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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the Fiscal Year Ended September 30, 2004

OR

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, including zip code)

Telephone number: (303) 298-8008

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

Name of Each Exchange on Which Registered: The American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: Preferred Stock Purchase Rights

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x.    No  ¨ .

Indicate by check mark 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 Exchange Act Rule 12b-2).    Yes  x    No  ¨

The aggregate market value of the registrant’s common stock held by nonaffiliates, based upon the closing price of the common stock on March 31, 2004, as reported by the American Stock Exchange, was approximately $69,559.998.

At November 15, 2004, the number of outstanding shares of common stock was 89,953,228.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the annual meeting of shareholders to be held on March 17, 2005, which the registrant will file with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report, are incorporated by reference in Part III of this Form 10-K to the extent stated in this report.

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PART I

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FORWARD-LOOKING STATEMENTS

Certain information included in this report contains, and other reports or materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us or our management) contain or will contain, “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended; Section 27A of the Act; and pursuant to the Private Securities Litigation Reform Act of 1995. The forward-looking statements may relate to financial results and plans for future business activities, and are thus prospective. The forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by the forward-looking statements. They can be identified by the use of terminology such as “may,” “will,” “expect,” “believe,” “intend,” “plan,” “estimate,” “anticipate,” “should” and other comparable terms or the negative of them. You are cautioned that, while forward-looking statements reflect our good faith belief and best judgment based upon current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties. Factors that could affect our results include our ability to obtain financing for working capital purposes, and our pending acquisition of a nitrogen fertilizer plant currently owned by Royster-Clark Nitrogen, Inc. and for our subsequent conversion of the plant to use coal as a feedstock and to produce liquid hydrocarbon products using our technology; our success in purchasing and converting that plant; our ability to obtain natural gas at reasonable prices while we convert the plant to use coal; our ability to secure a long-term coal supply contract on reasonable terms; prices for the products of the plant; environmental requirements; success in obtaining customers for our technology and services; the decision of our licensees and potential licensees to proceed with and the timing of any project using our technology; the entry into definitive agreements with others related to a project, and the risk factors detailed from time to time in our periodic reports and registration statements filed with the Securities and Exchange Commission. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, and thus are current only as of the date made. Other factors that could cause actual results to differ from those reflected in the forward-looking statements include dangers associated with construction and operation of gas processing plants like those using the Rentech Process, risks inherent in making investments and conducting business in foreign countries, protection of intellectual property rights, competition, and other risks described in this report.

Our actual results may differ materially from the results predicted or from any other forward-looking statements made by, or on behalf of, us and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among other things, those described in the following sections of this report.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance, or achievements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements. We do not intend to update any of the forward-looking statements after the date of this report to conform them to actual results.

As used in this Annual Report on Form 10-K, the terms “we,” “our,” “us” and “the Company” mean Rentech, Inc., a Colorado corporation and its subsidiaries, unless the context indicates otherwise.

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PART I

The information contained in this section on business is qualified in its entirety by, and is subject to, the detailed information, consolidated financial statements and notes thereto contained within this document under the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements.

OVERVIEW OF OUR PRINCIPAL BUSINESS

We have developed and are engaged in marketing and licensing our patented and proprietary technology that converts synthesis gas, a mixture of hydrogen and carbon monoxide derived from coal and other solid and liquid carbon-bearing materials, as well as from industrial gas and natural gas, into clean-burning, liquid hydrocarbon products. The products include fuels and chemicals. Our technology, which we refer to as the “Rentech Process,” is an advanced derivative of the well established Fischer-Tropsch process. Our technology is capable of using as feedstock a variety of naturally occurring hydrocarbons as well as gaseous, liquid and solid hydrocarbons produced as by-products or wastes in various industrial processes. A distinguishing characteristic of our technology is our ability to efficiently convert synthesis gas having varying ratios of hydrogen to carbon monoxide from coal, petroleum coke and natural gas to liquid hydrocarbon products. Principal products produced from the Rentech Process include an ultra-clean and biodegradable diesel fuel, naphtha (a light fuel and intermediate product used to make gasoline and certain petrochemicals), fuel for fuel cells, and waxes that can be further processed into high-value specialty products such as synthetic lubricants, base oils and drilling fluids. If there is no suitable market for these waxes, they can be further processed to make additional naphtha and diesel fuel.

Our business historically has focused on research and development of our Fisher-Tropsch (F-T) technology, and licensing it to third parties. During fiscal 2004 we expanded our original business strategy of licensing our technology to include the deployment of our Rentech Process in existing domestic fertilizer plants that we may acquire and in other selected domestic and international projects. We plan to conduct these activities through our wholly-owned subsidiary, Rentech Development Corporation. In the United States, we are planning to acquire interests in existing nitrogen fertilizer plants currently configured to use natural gas as feedstock. We plan to convert these plants to use coal or refinery residues, which are readily available and less expensive as feedstocks, and to add our Rentech Process to produce Fischer-Tropsch liquid hydