis. The coatings produced and sold by OKON are biodegradable and environmentally clean. OKON produces 26 water-based stains and sealers.

OKON started this business in 1973, and we acquired it in 1997. OKON, located in Denver, markets and sells its products nationwide through a variety of channels. These include distribution through paint dealers, retailers who are primarily not discount retailers, and mass merchandisers, industry users, and architects and building contractors. The customers are primarily the construction industry and architects who use the coatings on wood, concrete and masonry for their construction projects. OKON’s sales staff is comprised of several employees who call on previous and potential customers. The brand names of the various products are recognized throughout the industry. The formulas used by OKON for manufacturing its products are proprietary.

One of OKON’s goals is to gain wider access to the retail paint market. Its stains and sealers are now stocked by some of the stores owned by two different home product chain stores.

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OKON primarily manufactures and markets standard products, but it also prepares special products for large orders. Sales are generally made pursuant to purchase orders, which are occasionally revised to reflect changes in the customer’s requirements or to establish special orders. Product deliveries are scheduled upon OKON’s receipt of purchase orders, and orders are typically filled within one to two days. OKON has no significant backlog of orders. Historically, sales of stains and sealers have been seasonal in nature. The heaviest concentrations of sales have occurred in the spring and summer months. Production schedules are timed to reflect these seasonal variations.

The coatings industry in which OKON conducts its business is highly competitive and has historically been subject to intense price competition. Other competitive factors in the coatings industry include the content of volatile organic compounds (VOCs) in the product, product quality, product innovation, and distribution. There are five major competitors in this nationwide market of environmentally sound paint products. Rentech believes that OKON products are competitive. It bases this belief on the quality of OKON’s products and their unique properties, including reduced content of VOC ingredients because the products are water-based and biodegradable.

The Environmental Protection Agency considers even small amounts of VOCs to be harmful environmental contaminants. This is because many of them are water soluble and persist in the environment. According to the EPA, ingestion of VOCs over the lifetime of a person has been shown to cause adverse health effects such as cancer, reproductive problems, and developmental effects. The U.S. Geological Survey reported in 1999 that 47% of water wells in urban areas contain VOCs, and 14% of water wells in rural areas produce water with VOCs. Of these wells, the U.S. Geological Survey estimates that 2.5% of the urban wells and 1.3% of the rural wells that provide drinking water have concentrations of VOCs that exceed EPA standards for safe drinking water. VOCs also contribute to ground-level ozone, according to the EPA, and irritate the lungs, eyes and sinuses. The EPA believes VOCs also increase the risk of heart or respiratory illnesses and aggravate asthma.

Unlike our products, the majority of wood stains, concrete stains and concrete block pluggers currently on the market contain VOC levels that are increasingly considered unacceptable in several regions of the United States. State and federal government agencies have proposed further restrictions to limit the levels of VOC contained in products. The restrictions have effectively prohibited the sale and use of high VOC products in some states such as California. The environmental advantages of the OKON products complement Rentech’s business philosophy of producing environmentally cleaner fuels and products.

OKON’s sales of products to some customers may constitute a significant portion of our revenues. For the years ended September 30, 2003, 2002, and 2001, one customer of OKON accounted for 16%, 10%, and 12% of our total revenues.

LOSS OF OKON’S LARGEST CUSTOMERS WOULD MATERIALLY REDUCE OUR TOTAL REVENUES.

OKON has provided material portions of our total revenues. Loss of a customer of this size would have an adverse economic and business impact upon all of our operations. OKON regularly sells to over 200 customers, and we expect that this broad customer base would help soften the impact of the loss of any single customer. During fiscal 2003, OKON expanded its customer base from 200 active accounts to over 8,000 accounts for fiscal 2004. Our efforts to mitigate this risk of a very narrow customer base has been successfully dealt with in fiscal 2003.

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Revenues from our stains, sealers and coatings business segment represented approximately 25%, 20%, and 29%, of our total revenues in the years ended September 30, 2003, 2002, and 2001, respectively.

In June 1999, we entered into the business of providing well logging services to the oil and gas industry. This occurred through our purchase of the assets of two established and related companies that have been providing services in these fields since 1964. We are using the assets to continue these businesses through our wholly-owned subsidiary, Petroleum Mud Logging, Inc. (PML). The business is operated from Oklahoma City, Oklahoma. The services are provided to customers located in Oklahoma, Texas, Kansas and Louisiana.

PML owns 35 mobile well logging units that are moved from well to well. Through state of the art instruments, the logging equipment measures traces of gases and water throughout the depth of a well hole by analyzing the drilling mud recovered from the well as drilling progresses. The results are transmitted to customers immediately by either land lines or satellite uplink. The mineral owners use this information to detect the presence of oil and gas deposits in underground formations and to direct their exploration and development drilling.

The assets of PML also include a comprehensive library of well logs accumulated over the past 39 years. The well logs are available for examination by customers for a charge.

In the last several years, PML has provided its logging services for fewer oil wells and more for natural gas wells. We expect this trend to continue as exploration for natural gas intensifies due to increasing demand for that energy source.

Revenues provided by our mud logging business segment represented approximately 42%, 21%, and 37% of our total revenues during the fiscal years ended September 30, 2003, 2002, and 2001, respectively. We acquired the mud logging assets that we use to provide our oil and gas field services in June 1999. PML’s revenues from some customers may constitute a significant portion of its revenues. For the years ended September 30, 2003, 2002, and 2001, one customer of PML accounted for 9%, 7%, and 12% of our total revenues, respectively.

LOSS OF PML’S LARGEST CUSTOMERS WOULD MATERIALLY REDUCE OUR TOTAL REVENUES.

PML has provided material portions of our total revenues. We have experienced a growing demand for our oil and gas field services. If we lose a significant customer, we anticipate that demand from other customers would use most of our capabilities.

THE MARKET FOR PML’S SERVICES MAY NOT CONTINUE AT THE CURRENT LEVEL.

More companies may enter our business and offer well logging services to the oil and gas industry. Our present competitors may expand their equipment and provide more well logging services. The number of new natural gas wells that are drilled may decline as the supply of natural gas increases or if market demand for natural gas lessens. If these events occurred, the demand for PML’s services would decline and our total revenues could be significantly reduced.

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Our competitors in oil and gas field services include approximately 50 other companies. Several of these companies are divisions or subsidiaries of major oil and gas companies or other energy businesses. Those competitors have substantially more financial assets and other resources than we do. We believe we have been and will be able to favorably compete in this business because of our advanced technological capabilities. Our mud logging units are well equipped mobile laboratories. Our units receive and automatically test data on site from the drill holes as a well is drilled. To our knowledge, we are the only company that monitors and plots all parameters by computer, rather than by hand. The units automatically analyze that information and rapidly communicate the results to the mineral owner. These capabilities give us advantages over most of our competitors by enabling the mineral owner and its geologists to exercise more precise control over the drilling without being at the site. During fiscal year 2002, PML upgraded its equipment and technology by adding safety features to provide advance warning to workers of potential gas blow-outs of a well on which they are working. This meets new safety standards being adopted by the states and provides PML a competitive advantage over most other mud logging companies that have not added this equipment.

On August 1, 2001, we acquired 56% of the outstanding stock of REN Corporation. REN is an Oklahoma corporation organized in 1979 and located in Stillwater, Oklahoma. REN manufactures computer-controlled testing equipment systems and sells them on a custom-order basis to industrial manufacturers. The manufacturers use REN’s industrial automation systems for controlling quality control and increasing productivity in the manufacture of their products. The customers’ products include automatic hydraulic pumps, valves and actuators; diesel fuel injection pumps; transmissions; automatic hydraulic presses; and hydraulic hose assemblies. REN’s primary market has been automated test equipment for the fluid power industry.

REN is continuing its business and has retained its original management. REN’s customer base currently consists of some of the world’s largest heavy-equipment manufacturers. These include Caterpillar, USA; Eaton Corporation, USA and Mexico; John Deere USA and Mexico; Daewoo Heavy Industries, Korea; Bosch Rexroth Corporation USA and Germany; Parker Hanifen Corporation, USA; and Sauer Danfoss, USA and Great Britain. Sales inside the U.S. were $1,333,379, $2,629,237, and $996,641, during the years ended September 30, 2003, 2002, and 2001, respectively, and sales outside the U.S. were $486,473, $271,500, and $8,247, during the same years.

REN had a backlog of orders in the approximate amount of $515,000 as of September 30, 2003 as compared to a backlog of approximately $1,375,000 as of September 30, 2002. We expect to ship these unfilled orders by December 2003. Subsequent to September 30, 2003, REN’s backlog increased to approximately $871,000.

Revenues provided by our industrial automation systems segment represented approximately 21%, 30%, and 2% of our total revenues during the fiscal years ended September 30, 2003, 2002, and 2001, respectively. Caterpillar is REN’s largest customer, accounting for 12%, 19% and 0.3% of our total revenues in the years ended September 30, 2003, 2002 and 2001, respectively.

LOSS OF REN’S LARGEST CUSTOMER WOULD MATERIALLY REDUCE THE REVENUES WE EXPECT DURING FISCAL YEAR 2004. If we lose Caterpillar as a customer, we believe we would be able to fill our remaining backlog. We would also eliminate or delay our expansion program to help minimize the substantial loss of revenues that would result.

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REN’s competitors who manufacture and sell computerized test equipment for use in manufacturing include approximately ten other companies. We have approximately three principal competitors. Some of REN’s competitors have substantially more financial assets and other resources than REN. We believe that REN will be able to compete favorably because its pioneering work in applying computers and electrohydraulics to develop leading edge systems gives REN certain advantages, especially for test equipment systems for the fluid power industry.

REN MAY NOT BE ABLE TO READILY AND ECONOMICALLY DEVELOP THE COMPUTERIZED TEST EQUIPMENT THAT HAS BEEN ORDERED.

Development of the specialized test equipment that REN sells requires a period of development and specialized skills. If REN is not able to economically and timely produce the equipment that has been ordered, the costs would be increased and the anticipated revenues would be reduced.

We may not be able to obtain the financing that REN requires to expand its business to meet its requirements for potential new sales orders.

INVESTMENT IN ADVANCED TECHNOLOGY COMPANIES

Through our investment made in 1998 in INICA, Inc., formerly ITN Energy Systems, Inc., we own minority interests in two advanced technology companies. INICA is a privately owned business engaged in developing and commercializing emerging technologies.

During the fourth quarter of fiscal 2003, we exchanged our 10% ownership interest in the shares of INICA, Inc. for a 2.28% ownership interest in Global Solar Energy, Inc., which is engaged in production of thin-film photovoltaics, and for a 5.76% ownership interest in Infinite Power Solutions, Inc., which is developing thin-film micro batteries.

As a minority owner in these corporations, we have no control over them. We do not participate in their management. We have no obligations for their liabilities. We intend to remain passive investors in them.

RISKS RELATING TO INVESTMENT IN ADVANCED TECHNOLOGIES

•    PROFITABLE OPERATIONS OF ADVANCED TECHNOLOGY BUSINESSES ARE SUBJECT TO GREATER RISK THAN FOR MORE CONVENTIONAL BUSINESSES.

The likelihood of successfully entering into new businesses involving advanced technologies must be considered in view of the problems, expenses, difficulties, complications and delays frequently encountered with starting up a new business, especially one engaged in high technology. These factors include the development of new technology, the marketing of new products, and adequate controls to assure adherence to the special provisions and fine tolerances required in manufacturing, assembling and installing high technology products. We have little or no history of operations in these lines of advanced technologies upon which to evaluate their prospects for future operating or financial success. Success in these businesses is uncertain.

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•    THE VALUE OF OUR INTERESTS IN ADVANCED TECHNOLOGIES DEPENDS UPON THE EFFORTS OF OTHERS. WE DO NOT CONTROL THEIR ACTIONS.

The advanced technologies in which we have an ownership interest are controlled by others. We have no influence over their actions and are not involved in their operations. The success of the advanced technologies in which we hold interests depends upon the controlling shareholders, officers and managers of these businesses.

•    THE ADVANCED TECHNOLOGIES IN WHICH WE HAVE AN INTEREST MAY NOT BE APPLIED TO ADDITIONAL PRODUCTS OR ACCEPTED BY THE TARGET MARKETS.

The planned improvements to these technologies may not be completed, and new products may not be developed. The products may not gain widespread acceptance in the target marketplaces. If so, the value of our shares of common stock in these companies could be limited.

•    THE ADVANCED TECHNOLOGY BUSINESSES MAY NOT OPERATE AT A PROFIT. IF THEY DO NOT, OUR ECONOMIC BENEFIT FROM OWNERSHIP OF INTERESTS IN THEM WILL BE LIMITED AND MAY NOT MATERIALIZE.

Global Solar Energy and especially Infinite Power Solutions have only recently attempted to market their products. Their products may not be purchased by a broad group of customers. They may not obtain enough sales to meet their business needs and operating expenses. If one or both of them do not achieve high levels of sales and operate profitably, our investment in shares of their common stock will be limited in value.

•    WE DO NOT EXPECT THAT THE ADVANCED TECHNOLOGY BUSINESSES WILL DISTRIBUTE DIVIDENDS TO SHAREHOLDERS. THERE IS NO MARKET FOR THE COMMON STOCK OF THESE COMPANIES. WITHOUT DIVIDENDS, WE MAY NOT REALIZE REVENUE FOR OUR INVESTMENT IN ADVANCED TECHNOLOGIES.

Unless the advanced technology companies declare dividends, which we do not expect, our return on any value in these companies will depend upon the value of our shares of their common stock. There is no market for the common stock, and none may develop. If so, our ability to realize value from the common shares will be limited. We may be required to hold the common stock for an indefinite period of time without any economic return.

EMPLOYEES

At September 30, 2003, we had 118 employees. Among our subsidiaries, Rentech Services Corporation had 10 employees, who work at our development and testing laboratory; OKON, Inc. had 12 employees; Petroleum Mud Logging, Inc. had 69 employees; and REN Corporation had 16 employees.

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ITEM 2. PROPERTIES

OFFICE LEASE

Our executive offices are located in Denver, Colorado, and consist of 5,923 square feet of office space. The lease expires in October 2009 and includes an option to extend for another five-year term. Total rent will be $78,727 during fiscal 2004. We believe that our existing space is adequate to meet our current needs and to accommodate anticipated growth.

DEVELOPMENT AND TESTING LABORATORY

We own a development and testing laboratory located in Denver. The facility consists of a 11,000 square foot laboratory located within our 20,000 square foot industrial building. The remainder of the building is rented to a tenant and constitutes potential expansion space for the laboratory. We renovated the building in fiscal 1999 to provide a state-of-the-art laboratory and support facilities for Fischer-Tropsch technology. Our lab equipment and the laboratory were upgraded in 1999 by approximately $500,000 in capital expenditures. We believe that our laboratory is one of the most comprehensive Fischer-Tropsch facilities in the field today.

SAND CREEK METHANOL PLANT FACILITY

We own a one-half interest in the Sand Creek methanol facility located in the Denver metropolitan area. Republic Financial Corporation, based in the Denver area, owns the other one-half interest. The facility includes a methanol plant that was closed when we acquired our interest in 1999. The site consists of 17 acres located in an industrial area adjacent to a rail line and an interstate highway. Approximately 11 acres of the site are available for other uses. We are offering the site, including all improvements, for sale.

OKON FACILITY

OKON, Inc., a wholly owned subsidiary, leases an industrial building located in Denver Colorado, where its production facilities and offices are located. The lease extends to March 2005. The rent is approximately $80,000 per year. The building contains approximately 20,000 square feet of office and warehouse space. The building contains adequate space for expansion of the business. We believe that this lease can be renewed or other space obtained.

PETROLEUM MUD LOGGING PROPERTIES

Petroleum Mud Logging, Inc. owns a building in Oklahoma City, Oklahoma that contains our shop facility as well as our offices. Personal property includes 35 special vehicles equipped as mobile laboratories used for providing well logging services. The subsidiary also owns an extensive library of well logs that provide information about the results of previous oil and gas or natural gas exploration wells. We believe that the existing shop space and well logging units are adequate for our current needs and anticipated growth. The shop facility is adequate for maintenance of the vehicles, and the well logging units are in good condition.

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REN CORPORATION

REN Corporation, in which we own a 56% interest, owns a building located in Stillwater, Oklahoma on a site consisting of 6.6 acres. The building contains 11,000 square feet. REN uses it for light manufacturing of its computer software and hardware products. REN also owns plant machinery and computer equipment. The building and the equipment are in adequate condition.

ITEM 3. LEGAL PROCEEDINGS

Various claims and actions that we consider ordinary routine litigation incidental to our business have been asserted and are pending against us. We do not believe that these claims and actions will have a material adverse effect upon our results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2003.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Rentech’s common stock is traded on The American Stock Exchange under the AMEX^® Symbol RTK. The following table sets forth the range of high and low closing prices for the Company’s common stock. The quotations reflect inter-dealer prices, without adjustment for retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.

The approximate number of shareholders of record of our common stock as of September 30, 2003 was 570. Based upon the securities position listings maintained for our common stock by registered clearing agencies, we estimate the number of beneficial owners is not less than 9,800.

We have declared no dividends with respect to the common stock during the two most recent fiscal years ended September 30, 2003 and 2002. We currently expect that we will retain future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.

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We have a shareholder rights plan. Each outstanding share of our common stock carries a stock purchase right issued pursuant to a shareholder rights plan adopted by our board of directors in November 1998. The rights entitle the holder to buy one one-hundredth of a share of preferred stock at a price of $12 per one one-hundredth of a share. Generally, the rights become exercisable ten days after a person or group has acquired, or a tender offer is made for 15% or more of the common stock of Rentech. If either of these events occur, each right will entitle the holder (other than a holder owning more than 15% of the outstanding stock) to buy the number of shares of the Company’s common stock having a market value two times the exercise price of $12 per share. The rights may be redeemed by Rentech for $.0001 per right until a person or group has acquired 15% of the Rentech stock. The rights expire in December 2008.

Our board of directors is authorized to issue shares of preferred stock without approval of shareholders. The terms of the preferred stock are determined at the time they are issued by the board of directors. Shares of preferred stock may be issued in one or more series. Each series may be issued with different rights. These rights may include voting rights, preferences as to dividends, and mandatory redemption provisions carried out through funds set aside by Rentech. Upon liquidation, the rights may include rights of redemption or conversion into common and preferences over any other stock to distribution of assets.

The following table shows information concerning all sales of our unregistered securities made by us during the past three years. A description of each transaction is given in the numbered paragraphs that follow the table, corresponding with the numbers of the transactions described in the table.

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The proceeds of the offerings will be used for development of gas-to-liquids projects and technology, including general working capital.

ITEM 6. SELECTED FINANCIAL DATA

The following consolidated selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto appearing in them, and the risk factors included elsewhere in this Annual Report on Form 10-K.

Rentech, Inc. and Subsidiaries

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

In addition to the information provided here in Management’s Discussion and Analysis of Financial Condition and Results of Operations, we believe that in order to more fully understand our discussion here, the reader should first read the expanded discussion of our business and its risk factors included in Item 1 – Business of this Form 10-K.

We are the developer and owner of a proprietary and patented gas-to-liquids (GTL) process that converts carbon-bearing gases, liquids and solids into valuable liquid hydrocarbon products. The products include clean burning diesel fuel, naphthas and specialty products such as waxes, petrochemical feedstocks, fuel cell feedstocks and synthetic lubricant base stock. We believe that the Rentech GTL Technology represents a major enhancement of the Fischer-Tropsch technology developed in Germany in the 1920s. We have successfully used the Rentech GTL Technology for a short period in a commercial-scale plant and for longer periods in several pilot plants. No commercial plant is now using the technology, and economic operation of the technology has not been demonstrated. We believe that the advancements we have made in Fischer-Tropsch technology will enable use of our GTL technology on a cost-effective basis in some situations.

We are exploiting our Rentech GTL Technology by marketing licenses to energy companies and owners of industrial gas plants, and owners of other carbon-bearing sources of feedstock such as natural gas. We are discussing proposals with several energy companies and owners of industrial gas plants for use of the Rentech GTL Technology through licenses or other business ventures.

Our iron-based catalyst that is an integral part of the Rentech GTL Technology is relatively inexpensive, and non-polluting, and works with a broad range of feedstocks. We believe that our technology provides significant opportunities to produce liquid hydrocarbon fuels and other valuable products from the large worldwide resources of natural gas, industrial waste gas, heavy crude oil, refinery byproducts, coal and petroleum coke, among other materials.

Our current licensees include Texaco Energy Systems, Inc. (Texaco), formerly a division of Texaco, Inc., which became a division of ChevronTexaco Corporation in 2001 after the merger of those two companies. Texaco contracted with us for research and development related to integrating Texaco’s gasification technology (which produces synthesis gas from feedstocks in liquid and solid forms) with Rentech’s GTL Technology (which uses synthesis gas). Texaco is working on proposals to use the combined technologies for a U.S. Department of Energy project and other projects.

We received royalty income as a result of our October 1998 license of the Rentech GTL Technology to Texaco and revenues from a technical services contract with Texaco. We are not receiving royalties on production of liquid hydrocarbons from use of the Rentech GTL Technology, or license fees except on an irregular basis. We also receive revenues from prospective businesses who engage us to perform studies for their potential projects that would use the Rentech GTL Technology. These studies are preliminary engineering design studies and evaluations of the feasibility of their use of their feedstock with our technology. Revenues from the Rentech GTL Technology and the revenues from our other businesses conducted through OKON, Inc., Petroleum Mud Logging, Inc., and REN Corporation are not sufficient to cover our ongoing losses related to our efforts to commercialize the Rentech GTL Technology at this time.

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OPERATING REVENUES

During the fiscal periods discussed in this report, we realized revenues from the stains, sealers and coatings business conducted by our wholly-owned subsidiary, OKON, Inc.; from the oil and gas field services provided by Petroleum Mud Logging, Inc., a wholly-owned subsidiary; from the manufacture of complex microprocessor controlled industrial automation systems by REN Corporation, a 56% owned subsidiary; and revenues associated with the Rentech GTL Technology. These revenues included royalties earned under our October 1998 license of the Rentech GTL Technology to Texaco, and contract payments for technical engineering services provided to Texaco and certain other companies. The goal of this work was to integrate Texaco’s gasification technology with our Rentech GTL Technology. In the future, we expect to receive revenues associated with the Rentech GTL Technology from the following principal sources:

We anticipate that we may receive increased contract payments for design studies if interest by members of the energy industry in our technology grows. We do not expect to realize significantly increased revenues from exploitation of the Rentech GTL Technology until a commercial-scale plant using the technology is in operation and has proved profitable. We are working with several energy companies and related businesses to prepare and evaluate their proposals to develop plants that would use our technology. There are no assurances that adequate financing will be available or that we will succeed in retrofitting and successfully operating any existing industrial plant at a profit. Our future operating revenues will depend primarily upon economic success by us, followed by success by our licensees, in financing, constructing and operating commercial-scale plants using the Rentech GTL Technology. Other factors affecting our success include competition by other GTL technologies, availability of low-cost feedstock, and market prices for conventional fuels and hydrocarbon products with which synthetic liquid hydrocarbons produced by use of our technology will compete. Our future operating revenues would also be increased to the extent we are able to expand revenues of our other businesses.

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OPERATING EXPENSES

Our operating expenses have historically been grouped primarily into several categories of major expenses. These are development of the Rentech GTL Technology through pilot plants and the Synhytech commercial-scale plant in Pueblo, Colorado; acquiring and funding our other business segments to bring them to profitable operations; investing in advanced technologies; acquisition of a 56% interest in REN Corporation; marketing our technology; other general and administrative expenses; and the costs of financing our operations.

Our research and development expenses were substantially increased after we enhanced our development and testing laboratory and enlarged our laboratory staff in 1999. We have also had significant growth in our general and administrative expenses as our salary expenses and operating costs have grown. We are incurring substantial costs associated with our one-half ownership interest in Sand Creek Energy LLC, which owns the mothballed Sand Creek plant. These include the maintenance and holding expenses for our one-half interest in the plant.

If we invest with others in developing a plant that uses our Rentech GTL Technology, we expect to incur large costs for any plants in which we may acquire an equity interest. When production is achieved, we anticipate incurring new expenses to market and sell the products. Because of the substantial capital investments we anticipate making in other plants in which we may acquire an equity interest, we believe that we will incur significant depreciation and amortization expenses in the future.

CRITICAL ACCOUNTING POLICIES AND 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 and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions relate to the valuation of long-lived assets, intangible assets, goodwill and investment in advanced technology companies, accounting for fixed price contracts, accounting for stock options and warrants and the realization of deferred income taxes. Actual amounts could differ significantly from these estimates.

Valuation of Long-Lived Assets, Intangible Assets and Goodwill. We must assess the realizable value of long-lived assets, intangible assets and goodwill for potential impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of our goodwill and other intangibles, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. In addition, we must make assumptions regarding the useful lives of these assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets. Effective October 1, 2001, we elected early adoption of SFAS No. 142, and were required to analyze goodwill for impairment. As of September 30, 2003, we updated our impairment test and determined that the goodwill recorded in connection with the acquisition of REN was impaired. REN’s customer backlog as of September was not sufficient to support the realization of goodwill and as a result, we wrote-off the balance related to REN.

Investment In Advanced Technology Companies. The Company has an investment in certain advanced technology companies. The investment is stated at the estimated net realizable value and is evaluated periodically for impairment and is carried at the lower of cost or estimated net realizable value.

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The evaluation that we perform is based upon estimates. The actual value that we realize from this investment may be more or less than its carrying value. We will recognize gains on these investments, if any, when realized.

Accounting for Fixed Price Contracts. Our 56% owned subsidiary, REN Corporation, recognizes revenues from fixed price contracts on the percentage-of-completion method of accounting. Under this method of accounting, the amount of revenue recognized is the percentage of the contract price that the costs expended to date bear to the total estimated costs of the contract, based upon current estimates of the costs to complete the contract. Project managers make significant assumptions concerning cost estimates for materials and labor. Due to the uncertainties inherent in the estimation process, as well as the potential changes in customer needs as these contracts progress, it is at least reasonably possible that completion costs for uncompleted contracts may be revised in the future, and that such revisions could be material.

Accounting for Stock Option and Warrants. We issue stock options and warrants to stockholders, employees, consultants and others in connection with our various business activities. These are accounted for in accordance with the provisions of APB 25 and FASBs 123 and 148, as well as other authoritative accounting pronouncements. We are required to make estimates of the fair value of the related instruments and the period benefited. These estimates may affect such financial statement categories as stockholders’ equity, general and administrative expense, and interest and financing costs. In addition, there is discussion regarding new requirements to account for stock options at fair value, which may have a material impact on our statement of operations in the future.

Deferred Income Taxes. We have provided a full valuation reserve related to our substantial deferred tax assets. In the future, if sufficient evidence of our ability to generate sufficient future taxable income in certain tax jurisdictions becomes apparent, we may be required to reduce this valuation allowance, resulting in income tax benefits in our consolidated statement of operations. We evaluate the realizability of the deferred tax assets annually and assess the need for the valuation allowance.

RESULTS OF OPERATIONS

FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002

Revenues. We had revenues from product sales, service revenues and royalty income of $8,477,001 in fiscal 2003 and $9,560,335 in fiscal 2002, a decrease of 11%.

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 $2,161,138 in fiscal 2003. This compares to revenues from this segment of $1,927,854 for the 2002 fiscal year, an increase of 12%. Of the increase in paint revenue, 43% reflects a turn-around from the construction slow-down in our primary distribution markets as existing customers began to increase inventory stocking levels. Another 57% resulted from the addition of significant new customers for distribution of our products.

Service Revenues. Service revenues are provided by three of our business segments. The segments are the oil and gas field services segment, the Rentech GTL Technology technical services portion of the alternative fuels segment and the industrial automation systems segment. The Rentech GTL Technology technical services are provided through the scientists and technicians who staff our development and testing laboratory. In addition, the alternative fuels segment includes rental income from leases to others of portions of the development and testing laboratory building.

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Service revenues in the amount of $3,580,448 were derived from contracts for the oil and gas field services provided by our subsidiary Petroleum Mud Logging, Inc. in fiscal 2003. Our oil and gas field service revenues for fiscal year 2003 increased by $1,558,491, or 77%, from the service revenues of $2,021,957 in fiscal 2002. The increase in oil and gas field services revenue was due to an increase in demand for our mud logging services as drilling for new natural gas wells has continued to increase in our service market. Therefore, a higher percentage of our 35 mud logging vehicles were under contract in the field in fiscal 2003 as compared to fiscal 2002. We were also able to increase our billing rates for services.

Service revenues in the amount of $1,819,852 during fiscal 2003 and $2,900,737 during fiscal 2002 were derived from contracts for the manufacture of complex microprocessor controlled industrial automation systems by our 56% owned subsidiary, REN Corporation. The $1,080,885 decrease in industrial automation systems revenue during fiscal 2003 was due to the timing of recognition of revenue based upon the percentage of completion method of accounting. Recognition of revenue was decreased because fewer systems were manufactured in the current year. Of the decrease, 72% is attributable to Caterpillar as the majority of the cost-intensive work on the Caterpillar contracts was completed during fiscal 2002. The remaining 28% is related to a decrease in revenue from all other customers.

Service revenues also include revenue earned for technical services provided to certain customers with regard to the Rentech GTL Technology. These technical services were performed at our development and testing laboratory. Our service revenues for these technical services were $701,658 during fiscal 2003 as compared to $2,354,550 during fiscal 2002. These revenues included $589,705 from Texaco and $111,953 from other customers during fiscal 2003, and $1,436,636 from Texaco and $917,914 from other customers during fiscal 2002. Compared to the prior year, our service revenues from these technical services decreased by $1,652,892 or 70%, during fiscal 2003. Of this decrease, $846,931 or 51% was a decrease in revenues from Texaco while 805,961 or 49% was a decrease in revenues from other technical services customers. The work for Texaco decreased during fiscal 2003 as our services to it under our 1999 technical services contract ceased upon the modification in March 2003 of our license agreement with Texaco. The change provides Texaco a non-exclusive license, rather than an exclusive license to use our technology, with liquid and solid materials. While our services to Texaco ceased in March 2003, we hope to be called upon by ChevronTexaco in the future for work on the Early Entrance Co-production Plant contract. This contract is focused on developing a program for the U.S. Department of Energy for an energy plant that produces both transportation fuels and electricity. This is a four-year program that is in its fourth year. The decrease during fiscal 2003 related to other technical services customers was primarily due to the recognition of $800,000 in revenue during fiscal 2002 upon the completion of the study for the Wyoming Business Council. No such revenue was recognized during fiscal 2003.

Service revenues included rental income as well. We leased part of our development and testing laboratory building in Denver, which was acquired in February 1999, to a tenant. Rental income from this tenant contributed $113,905 in revenue during fiscal 2003 as compared to $115,237 during fiscal 2002. Rental income is included in our alternative fuels segment because the rental income is generated from the laboratory building that houses our development and testing laboratory, which is part of the alternative fuels segment.

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Royalty Income. Royalty income consisted of royalties that we received as a result of our October 1998 license of the Rentech GTL Technology to Texaco. Under the license agreement, we earned $100,000 in royalties during fiscal 2003 and $240,000 during fiscal 2002. No royalties were received subsequent to February 2003, and no royalties will be received in the future under the October 1998 license agreement as a result of modification to the license agreement in March 2003. By that modification, Texaco’s exclusive license to use our technology with liquid and solid feedstocks became non-exclusive. Royalty income, which is generated through licensing the Rentech GTL Technology, is included in our alternative fuels segment.

Costs of Sales. Our costs of sales include costs for our OKON products as well as for our oil and gas field services, technical services including research and development contract costs, and industrial automation services. During fiscal 2003, the combined costs of sales were $5,207,654 compared to $5,462,243 during fiscal 2002. The decrease for fiscal 2003 resulted from a decrease in costs of sales for the alternative fuels segment and the industrial automation systems segment, offset by an increase in costs for product sales and for the oil and gas field services segment.

Costs of sales for product sales are the cost of sales of our paint business segment for sales of stains, sealers and coatings. During fiscal 2003, our costs of sales for the paint segment increased by $104,242 or 11% to $1,036,919, as compared to fiscal 2002. The increase in costs was due to an increase in raw materials used in the manufacturing process resulting from increased product sales during fiscal 2003 as compared to fiscal 2002. The increase in product sales during fiscal 2003 reflected a turn-around from the construction slow-down in our primary distribution markets as existing customers began to increase inventory stocking levels and we added significant new customers for distribution of our products.

Costs of sales for oil and gas field services increased to $2,624,377 during fiscal 2003, up from $1,665,895 during fiscal 2002. Of the increase of $958,482, 84% was related to field labor and benefits and field living expenses, while the remainder was made up of supplies and other such miscellaneous costs. The increase in costs of sales resulted from the increase in oil and gas field services revenue which occurred due to an increase in demand for our mud logging services as drilling for new natural gas wells has continued to increase in our service market.

Costs of sales for the industrial automation systems segment were $1,230,713 during fiscal 2003 as compared to $2,143,782 during fiscal 2002. The decrease of $913,069 during fiscal 2003 was directly related to the decrease of 37% in revenues from this segment as compared to fiscal 2002. The decrease in revenue was due to the timing of recognition of revenue based upon the percentage of completion method of accounting. This occurred because fewer systems were manufactured in the current year.

Costs of sales for technical services were $315,645 during fiscal 2003, down from $591,889 during fiscal 2002. The decrease of $276,244 resulted from a reduction in labor and supplies costs at our research and development laboratory. This was the result of a decrease in work for Texaco and other customers during fiscal 2003 as compared to fiscal 2002. These revenues decreased due to delays in obtaining contracts under discussion for technical services work by us.

Costs of sales also includes research and development contract costs of $128,000 during fiscal 2002, as compared to no such costs incurred during fiscal 2003. These costs are made up of engineering and labor costs incurred on the completion of the Wyoming Business Council contract. No research and development contract costs were incurred during fiscal 2003 due to the completion of our engineering work on the project and the delivery of our final report in fiscal 2002.

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Gross Profit. Our gross profit for fiscal 2003 was $3,269,347, as compared to $4,098,092 for fiscal 2002. The decrease of $828,745 or 20% resulted from a combination of the contributions from each of our operating segments. The gross profit contribution of our paint segment increased during fiscal 2003 by $129,042 as compared to fiscal 2002, while the contribution of our oil and gas field services segment increased by $600,009. Gross profit increased further in fiscal 2003 compared to fiscal 2002 as a result of a reduction of $128,000 in research and development contract costs for the Wyoming Business Council contract. These increases were more than offset by decreases of $167,816 for the industrial automation systems segment and $1,376,648 from technical services during fiscal 2003 as compared to fiscal 2002. Gross profit was further decreased by a reduction in contribution during fiscal 2003 from rental income of $1,332 and from royalty income of $140,000.

Operating Expenses. Operating expenses consist of general and administrative expense, depreciation and amortization and research and development.

General and Administrative Expenses. General and administrative expenses were $7,922,541 during fiscal 2003, up $594,643 from fiscal 2002 when these expenses were $7,327,898. The increase in general and administrative expenses was $594,643 for the current year. Salaries and benefits allocated to general and administrative expenses rather than to costs of sales increased by $154,621 or 20%. This was due to a reduction in technical services work provided to third parties at our research and development laboratory. General and administrative expenses further increased during fiscal 2003 due to a $418,354 or 202% increase in bad debt expenses, primarily resulting from the reserve recorded against the note receivable from the original REN shareholders, offset by the write-off of the Dresser notes receivable in fiscal 2002. Public relations and promotions expenses decreased by $190,282 or 27% during fiscal 2003 due to cost cutting measures instituted during fiscal 2003. Commissions expenses decreased by $90,619 or 28% during fiscal 2003 primarily related to the decrease in the number of systems manufactured by our industrial automation systems subsidiary. Many other general and administrative expenses experienced increases and decreases during fiscal 2003, none of which were significant individually.

Depreciation and Amortization. Depreciation and amortization expenses during fiscal 2003 and 2002 were $1,027,138 and $1,229,972. Of these amounts, $173,187 and $340,141 were included in costs of sales. Of the decrease of $202,834, 68% was related to the amortization of production backlog, which became fully amortized during fiscal 2002. The remainder of the decreases resulted from certain fixed assets becoming fully depreciated during fiscal 2003.

Research and Development. Research and development expenses were $785,857 during fiscal 2003, including $747,081 for our alternative fuels segment, $23,517 for our paint segment and $15,259 for our industrial automation systems segment. This expense increased by $42,934 from fiscal 2002, when these expenses were $742,923. The expense for 2002 included $701,201 for our alternative fuels segment, $29,542 for our paint segment and $12,180 for our industrial automation systems segment. Due to a decrease in billable technical services work performed at the development and testing laboratory for customers, we were able to conduct additional research and development work on the Rentech GTL Technology for our own purposes. Extensive work was completed in the areas of product upgrading and wax catalyst filtration as well as the completion of further catalyst development.

Total Operating Expenses. Total operating expenses during fiscal 2003 were $9,562,349, as compared to $8,960,652 during fiscal 2002, an increase of $601,697. The increase in total operating expenses as compared to the prior year is a result of an increase in general and administrative expenses of $594,643, a decrease in depreciation and amortization charges included in operating expenses of $35,880, and an increase in research and development expenses of $42,934.

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Loss From Operations. Loss from operations during fiscal 2003 increased by $1,430,442 to a loss of $6,293,002, as compared to a loss of $4,862,560 during fiscal 2002. The increased loss compared to the prior year resulted from an increase in total operating expenses of $601,697 during fiscal 2003 in addition to a decrease in gross profit of $828,745.

Other Income (Expenses). Other income (expenses) includes impairment on investments, equity in loss of investee, interest income, interest expense and gain on disposal of fixed assets.

Impairment of Investments. During fiscal 2003 we reviewed our capitalized software. We concluded that our Greenfield plant cost estimation software had been superseded by new tools developed by our engineers. As a result, we ceased amortization of the software and wrote off the remaining balance of $47,322. As of September 30, 2003, we updated our impairment test and determined that the goodwill recorded in connection with the acquisition of REN was impaired. REN’s customer backlog as of September was not sufficient to support the realization of goodwill. As a result, we wrote-off the $275,253 balance of goodwill related to REN. During the fourth quarter of fiscal 2003, we exchanged our 10% ownership in INICA for a 2.28% ownership in the common stock of Global Solar Energy, Inc. and a 5.76% ownership in the common stock of Infinite Power Solutions, Inc. We assessed the value of our minority ownership interests in Global Solar Energy and Infinite Power Solutions based upon currently available information. As a result of that assessment, we recorded an impairment of investment of $1,879,107 and our investment in the two advanced technology companies is recorded at the estimated net realizable value of $1,200,000. The assessment that we performed is based upon estimates. The actual value that we realize from these investments may be more or less than $1,200,000. We will recognize gains on these investments, if any, when realized.

Equity in Loss of Investee. During fiscal 2003, we recognized $205,890 in equity in loss of investee, as compared to $252,013 during fiscal 2002. 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. The decrease during fiscal 2003 is due to a decrease in insurance and other maintenance costs of the facility.

Interest Income. Interest income during fiscal 2003 was $23,338, decreased from $36,468 during fiscal 2002. The decreased interest income was due to having fewer funds invested in interest-bearing cash accounts.

Interest Expense. Interest expense during fiscal 2003 was $999,492, increased from $267,618 during fiscal 2002. Of the increase of $731,874, 75% resulted from the recognition of non-cash interest expenses, and 22% resulted from cash payments for interest related to our convertible promissory notes issued in order to obtain working capital.

Gain (Loss) on Disposal of Fixed Assets. During fiscal 2003 we had a loss on disposal of fixed assets of $1,118 as compared to a gain on disposal of fixed assets during fiscal 2002 of $189. These represent the disposal of out-dated office furniture and equipment, computer equipment and vehicles.

Total Other Expenses. Total other expenses increased to $3,384,844 during fiscal 2003 from total other expenses of $482,974 during fiscal 2002. The increase in total other expenses of $2,901,870 resulted from a $2,201,682 impairment of investments during fiscal 2003, as compared to none during

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fiscal 2002; a decrease in equity in loss of investee of $46,123; a decrease in interest income of $13,130; an increase in interest expense of $731,874; and an increase in loss on disposal of fixed assets of $1,307 as compared to a gain in the prior year.

Minority Interest in Subsidiary’s Net Loss. The minority interest in subsidiary’s net loss of $142,441 during fiscal 2003, as compared to $12,921 during fiscal 2002, resulted from the acquisition of 56% of REN Corporation on August 1, 2001.

Net Loss. For the year ended September 30, 2003, we experienced a net loss of $9,535,405 compared to a net loss of $5,332,613 during the year ended September 30, 2002. The increase of $4,202,792 resulted from an increase in loss from operations of $1,430,442, an increase in total other expenses of $2,901,870, and an increase in minority interest in subsidiary’s net loss of $129,520.

Dividend Requirements on Convertible Preferred Stock. Dividend requirements on convertible preferred stock is the imputed amount calculated when there is a discount from fair market value when we issue our convertible preferred stock, 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 fiscal 2003, we did not issue convertible preferred stock and no dividends were recorded. During fiscal 2002, we issued convertible preferred stock and recorded dividends of $136,932 as a result.

Loss Applicable to Common Stock. As a result of recording no dividends on convertible preferred stock during fiscal 2003 and recording dividends of $136,932 during fiscal 2002, the loss applicable to common stock was $9,535,405 or $0.13 per share during fiscal 2003 and $5,469,545 or $0.08 per share during fiscal 2002.

FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001

Revenues. We had revenues from product sales, service revenues and royalty income of $9,560,335 in fiscal 2002 and $8,166,576 in fiscal 2001, an increase of 17%.

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 $1,927,854 in fiscal 2002. This compares to revenues from this segment of $2,367,689 for the 2001 fiscal year, a decrease of 19%. The decrease in revenue from this segment was due to an industry-wide reduction in inventory purchasing and stocking levels by customers, resulting from construction slow-downs in our primary distribution markets.

Service Revenues. Service revenues are provided by three of our business segments. The segments are the oil and gas field services segment, the Rentech GTL Technology technical services portion of the alternative fuels segment and the industrial automation systems segment. The technical services are provided through the scientists and technicians who staff our development and testing laboratory. In addition, the alternative fuels segment includes rental income from leases to others of portions of the development and testing laboratory building.

Service revenues in the amount of $2,021,957 were derived from contracts for the oil and gas field services provided by our subsidiary Petroleum Mud Logging, Inc. in fiscal 2002. Our oil and gas field service revenues for fiscal year 2002 decreased by $1,009,182, or 33%, from the service revenues of $3,031,139 in fiscal 2001. The decrease in oil and gas field services revenue was due to decreased demand for our mud logging services, resulting from a substantial decrease in drilling for new natural gas wells in our service market.

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Service revenues in the amount of $2,900,737 during fiscal 2002 and $193,317 during fiscal 2001 were derived from contracts for the manufacture of complex microprocessor controlled industrial automation systems by our 56% owned subsidiary, REN Corporation. The increase of $2,707,420 during fiscal 2002 is due to the fact that we only recorded two months of revenue during fiscal 2001 for this segment as the acquisition of REN Corporation was completed on August 1, 2001.

Service revenues also include revenue earned for technical services provided to certain customers with regard to the Rentech GTL Technology. These technical services were performed at our development and testing laboratory. Our service revenues for these technical services were $2,354,550 during fiscal 2002, including $1,436,636 from Texaco and $917,914 from other customers, as compared to $2,212,432, including $1,726,795 from Texaco and $485,637 from other customers, during fiscal 2001. Compared to the prior year, our service revenues from these technical services increased by $142,118 or 6%. The increase during fiscal 2002 was due to the recognition of $800,000 in revenue upon the completion of the study for the Wyoming Business Council while there was no such revenue during fiscal 2001. The increase in revenue from the Wyoming Business Council during fiscal 2002 was offset by a decrease in technical services revenue from customers other than Texaco and the Wyoming Business Council of $367,723, as compared to fiscal 2001. The decrease in revenue from customers other than Texaco and the Wyoming Business Council was due to fewer contracts awarded in fiscal 2002. This was a result of the national economic recession that slowed planning for capital spending in the oil services sector. The increase in revenue from the Wyoming Business Council was further offset by a decrease in revenue from Texaco of $290,159 during fiscal 2002 as compared to fiscal 2001. The work from Texaco decreased due to the timing of its assignment of work to us to fulfill our subcontract with Texaco for its contract with the U.S. Department of Energy. The work involved development of a model for an energy plant that produces both transportation fuels and electricity.

Service revenues included rental income as well. We leased part of our development and testing laboratory building in Denver to a tenant. Rental income from this tenant contributed $115,237 in revenue during fiscal 2002 as compared to $121,999 during fiscal 2001. Rental income is included in our alternative fuels segment.

Royalty Income. Royalty income consisted of royalties that we received as a result of our October 1998 license of the Rentech GTL Technology to Texaco. Under the license agreement, we earned $240,000 in royalties during both fiscal 2002 and fiscal 2001. Royalty income is included in our alternative fuels segment.

Costs of Sales. Our costs of sales include costs for our OKON products as well as for our oil and gas field services, technical services including research and development contract costs and industrial automation services. During fiscal 2002, the combined costs of sales were $5,462,243 compared to $6,150,359 during fiscal 2001. The decrease for fiscal 2002 resulted from a decrease in costs of sales for the products sales, oil and gas field services and alternative fuels segments, offset by an increase for the industrial automation systems segment.

Costs of sales for product sales are the cost of sales of our paint business segment for sales of stains, sealers and coatings. During fiscal 2002, our costs of sales for the paint segment decreased by $192,274 or 17% to $932,677, as compared to fiscal 2001. Of the decrease for the current year, 69% was related to the reduced cost of raw materials used in the manufacturing process. This reduction reflected

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the competitive effect of the slow-down in construction on the producers of raw materials. The remaining 31% was related to various other costs which decreased as a direct result of the decrease in product sales. Product sales decreased during fiscal 2002 due to a continued industry-wide reduction in inventory purchasing and stocking levels by customers. Sales were lower because of construction slow-downs in our primary distribution markets.

Costs of sales for oil and gas field services were $1,665,895 during fiscal 2002, down from $2,099,703 during fiscal 2001, a decrease of $433,808 or 21%. Of the decrease for the current year, 50% was related to a decrease in field labor, 26% was related to a decrease in field living expenses, and the remaining 24% was related to a decrease in various other costs related to having fewer mud logging vehicles in the field resulting in a decrease in revenues for this segment. The decrease in oil and gas field services revenues were due to decreased demand for our mud logging services. This resulted from a substantial decrease in drilling for new natural gas wells in our service market.

Costs of sales for the industrial automation systems segment were $2,143,782 during fiscal 2002 as compared to $157,576 during fiscal 2001. The increase of $1,986,206 during fiscal 2002 is because we only recorded two months of costs during fiscal 2001 for this segment as the acquisition of REN Corporation was completed on August 1, 2001.

Costs of sales for technical services were $591,889 during fiscal 2002, down from $2,207,521 during fiscal 2001. These costs decreased $1,615,632, or 73% as a result of the efficiencies gained over time at the facility as well as the decrease in revenue from Texaco and other customers for services performed in 2002. Revenues from Texaco and other customers decreased due to the awarding of contracts to us for studies. The costs of sales for the Wyoming Business Council contract are included in the research and development contract costs category below.

Costs of sales also includes research and development contract costs of $128,000 during fiscal 2002, as compared to $560,608 during fiscal 2001. These costs are made up of engineering and labor costs incurred on the completion of the Wyoming Business Council contract. The decrease of $432,608 or 77% during fiscal 2002 was due to the completion of our engineering work on the project and the delivery of our final report in fiscal 2002.

Gross Profit. Our gross profit for fiscal 2002 was $4,098,092, as compared to $2,016,217 for fiscal 2001. The increase of $2,081,875 or 103% resulted from a combination of the contributions from each of our operating segments. The gross profit contribution of our paint segment decreased during fiscal 2002 by $247,561 as compared to fiscal 2001, while the contribution of our oil and gas field services segment decreased by $575,374 and the contribution from rental income decreased by $6,762 for the same period. These decreases were more than offset by increases of $721,214 for the industrial automation systems segment and $1,757,750 from technical services during fiscal 2002 as compared to fiscal 2001. Gross profit increased further in fiscal 2002 compared to fiscal 2001 as a result of a reduction of $432,608 in research and development contract costs for the Wyoming Business Council contract.

Operating Expenses. Operating expenses consist of general and administrative expense, depreciation and amortization and research and development.

General and Administrative Expenses. General and administrative expenses were $7,327,898 during fiscal 2002, up $1,736,852 from fiscal 2001 when these expenses were $5,591,046. The increase for the current year is due to increases in several areas that were not offset by a 73% decrease in expenses

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allocated to costs of sales at our research and development laboratory as a result of the efficiencies gained over time at the facility as well as the decrease in revenue from Texaco and other customers. In addition, fiscal 2002 included an increase of $767,530 in general and administrative expenses for our industrial automation systems segment as compared to fiscal 2001, as well as non-cash accruals of audit, legal and payroll expenses of $197,044 during fiscal 2002, for which the Company had previously not accrued. We did not have these costs during fiscal 2001.

Depreciation and Amortization. Depreciation and amortization expenses during fiscal 2002 and 2001 were $1,229,972 and $983,158. Of these amounts, $340,141 and $184,991 were included in costs of sales. Of the increase of $246,814 or 25%, $212,725 or 86% is related to the depreciation and amortization of assets acquired with the industrial automation systems segment. The remainder of the increase resulted from a combination of additions to and reductions in depreciation of fixed assets in the other operating segments. This increase is partially offset by a decrease in amortization of goodwill of $98,351 during fiscal 2002 as compared to fiscal 2001. In accordance with SFAS No. 142, which we adopted during fiscal 2002, we are no longer amortizing goodwill related to the acquisitions of OKON and PML.

Research and Development. Research and development expenses were $742,923 during fiscal 2002, including $701,201 for our alternative fuels segment, $29,542 for our paint segment and $12,180 for our industrial automation systems segment. This expense increased by $538,340 from fiscal 2001, when these expenses were $204,583, including $190,905 for our alternative fuels segment and $13,678 for our paint segment. Due to a decrease in billable technical services work performed at the development and testing laboratory for customers, we were able to work on certain research and development related activities for our own purposes. Extensive tests were completed evaluating catalyst life and efficiency as well as other aspects of our technology.

Total Operating Expenses. Total operating expenses during fiscal 2002 were $8,960,652, as compared to $6,593,796 during fiscal 2001, an increase of $2,366,856. The increase in total operating expenses as compared to the prior year is a result of the increases in general and administrative expenses of $1,736,852, depreciation and amortization charges included in operating expenses of $91,664, and an increase in research and development expenses of $538,340.

Loss From Operations. Loss from operations during fiscal 2002 increased by $284,981 to a loss of $4,862,560, as compared to a loss of $4,577,579 during fiscal 2001. The increased loss compared to the prior year resulted from an increase in total operating expenses of $2,366,856 during fiscal 2002, which is partially offset by an increase in gross profit of $2,081,875.

Other Income (Expenses). Other income (expenses) includes loss on investment, equity in loss of investee, interest income, interest expense and gain on disposal of fixed assets.

Impairment of Investments. During our fiscal 2001 year-end review of assets, we determined that our investment in shares of Dresser Engineers & Constructors, Inc. was impaired. Dresser is a privately owned company. We were not able to obtain adequate information about its current business to support the existing valuation. Based upon our inability to determine Dresser Engineers’ liquidity and the status of its business plans, we recognized a $1,842,135 asset impairment for the year ended September 30, 2001.

Equity in Loss of Investee. During fiscal 2002, we recognized $252,013 in equity in loss of investee, as compared to $386,047 during fiscal 2001. This represents our 50% share of the loss incurred

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by our joint venture in Sand Creek Energy LLC. The LLC is holding and maintaining the mothballed Sand Creek methanol plant. The decrease during fiscal 2002 is due to a decrease in insurance and other maintenance costs of the facility.

Interest Income. Interest income during fiscal 2002 was $36,468, decreased from $121,509 during fiscal 2001. The decreased interest income was due to having fewer funds invested in interest-bearing cash accounts.

Interest Expense. Interest expense during fiscal 2002 was $267,618, increased from $108,166 during fiscal 2001. The increase in interest expense is the result of the addition of the convertible notes payable and the notes payable added as a result of the acquisition of REN Corporation in August 2001.

Gain on Disposal of Fixed Assets. Gain on disposal of fixed assets was $189 during fiscal 2002, with no comparable amount during fiscal 2001. This gain represents the disposal of out-dated office furniture and equipment, computer equipment and vehicles.

Total Other Expenses. Total other expenses decreased to $482,974 during fiscal 2002 from total other expenses of $2,214,839 during fiscal 2001. The decrease in total other expenses of $1,731,865 resulted from having no impairment of investments during fiscal 2002, as compared to $1,842,135 during fiscal 2001; a decrease in equity in loss of investee of $134,034; a decrease in interest income of $85,041; an increase in interest expense of $159,452; and an increase in gain on disposal of fixed assets of $189.

Minority Interest in Subsidiary’s Net Income. The minority interest in subsidiary’s net income of $12,921 during fiscal 2002, as compared to $21,711 during fiscal 2001, resulted from the acquisition of 56% of REN Corporation on August 1, 2001.

Net Loss. For the year ended September 30, 2002, we experienced a net loss of $5,332,613 compared to a net loss of $6,770,707 during the year ended September 30, 2001. The decrease of $1,438,094 resulted from an increase in loss from operations of $284,981, a decrease in total other expenses of $1,731,865, and a decrease in minority interest in subsidiary’s net loss of $8,790.

Dividend Requirements on Convertible Preferred Stock. Dividend requirements on convertible preferred stock is the imputed amount calculated when there is a discount from fair market value when we issue our convertible preferred stock, 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 year ended September 30, 2002, we issued convertible preferred stock, and recorded dividends of $136,932, compared to $483,599 for the year ended September 30, 2001.

Loss Applicable to Common Stock. As a result of recording dividends on convertible preferred stock of $136,932 during fiscal 2002 and $483,599 during fiscal 2001, the loss applicable to common stock was $5,469,545 or $0.08 per share during fiscal 2002 and $7,254,306 or $0.11 per share during fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2003, we had negative working capital of $1,571,738, as compared to positive working capital of $775,686 at September 30, 2002. The decrease in working capital was primarily due to the decrease in accounts receivable resulting from fewer systems being manufactured for Caterpillar by our 56% owned subsidiary REN Corporation, the use of cash for operations, and the addition of the convertible promissory notes in fiscal 2003. These decreases were partially offset by payments on lines of credit and accrued and other liabilities.

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As of September 30, 2003, we had $3,210,002 in current assets, including accounts receivable of $1,143,813. At that time, our current liabilities were $4,781,740. We had long-term liabilities of $3,223,994. Most of our long-term liabilities relate to our long-term convertible debt as well as the mortgage on our development and testing laboratory.

To obtain capital for working funds, we have previously sold shares of our common stock at a discount from the market price in private placements. We have also previously sold our stock purchase warrants and our convertible promissory notes bearing interest in private placements. The warrants and notes have been convertible into shares of our common stock at a discount. Some of them remain outstanding. This method of financing, by selling our securities convertible into common stock, which has been our principal means of obtaining capital, will no longer be available to us because essentially all of the shares of common stock that we are authorized to issue have been issued or are subject to be issued upon conversion of our stock purchase options, stock purchase warrants or convertible promissory notes. To change this situation, we intend to seek approval of our shareholders at the 2004 annual meeting of shareholders to be held in March 2004, to increase the number of authorized shares of common stock from 100,000,000 shares to 150,000,000 shares. If the shareholders do not approve of this proposal by the required majority vote, we will be deprived of the primary source of financing we have relied upon in the past. In that event, we would have to curtail our expenditures by reducing our operations, which resulted in a net loss of $9,535,405 in fiscal year 2003, in efforts to reduce our operating costs to a level covered by our revenues. Reducing our activities related to the Rentech GTL Technology would materially adversely impact our ability to commercialize the Rentech GTL Technology. We might also have to sell some of our assets. Doing so would materially reduce our revenues from our subsidiaries and the book value of our assets. We might also sell our one-half interest in the Sand Creek plant to obtain some capital, but the net proceeds of sale would not cover our annual losses from operations. Our co-owner and we have been offering the plant for sale for over a year. Our ability to sell that interest depends upon the cooperation of our co-owner, who has expressed interest in retaining the plant and operating it in the future in connection with an adjacent oil and gas refinery owned by another party.

The primary source of our liquidity has been equity capital contributions and debt financing. We added an additional source of liquidity in March 1997 through the purchase of OKON, Inc., which conducts our paint business segment. We have received royalties from granting Texaco Energy Systems LLC (Texaco), now a division of ChevronTexaco Corporation, a license for use of the Rentech GTL Technology in October 1998. We also received service revenues from Texaco for technical services relating to the Rentech GTL Technology, from April 1999 to March 2003. This work was undertaken to integrate the Texaco gasification technology with our Rentech GTL Technology. We added another source of liquidity with the purchase in June 1999 of the mud logging assets that we operate through Petroleum Mud Logging, Inc. as our oil and gas field services segment. Finally, we added another source of liquidity with the purchase in August 2001 of 56% of REN Corporation, which manufactures complex microprocessor controlled industrial automation systems. Our 50 percent interest in the assets of the mothballed Sand Creek methanol plant is available for sale.

Effective March 24, 2003, our license agreement with Texaco was modified. By the change, Texaco’s exclusive rights to use the Rentech GTL Technology for conversion of coal, petroleum coke and other solid and liquid hydrocarbons became non-exclusive. Our license with Texaco remains in effect, as modified. Texaco retained non-exclusive rights to use our technology with these hydrocarbon materials as well as non-exclusive rights to use our technology with gaseous hydrocarbons. Beginning in March

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2003, we are no longer receiving royalty payments of $20,000 per month under the license, and we will not be required to share any license fees and royalties we receive from others in the future with Texaco. While our services to Texaco under our 1999 technical services contract ceased in March 2003, we hope to be called upon by ChevronTexaco in the future for work on the Early Entrance Co-production Plant contract. This contract is focused on developing a program for the U.S. Department of Energy for an energy plant that produces both transportation fuels and electricity. This is a four-year program that is in its fourth year.

With the change to the Texaco license, we are now able to offer licenses of our Rentech GTL Technology to other energy businesses for conversion of coal, petroleum coke and other solids and liquids. We are now working with several other companies to study the feasibility of developing GTL projects using the Rentech GTL Technology. No commitments have been made to proceed with these projects, and we have received no revenues from them.

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, oil and gas field services and industrial automation segments, and to invest in advanced technology companies.

We anticipate needs for substantial amounts of new capital for projects, operating expenses, efforts to commercialize the Rentech GTL Technology, to purchase property and equipment, and to continue significant research and development programs for the GTL projects we are considering. We expect to undertake these types of expenditures in efforts to commercialize the technology in one or more plants in which we may acquire part ownership. Even if we succeed in obtaining construction loans secured by such projects, we expect to need significant amounts of capital as our required share of the total investment in these projects. We may attempt to fund some of these project costs through sales of some part of our ownership, if we have any, in any industrial gas plant that we may attempt to retrofit. At this time, we own a one-half interest in one plant, which is the mothballed Sand Creek methanol plant. We do not expect to use the Sand Creek plant for commercial production of liquid hydrocarbons. Instead, we may sell some or all of the assets of SCE.

From our inception on December 18, 1981 through September 30, 2003, we have incurred losses in the amount of $40,439,046. For the year ended September 30, 2003, we recognized a $9,535,405 net loss. If we do not operate at a profit in the future, we may be unable to continue operations at the present level. As of September 30, 2003, we had a cash balance of $315,763 and our cash balance has not significantly increased since that time. We have been successful in the past in obtaining debt and equity financing. For the years ended September 30, 2003, 2002 and 2001, we received net cash proceeds from the issuance of common stock of $1,577,100, $1,456,724 and $2,332,005. For the years ended September 30, 2003, 2002 and 2001, we received cash proceeds from long-term debt and long-term convertible debt to stockholders of $2,505,000, $2,250,000 and $444,951. For the years ended September 30, 2003, 2002 and 2001, we received cash proceeds from the issuance of convertible preferred stock of $0, $500,000 and $793,673.

If shareholders approve our proposal to increase the number of shares of common stock that we are allowed to issue, we may issue common stock or other securities in future private placements to fund working capital requirements. In addition, we are attempting to sell all or some of the assets of Sand Creek Energy, LLC, a company in which we have a 50% interest. We are currently funding 50% of the expense of maintaining this facility at a cost of approximately $18,000 per month. We believe that with our current available cash, revenues from operations, additional debt and equity financing and the

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potential sale of assets, we will be able to meet our cash operating requirements through September 30, 2004. Obtaining equity financing through placements of additional securities, however, depends upon approval by shareholders at the annual meeting scheduled for March 2004 of a proposed increase in the number of shares of common stock that we are authorized to issue. If we are unable to obtain additional debt or equity financing, our current available cash, revenues from operations and the potential sale of assets will not enable us to meet our expected cash operating requirements through September 30, 2004.

IF WE ARE UNABLE TO OBTAIN FINANCING, WE WILL NOT BE ABLE TO CONTINUE OUR OPERATIONS AT THE CURRENT LEVEL.

Revenues from our subsidiaries will not be adequate to fund our present level of operations. We need additional financing or substantially increased revenues from the Rentech GTL Technology to maintain all of our operations.

WITHOUT THE PROCEEDS OF ADDITIONAL FINANCING, OUR PLAN TO GENERATE NEW REVENUES FROM USE OF THE TECHNOLOGY WOULD BE HINDERED AND DELAYED.

Without capital to provide for the initial studies that we typically conduct at our expense to encourage GTL projects, the likelihood of development of a project by a proposed licensee is decreased. This situation would delay commercialization of our technology. Our plan to realize new revenues from license fees, engineering services, royalties and catalyst sales would be delayed.

Direct payments from Texaco amounted to 8% of our total revenues in fiscal 2003 and 20% in fiscal 2002. This source of revenue ended in fiscal 2003. If we do not obtain a significant amount of work from others for our laboratory in the near future, we may be compelled to greatly reduce or close our testing and development laboratory and sharply reduce our scientific and technical staff, among other reductions in operating expenditures.

Net Deferred Tax Asset. We had net deferred tax assets offset by a full valuation allowance at September 30, 2003 and 2002. We are not able to determine if it is more likely than not that the net deferred tax assets will be realized. See Note 15 to the Consolidated Financial Statements.

ANALYSIS OF CASH FLOW

OPERATING ACTIVITIES

Net Loss. Operating activities produced net losses of $9,535,405 during fiscal 2003, as compared to $5,332,613 during fiscal 2002. The cash flows used in operations during these periods resulted from the following operating activities.

Increase in Allowance for Doubtful Accounts. During fiscal 2003, the allowance for doubtful accounts increased by $5,500 as compared to $4,675 during fiscal 2002.

Depreciation. Depreciation is a non-cash expense. This expense decreased during fiscal 2003 by $64,477, as compared to fiscal 2002. The decrease was attributable to certain fixed assets becoming fully depreciated during fiscal 2003.

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Amortization. Amortization is also a non-cash expense. This expense decreased during fiscal 2003 by $138,357, as compared to fiscal 2002. The decrease is attributable to the amortization of production backlog, which became fully amortized during fiscal 2002.

Accrued Interest Expense. During fiscal 2003, we accrued interest expense of $80,380 on certain convertible notes payable.

Salaries Expense Paid Through Debt. During fiscal 2003, we issued convertible promissory notes totaling $800,341 in lieu of cash to certain officers of the Company in payment of their salaries.

Impairment of Investments. During fiscal 2003, we wrote down our investment in advanced technology companies by $1,879,107. In addition, we wrote-off capitalized software of $47,322 and goodwill related to the acquisition of REN Corporation of $275,253.

Bad Debt Expense. During fiscal 2003, we reserved against the $580,657 note receivable from related party as we determined that the 44% shareholders of REN Corporation do not have the ability to repay the note. In addition, we wrote off certain customer receivables as we determined that they were not collectible.

Interest Income on Receivable from Related Party. During fiscal 2003, we added $10,058 of interest income back to operations. This amount relates to the interest earned on the note receivable from REN which was included in the Stock Purchase Agreement. However, we also recorded a 100% reserve against the note receivable during fiscal 2003.

Loss on Disposal of Fixed Assets. During fiscal 2003, we recorded a loss on the disposal of fixed assets of $1,118. These represent the disposal of out-dated office furniture and equipment, computer equipment and vehicles.

Equity in Loss of Investee. We recognized equity in loss of investee in the amount of $205,890 during fiscal 2003. 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. The decrease during fiscal 2003 is due to a decrease in insurance and other maintenance costs of the facility.

Minority Interest in Net Loss of Subsidiary. The minority interest in net loss of subsidiary of $142,441 during fiscal 2003 results from the acquisition of 56% of REN Corporation.

Common Stock Issued for Services. During fiscal 2003, we issued $159,000 in common stock in lieu of cash to the outside directors of the Company for their services.

Changes in Operating Assets and Liabilities. The changes in operating assets and liabilities, net of business combination, result from the following factors.

Accounts Receivable. Accounts receivable decreased by $242,594 during fiscal 2003, as compared to fiscal 2002. The decrease in accounts receivable was due to increased collection efforts within each of our business segments as well as a decrease in technical services revenue at our research and development laboratory of 70% and a decrease in revenue from our industrial automation systems segment of 37%. These decreases were partially offset by an increase in sales by the paint segment of 12% and an increase of revenue from the oil and gas field services segment of 77%.

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Costs and Estimated Earnings in Excess of Billings. Costs and estimated earnings in excess of billings decreased $306,657 during fiscal 2003 as a result of the timing of contract billings and other contract activity within the industrial automation systems segment. These contracts are accounted for under the percentage of completion method of accounting.

Other Receivables and Receivable from Related Party. Other receivables and receivable from related party decreased during fiscal 2003 by $29,606 due to the collection of an other receivable.

Inventories. Inventories increased by $110,647 during fiscal 2003. The increase is a result of inventory-building at OKON due to an expected increase in paint sales in our primary distribution markets.

Prepaid Expenses and Other Current Assets. Prepaid expenses and other current assets decreased during fiscal 2003 by $290,781. The decrease reflects the payment of certain annual insurance premiums, net of the amortization of such premiums.

Accounts Payable. Accounts payable increased by $74,307 during fiscal 2003. This increase resulted from the timing of receiving and paying trade payables.

Billings in Excess of Costs and Estimated Earnings. Billings in excess of costs and estimated earnings decreased $138,485 during fiscal 2003 as a result of contracts within the industrial automation systems segment which are accounted for under the percentage of completion method of accounting.

Accrued Liabilities, Accrued Payroll and Other. Accrued liabilities, accrued payroll and other increased $192,014 during fiscal 2003 as a result of the timing of payment of certain payroll related accruals.

Net Cash Used in Operating Activities. The total net cash used in operations decreased to $3,694,392 during fiscal 2003, as compared to $4,172,815 during fiscal 2002. The decrease reflects increased cash costs for operating expenses offset by accounts receivable collections.

INVESTING ACTIVITIES

Purchase of Property and Equipment. During fiscal 2003, we purchased $161,221 of property and equipment. Most of these purchases, $65,861, $45,031 and $42,511, respectively, were for the purchase of leasehold improvements, vehicles and computer equipment.

Proceeds from Disposal of Fixed Assets. We received proceeds from the disposal of fixed assets during fiscal 2003 of $3,674.

Cash Used in Purchase of Investments. We used $196,684 to fund our 50% share of expenses of Sand Creek Energy, LLC during fiscal 2003.

Deposits and Other Assets. During fiscal 2003, deposits and other assets decreased $416,281. The decrease resulted from the amortization of loan issuance costs related to certain convertible promissory notes. These costs are being amortized over the life of the loans.

Net Cash Used in Investing Activities. The total net cash used in investing activities decreased to $62,050 during fiscal 2003 as compared to $579,093 during fiscal 2002. The decrease reflects a significant decrease in the purchase of property and equipment, the amortization of loan issuance costs and cash used to fund the expenses of Sand Creek.

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FINANCING ACTIVITIES

Proceeds from Issuance of Common Stock. During fiscal 2003, we received $1,577,100 in net cash proceeds from the issuance of common stock compared to $1,456,724 during fiscal 2002.

Proceeds from Issuance of Convertible Preferred Stock. During fiscal 2003, we received no cash proceeds from the issuance of convertible preferred stock compared to $500,000 during fiscal 2002.

Proceeds from Stock Subscription Receivable. During fiscal 2003, we received proceeds from a stock subscription receivable in the amount of $76,186, as compared to proceeds of $250,000 during fiscal 2002.

Purchase of Restricted Cash. During fiscal 2003, we did not purchase restricted cash, as compared to purchases of $500,000 in restricted cash during fiscal 2002.

Payment of Offering Costs. During fiscal 2003, we paid $92,722 in offering costs as compared to $147,644 during fiscal 2002.

Proceeds from Line of Credit. During fiscal 2003, we made net payments on our lines of credit of $65,767 as compared receiving net proceeds from our lines of credit of $1,493,839 during fiscal 2002.

Proceeds from Long-Term Debt and Long-Term Convertible Debt. During fiscal 2003, we received proceeds from long-term convertible debt in the amount of $2,505,000, compared to proceeds of $2,250,000 during fiscal 2002.

Payments on Related Party Payable. During fiscal 2002, we repaid $30,600 on a related party payable. There were no such repayments during fiscal 2003.

Payments on Long-Term Debt and Long-Term Convertible Debt. During fiscal 2003, we repaid $1,084,612 on our debt obligations as compared to $380,943 during fiscal 2002.

Net Cash Provided by Financing Activities. The net cash provided by financing activities during fiscal 2003 was $2,915,185, compared to $4,891,376 in cash provided by financing activities during fiscal 2002.

Cash decreased during fiscal 2003 by $717,157 compared to an increase of $139,468 during fiscal 2002. These changes decreased the ending cash balance at September 30, 2003 to $315,763 and increased the ending cash balance at September 30, 2002 to $1,032,920.

WE HAVE A HISTORY OF OPERATING LOSSES, AND HAVE NEVER OPERATED AT A PROFIT.

From our inception on December 18, 1981 through September 30, 2003, we have incurred losses in the amount of $40,439,046. For the year ended September 30, 2003, our net loss was $9,535,405. If we do not operate at a profit in the future, we may be unable to continue our operations at the present level. Ultimately, our ability to maintain our present level of business will depend upon earning a profit from operation of the Rentech GTL Technology. Our ability to do so has not been demonstrated.

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WE NEED ADDITIONAL CAPITAL OR FINANCING ARRANGEMENTS TO CARRY OUT OUR PLANS AND CONTINUE OUR OPERATIONS.

Additional financing may not be available to us. If not, we would have to defer or terminate our present expenditures, especially those intended to achieve commercialization of the Rentech GTL Technology as soon as possible. Our ability to implement our business plans and to achieve an operating profit would be delayed or prevented. We might have to transfer some aspects of our technology to others and allow them to develop markets for its use. If so, our revenues from the technology would be substantially reduced. If we raise additional capital by issuing equity securities, the ownership interests of our shareholders could be diluted. We could also issue preferred stock, without shareholder approval, to raise capital. The terms of our preferred stock could include dividends, conversion voting rights and liquidation preferences that are more favorable than those of the holders of our common stock.

THE REVENUES THAT WE EXPECT FROM OPERATING USE OF THE RENTECH GTL TECHNOLOGY MAY NOT BE REALIZED AS QUICKLY AS WE ANTICIPATE OR AT ALL. IF SO, THE EQUITY SOURCES OF FINANCING THAT WE HAVE PRIMARILY RELIED UPON IN THE PAST MAY NOT BE AVAILABLE.

We may experience long delays in realizing revenues from additional license fees, royalties and engineering services related to the Rentech GTL Technology. We may not receive substantial additional revenues from these sources at all. If so, our dependency upon obtaining working capital from financing activities will increase at times when our ability to do so will be decreased.

OUR BUSINESS IN FOREIGN NATIONS WILL BE SUBJECT TO RISKS INVOLVING CURRENCY EXCHANGE AND EXPROPRIATION OF FUNDS.

We expect that a substantial part of the use of our Rentech GTL Technology will occur in foreign countries. This could result in payments to us in foreign currencies. The exchange of foreign currencies into U.S. dollars will subject us to the risk of unfavorable exchange rates that could reduce the value of our foreign revenues by a significant amount. We plan to seek to be paid at rates based on an exchange rate formula related to U.S. dollars. We may also experience delays and costs in expropriating any foreign revenues that we may earn to the United States. If we own property in foreign nations, we may have to present our related assets and liabilities on our financial statements at the current exchange rates.

WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK, AND WE DO NOT EXPECT TO DO SO IN THE FUTURE.

We have paid no dividends on our common stock since inception in 1981. We currently intend to retain any earnings for the future operation and development of our business. We do not anticipate paying dividends in the foreseeable future. Any future dividends may be restricted by the terms of outstanding preferred stock and other financing arrangements then in effect.

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WE EXPECT OUR QUARTERLY AND ANNUAL FINANCIAL OPERATING RESULTS TO DIFFER FROM PERIOD TO PERIOD.

We have in the past, and expect in the future, to experience significant fluctuations in quarterly and annual operating results caused by the unpredictability of many factors. These variations may include differences in actual results of operations from results expected by financial analysts and investors, the demand for licenses of the Rentech GTL Technology, timing of construction and completion of plants by licensees, their ability to operate plants as intended, receipt of license fees and engineering fees and royalties, improvements or enhancements of gas-to-liquids technology by us and our competitors, economic use of our technology in commercial plants, changes in oil and gas market prices, the impact of competition by other technologies and energy sources, and general economic conditions. We believe that period-to-period comparisons of our results of operations may not necessarily be meaningful and should not be relied upon as indications of future performance. Some or all of these factors may cause our operating results in future fiscal quarters or years to be below the expectations of public market analysts and investors. In such event, the price of our common stock is likely to be materially adversely affected.

CONTRACTUAL OBLIGATIONS

In addition to the lines of credit and long-term convertible debt previously described, we have entered into various other contractual obligations. The following table lists our significant contractual obligations at September 30, 2003.

We are a guarantor on the $1,000,000 line of credit with Premier Bank until it matures on May 1, 2004. This guaranty includes any amount of the line of credit for which the 44% shareholders of REN are responsible to us.

We have entered into various long-term promissory notes, with monthly principal and interest payments of $15,624, at interest rates of 0% to 9.6%, which are collateralized by certain fixed assets of the Company.

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We have leased office space under a non-cancelable operating lease, which expires October 31, 2009, with a renewal option for an additional five years. We have also leased office and warehouse space under a lease which expires during March 2005. In addition we have entered into various other operating leases, which expire through February 2005.

In addition to the contractual obligations previously described, we have entered into various other commercial commitments. The following table lists these commitments at September 30, 2003.

We have entered into various employment agreements with officers of the Company which extend from January 1, 2001 to August 31, 2004. These agreements describe annual compensation as well as the compensation that we must pay upon termination of employment.

RECENT ACCOUNTING PRONOUNCEMENTS FROM FINANCIAL STATEMENT DISCLOSURES

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 adoption of this standard did not have an impact 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 adoption of this interpretation did not have an impact 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

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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 has incorporated the disclosure requirements of SFAS No. 148, which require a tabular pro forma presentation of net loss had SFAS No. 123 been adopted.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB 51 (FIN No. 46). The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (Variable Interest Entities or “VIEs”) and to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. The disclosure requirements of FIN No. 46 became effective for financial statements issued after January 31, 2003. The adoption of this interpretation did not have an impact on the Company’s financial statements.

In April 2003, FASB issued SFAS No. 149, “Accounting for Derivative Instruments and Hedging Activities,” which is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. This statement amends and clarifies financial accounting and reporting for derivative instruments including certain instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The adoption of this standard did not have an impact on the Company’s financial statements.

In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of this standard did not have an impact on the Company’s financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of interest rate changes related to our 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. Our long-term debt is at fixed rates of interest. We believe that fluctuations in interest rates in the near term will not materially affect our consolidated operating results, financial position or cash flow.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Quarterly Results. The following table presents unaudited consolidated operating results for each quarter within the two most recent fiscal years. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the following quarterly results when read in conjunction with our consolidated financial statements included elsewhere in this report. Results of operations for any particular quarter are not necessarily indicative of results of operations for a full fiscal year.

The financial statements identified in Item 13 are filed as part of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

We have not had a change of independent auditors during our two most recent fiscal years or subsequent interim period. We have not reported a disagreement with our auditors on any matter of accounting principles or practices or financial statement disclosure.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified by the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that are filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision of and with the participation of management, including the chief executive officer and chief financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of September 30, 2003. Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures are effective.

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There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation described above, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Audit Committee Financial Expert

The Company has determined that a member of the Audit Committee of the Board of Directors, John P. Diesel, qualifies as an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K, and that he is “independent” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934.

Code of Ethics

The Company has adopted a Code of Ethics applicable to its principal executive officer, principal financial officer or controller or persons performing similar functions. A copy of the Code of Ethics is filed with this report as Exhibit 14.

Directors and Executive Officers

The following table sets forth certain information concerning our directors and executive officers:

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John J. Ball, Director—

Mr. Ball, age 60, has served as a director of Rentech since 1998. He formed the law firm, Broadhurst & Ball, Mississauga, Ontario, and was a partner from 1975 to 1984. He subsequently formed Keyser Mason Ball, Mississauga, as a senior partner from 1984 to present. Upon his admission to the Bar he joined the firm of McMillan Binch, Toronto, as an associate from 1971 to 1975. He received a Bachelor of Education and Arts Degree from Mount Allison University in 1966 and a Bachelor of Laws Degree from Dalhousie University in 1969. He was admitted to the Nova Scotia Bar in 1970 and the Ontario Bar in 1971. He is presently a director of The Mississauga Hospital, Chair of its Bio-Ethics Committee, and a member of the Board Merger Committee in connection with the amalgamation of The Mississauga Hospital and The Queensway Hospital. Mr. Ball is past member of the Board and Executive Committees of Mount Allison University. He is a past Chair of the Vanier Cup, which sponsors the Canadian National University Football Championship.

Charles B. Benham, Vice President-Research and Development—

Dr. Benham, age 67, was a founder of Rentech and has been an officer of Rentech since its inception in 1981. He served as president until 1983 and as a director from inception until 1996. From 1977 to 1981, he worked at the Solar Energy Research Institute in Golden, Colorado, on thermal and chemical processes for converting agricultural crop residues to diesel fuel, on thermochemical transport of solar energy using ammonia decomposition and steam reforming of methane, and on high temperature applications of solar energy. He was employed at the Naval Weapons Center, China Lake, California, from 1958 through 1977. There, he performed research and development on thermal and chemical processes for converting municipal solid wastes to liquid hydrocarbon fuels, thermochemical analyses of solid-fueled and ramjet engines, combustor modeling, rocket motor thrust vector control, rocket motor thrust augmentation, catalyst behavior in carbon monoxide oxidation, and in liquid hydrocarbon fuels for ramjet applications. Dr. Benham has published several articles in the fields of liquid fuel production from organic waste, catalyst pellet behavior and rocket propulsion. He received a Bachelor of Science degree in Mechanical Engineering from the University of Colorado in 1958, and a Master of Science degree in Engineering in 1964 and a Ph.D. in Engineering (energy and kinetics) in 1970, both from the University of California at Los Angeles.

Mark S. Bohn, Vice President-Engineering—

Dr. Bohn, age 53, a founder of Rentech, served as a director from its organization in 1981 to June 1998. Since November 9, 1998 he has been employed by Rentech as Vice President-Engineering. He became president of Rentech Services Corporation upon its organization as a wholly-owned subsidiary in 1999. From 1978 to November 1998 he was employed by Midwest Research Institute at the Solar Energy Research Institute (now National Renewable Energy Laboratory) in Golden, Colorado. He was employed from 1976 through 1978 at the General Motors Research Laboratories in Warren, Michigan. Dr. Bohn is

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a registered Professional Engineer in Colorado and a Member of the American Society of Mechanical Engineers and the American Institute of Chemical Engineers. He has published numerous articles on liquid fuel production, organic waste, heat transfer, power cycles, aerodynamics, optics, acoustics, solar thermal energy, and co-authored the textbook Principles of Heat Transfer (Brooks Cole Publishing). He received a Bachelors degree in Mechanical Engineering from Georgia Institute of Technology, Atlanta, Georgia, in 1972, and a Master of Science degree in Mechanical Engineering in 1973 and a Ph.D. in Mechanical Engineering in 1976, both from the California Institute of Technology, Pasadena, California.

Ronald C. Butz, Vice President, Chief Operating Officer, Secretary and Director—

Mr. Butz, age 66, has served as a director of Rentech since 1984. In October 1989, Mr. Butz was appointed vice president of Rentech, in June 1990 he was appointed secretary, and in May 1998 he became chief operating officer. From 1984 to 1989, Mr. Butz was employed as president of Capital Growth, Inc., a privately-held Colorado corporation providing investment services and venture capital consulting. From 1982 to 1983, Mr. Butz was a shareholder, vice president and chief operating officer of World Agricultural Systems, Ltd., a privately-held Colorado corporation specializing in the international marketing of commodity storage systems. From 1966 to 1982, Mr. Butz was a practicing attorney in Denver, Colorado with the firm of Grant, McHendrie, Haines and Crouse, P.C. He received a Bachelor of Science degree in Civil Engineering from Cornell University in 1961 and a Juris Doctor degree from the University of Denver in 1965.

John P. Diesel, Director—

Mr. Diesel, age 77, has served as a director of Rentech since 1998. In 1972 he became President of Newport News Shipbuilding, a wholly-owned subsidiary of Tenneco. There for 5 years he was responsible for, among other projects, the design and construction of the nuclear powered aircraft carriers Nimitz class and Los Angeles class submarines. In 1977 he moved to the position of Executive Vice President of Tenneco, Inc., with responsibility for its automotive, farm and construction equipment and packaging businesses. In 1978 he became President and a director of Tenneco. Mr. Diesel was employed by McQuay-Norris Manufacturing Co. from 1951 to 1957 in the production of proximity fuses. He joined Booz Allen and Hamilton in 1957, remaining there until 1961, and being elected to the partnership in that time. Mr. Diesel joined A.O. Smith Corporation as Vice President of Planning, and held a series of manufacturing officer positions, including group vice president. During his tenure at Tenneco, and after retiring, Mr. Diesel served on numerous boards of directors. These directorships included the Aluminum Company of America, Brunswick Corp., Allied Stores, Pullman Corporation, Cooper Industries and Financial Institutions Reinsurance Group, Fansteel Inc., and Telepad Corporation. He received a Bachelor of Science degree in Industrial Engineering from Washington University in 1951. Prior to attending the university he served in the United States Navy as an aviator in the Western Pacific.

Jim D. Fletcher, President and General Manager, Petroleum Mud Logging, Inc.—

Mr. Jim D. Fletcher, age 58, has been President and General Manager of Petroleum Mud Logging, Inc. since August 1999. Mr. Fletcher has been employed in the mud logging services industry since 1973. From 1995 to August 1999, Mr. Fletcher was employed by Penson Well Logging as its general manager and marketing officer. From 1988 through 1994, Mr. Fletcher worked for Petroleum Mud Logging, Inc., an Oklahoma corporation, of Oklahoma City, as a mud logging technician. From 1981 to 1988, Mr. Fletcher was employed by OFT Exploration in Oklahoma City as a well site geologist, and also worked as a consulting geologist. His first work experience was with Dresser Industries in 1973 to 1974 as a mud logger. Mr. Fletcher obtained a B.S. in Business Administration and a minor in Geology and Economics from Southwestern State College of Oklahoma in 1974.

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Frank L. Livingston, President and General Manager, OKON, Inc.—

Mr. Frank L. Livingston, age 61, has served as President and General Manager of OKON, Inc. since Rentech acquired that subsidiary in March 1997. Mr. Livingston joined OKON in 1975 as sales manager and was promoted to Vice President of Sales in 1984. Mr. Livingston also became a 24% owner of OKON at that time. In addition to his sales and marketing responsibilities, he was also responsible for manufacturing and research and development for OKON. Mr. Livingston also served on OKON’s board of directors. With the sale of OKON to Rentech in 1997, Mr. Livingston continues to serve on its board of directors. From 1971 to 1975 Mr. Livingston was employed by Gates Rubber Co. in Denver, Colorado as a sales and marketing manager for a specialty chemical venture start-up business within the company. He also worked as a research market analyst for the venture group. Projects of the venture group included specialty chemicals and lead-acid battery technology, as well as rubber products made by the company for off-shore oil exploration and production. He was employed by Mallinckrodt Chemical Co. from 1965 to 1971. While with it, he worked as a process research chemist and formulator prior to becoming a specialty marketing manager for the industrial chemical division. He received a Bachelor of Science Degree in Chemistry from Colorado State University in 1965.

Gary A. Roberts, President, REN Corporation—

Mr. Gary A. Roberts, age 65, has been President of REN Corporation since founding the company in 1979. Prior to starting REN, Mr. Roberts was a Research Engineer in the School of Mechanical Engineering at Oklahoma State University. As a Program Manager at the Fluid Power Research Center, he was responsible for projects to develop testing concepts and equipment for the U.S. Army and numerous industrial sponsors. Mr. Roberts was a United States delegate to ISO TC131, the International Standards body which developed standard testing procedures for the fluid power industry. From 1963 to 1970, he served as Manager of Quality Engineering for Cessna Fluid Power Division, Hutchinson, Kansas. Mr. Roberts is a Registered Professional Engineer in California. He holds an Associate Degree in Business Administration from the Hutchinson Community College as well as Bachelor of Science and Master of Science Degrees in Engineering from Oklahoma State University.

James P. Samuels, Vice President-Finance, Treasurer, and Chief Financial Officer—

Mr. James P. Samuels, age 56, has served as Vice President-Finance, Treasurer and Chief Financial Officer of Rentech since May 1, 1996. He has executive experience in general corporate management, finance, sales and marketing, information technologies, and consulting for both large companies and development stage businesses. From December 1995 through April 1998, he provided consulting services in finance and securities law compliance to Telepad Corporation, Herndon, Virginia, a company engaged in systems solutions for field force computing. From 1991 through August 1995, he served as chief financial officer, vice president-finance, treasurer and director of Top Source, Inc., Palm Beach Gardens, Florida, a development stage company engaged in developing and commercializing state-of-the-art technologies for the transportation, industrial and petrochemical markets. During that employment, he also served as president of a subsidiary of Top Source, Inc. during 1994 and 1995. From 1989 to 1991, he was vice president and general manager of the automotive group of BML Corporation, Mississauga, Ontario, a privately-held company engaged in auto rentals, car leasing, and automotive insurance. From 1983 through 1989, he was employed by Purolator Products Corporation, a large manufacturer and distributor of automotive parts. He was president of the Mississauga, Ontario branch

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from 1985 to 1989; a director of marketing from 1984 to 1985; and director of business development and planning during 1983 for the Rahway, New Jersey filter division headquarters of Purolator Products Corporation. From 1975 to 1983, he was employed by Bendix Automotive Group, Southfield, Michigan, a manufacturer of automotive filters, electronics and brakes. He served in various capacities, including group director for management consulting services on the corporate staff, director of market research and planning, manager of financial analysis and planning, and plant controller at its Fram Autolite division. From 1973 to 1974, he was employed by Bowmar Ali, Inc., Acton, Massachusetts, in various marketing and financial positions, and in 1974 he was managing director of its division in Wiesbaden, Germany. He received a Bachelor’s degree in Business Administration from Lowell Technological Institute in 1970, and a Master of Business Administration degree in 1972 from Suffolk University, Boston, Massachusetts, in 1972. He completed an executive program in strategic market management through Harvard University in Switzerland in 1984.

Douglas L. Sheeran, Director—

Mr. Sheeran, age 65, has served as a director of Rentech since 1998. Mr. Sheeran is managing director of FCI, Inc., which he founded in 1986. FCI Inc., is a human resource consulting firm located in Shrewsbury, New Jersey which specializes in executive staffing, merger planning and organizational effectiveness. FCI’s client base includes Fortune 500 and start-up firms in technology, pharmaceutical, automotive and consumer durable industries. From 1973 until 1986 Mr. Sheeran was employed by Purolator Automotive Group and became Vice President, Human Resources, with responsibilities for multiple North American business units. He held a number of human resource positions of increasing scope and responsibility with Home Life Insurance Company, from 1960 to 1962, Kraft Foods from 1962 to 1965, Electronic Associates Inc. from 1965 to 1968, and Celanese Corporation from 1968 to 1973. These positions covered a range of labor relations, organizational development, compensation and benefit responsibilities at both operating sites and corporate staff. He received a Bachelor of Arts degree in Industrial Psychology from Miami University, Oxford, Ohio, in 1960.

Erich W. Tiepel, Director—

Dr. Tiepel, age 60, has served as a director of Rentech since 1983. Dr. Tiepel has 23 years of experience in all phases of process design and development, plant management and operations for chemical processing plants. In 1981, Dr. Tiepel was a founder of Resource Technologies Group, Inc. (RTG), a high technology consulting organization specializing in process engineering, water treatment, hazardous waste remediation, and regulatory affairs. Dr. Tiepel has been president of RTG since its inception. From 1977 to 1981 he was project manager for Wyoming Mineral Corporation, a subsidiary of Westinghouse Electric Corp., Lakewood, Colorado, where his responsibilities included management of the design, contraction and operation of ground water treatment systems for ground water cleanup programs. From 1971 to 1976 he was a principal project engineer for process research for Westinghouse Research Labs. From 1967 to 1971, he was a trainee of the National Science Foundation at the University of Florida in Gainesville, Florida. He obtained a Bachelor of Science degree in Chemical Engineering from the University of Cincinnati in 1967, and a Ph.D. in Chemical Engineering from the University of Florida in 1971.

Dennis L. Yakobson, President, Chief Executive Officer, and Chairman of the Board—

Mr. Yakobson, age 67, is Chief Executive Officer of Rentech. He has served as a director of Rentech and chairman of the board since 1983. He was employed as vice president of administration and finance of Nova Petroleum Corporation, Denver, Colorado, from 1981 to 1983. From 1979 to 1983, he

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served as a director and secretary of Nova Petroleum Corporation, Denver, Colorado. He resigned those positions in November 1983 to become a director and assume the presidency of Rentech. From 1976 to 1981 he served as a director, secretary and treasurer of Power Resources Corporation, Denver, a mineral exploration company, and was employed by it as vice president-land. From 1975 to 1976 he was employed by Wyoming Mineral Corporation in Denver as a contract administrator. From 1971 through 1975 he was employed by Martin Marietta Corporation, Denver, as marketing engineer in space systems. From 1969 to 1971 he was employed by Martin Marietta (now Lockheed Martin Corporation) in a similar position. From 1960 to 1969 he was employed by Grumman Aerospace Corporation, his final position with it being contract administrator with responsibility for negotiation of prime contracts with governmental agencies. He received a Bachelor of Science degree in Civil Engineering from Cornell University in 1959 and a Masters Degree in Business Administration from Adelphi University in 1963.

There are no family relationships among the directors. There are no arrangements or understandings between any director and any other person pursuant to which that director was elected. All directors are elected for three-year terms expiring at the annual meeting of shareholders or until their successors are elected and qualified. Officers serve at the pleasure of the board of directors, but have employment contracts, as subsequently described in this report.

We have adopted a 401(k) retirement plan. We also have stock option plans. We provide a medical reimbursement plan and life insurance coverage to officers and employees and may provide other benefits to officers and employees in the future. We may also compensate non-employee directors for attendance at board and committee meetings at a per diem rate to be determined plus reimbursement of actual expenses incurred in attending such meetings.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely upon our review of Securities and Exchange Commission Forms 3 and 4 and amendments to those forms submitted to it during the most recent fiscal year, we have identified no persons who were at any time during the fiscal year a director, officer, or beneficial owner of more than 10% of any class of equity securities and who failed to file such forms on a timely basis with the SEC, as required by Section 16(a) of the Securities Exchange Act during the most recent fiscal year or prior fiscal years.

ITEM 11. EXECUTIVE COMPENSATION

The following tables show the compensation paid by us or any of our subsidiaries during the fiscal years indicated, to our chief executive officer and our four most highly compensated executive officers other than the chief executive officer.

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Summary Compensation Table

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OPTION/SAR EXERCISES AND HOLDINGS

The following table sets forth information with respect to the named executives, concerning the exercise of options and/or limited SARs during the last fiscal year and unexercised options and limited SARs held as of the end of the last fiscal year.

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values:

EMPLOYMENT CONTRACTS

Executive officers generally are elected at the annual director meeting immediately following the annual stockholder meeting. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board whenever in its judgment our best interests will be served thereby, without prejudice to contractual rights, if any, of the person so removed.

There are no family relationships among the executive officers. There are no arrangements or understandings between any officer and any other person pursuant to which that officer was elected.

Executive Employment Agreements

We have entered into employment agreements with the executive officers identified in the preceding table. These agreements provide for annual base salaries which may be increased by us from time to time, with annual cost of living increases. In addition, each employment agreement entitles the employee to participate in employee benefit plans that we may from time to time offer to our employees.

Each agreement is for an initial term of three years. Upon the expiration of each year, the term is extended for one year, unless either we or the employee elect not to extend the term, so that a three-year term remains in effect, unless one party has rejected the extension.

Under each agreement, employment may be terminated as follows:

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If employment is terminated by reason of death, we will continue to pay salary monthly for 12 months, or if for disability, we will pay an amount equal to the employee’s annual salary upon termination. If we wrongfully terminate the employee’s employment, we are required to pay severance pay in a lump sum equal to three times the annual salary, and other damages resulting from our breach, including those for loss of employee benefits during the remaining term of the agreement.

By each agreement, the employee is prohibited from disclosing to third parties, directly or indirectly, our trade secrets, either during or after the employee’s employment with our company, other than as required in the performance of the employee’s duties. The agreement also provides that the employee will not have or claim any right, title or interest in any invention owned by us. The employee also agrees to irrevocably assign to us all of the employee’s right, title and interest in and to any and all inventions and concepts made, generated or conceived by the employee during his or her period of employment with us and which related to our business, whether or not developed on the employee’s own time. Each employee further agrees that during the period of employment with us and for a period of three years following the termination of employment, the employee will not compete with us, and for a period of one year, not to solicit our business customers or employees to discontinue or change their relationship with us.

Our success with our technology and in implementing our business plan to develop advanced technology businesses are both substantially dependent upon the contributions of our executive officers, scientists and key employees. At this stage of our development, economic success of the Rentech GTL Technology depends upon design of conversion plants and their startup to achieve optimal plant operations. That effort and establishment of our advanced technology businesses both require knowledge, skills, and relationships unique to our key personnel. Moreover, to successfully compete with its Rentech GTL Technology and advanced technologies, we will be required to engage in continuous research and development regarding processes, products, markets and costs. Loss of the services of the executive officers or other key employees could have a material adverse effect on our business, operating results and financial condition. We do not have key man life insurance. We believe our employment contracts with our key personnel will be extended.

401(k) PLAN

We have 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. We contributed $163,651, $134,094, and $120,238 to the plan for the years ended September 30, 2003, 2002, and 2001.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table provides information as of September 30, 2003 with respect to our compensation plans, including individual compensation arrangements, under which our equity securities are authorized for issuance.

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The following table sets forth certain information as of December 17, 2003 by (i) all persons who own of record or are known to the Company to beneficially own more than 5% of the issued and outstanding shares of the Company’s voting securities and (ii) by each director, each director nominee, each of the executive officers named in the tables under “Executive Compensation” and by all executive officers and directors as a group:

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During fiscal year 2003, in exchange for loans made to us by C. David Callaham, a shareholder, we issued three convertible promissory notes to him. The notes were issued in the principal amounts of $200,000, $750,000 and $615,000. Interest was due on two of the notes at the rate of nine percent per year and at the rate of ten percent per year on the third note. During fiscal 2003, we paid interest on the notes to Mr. Callaham in the total amount of $2,441, and issued 1,681,872 shares of our common stock to him upon conversion of the balance of one of the notes plus accrued interest into our common stock. The remaining balance due on the notes is $512,625 as of September 30, 2003. The notes could now be converted into 1,851,111 shares of our stock.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees. The aggregate fees billed by Ehrhardt Keefe Steiner & Hottman P.C. for professional services rendered for the audit of Rentech’s consolidated financial statements for the fiscal year ended September 30, 2003, including reviews of its financial statements included in Rentech’s Quarterly Reports on Form 10-Q, assistance with Securities Act filings and related matters, and consultations on financial accounting reporting standards arising during the course of the audit or reviews for that fiscal year were $108,576. The aggregate fees billed by Ehrhardt Keefe Steiner & Hottman P.C. for professional services rendered for the audit of Rentech’s consolidated financial statements for the fiscal year ended September 30, 2002, and for reviews of the financial statements included in Rentech’s Quarterly Reports on Form 10-Q, and consultations on financial accounting and reporting standards arising during the course of the audit for that fiscal year were $68,877.

Audit-Related Fees. Audit related fees include billings for assurance and related services that are reasonably related to the performance of the audit or review of Rentech’s financial statements, and are not reported as Audit Fees. No such fees were billed for the fiscal years ended September 30, 2003 and 2002.

Tax Fees. The aggregate fees billed by Ehrhardt Keefe Steiner & Hottman P.C. for professional services rendered for tax compliance, tax advice, and tax planning were $29,782 for the fiscal year ended September 30, 2003 and $22,645 for the fiscal year ended September 20, 2002. Such services consisted of assistance in the preparation of Federal and state income tax filings, federal and state tax examination assistance and other tax planning consultations.

All Other Fees. There were no other fees billed by Ehrhardt Keefe Steiner & Hottman P.C. for services rendered to Rentech, other than the services described above.

The Audit Committee’s policy as to all engagements of the principal accountants is to collect detailed information before the engagement is made about the specific services that would be provided. With that information and related information, the committee decides whether, in its judgment, the independence of the principal accountant would be impaired by the proposed engagement. If so, the committee’s policy is to reject the proposed engagement. None of the fees previously described in this item in this report were approved by the Audit Committee through waiver of its pre-approval policy.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.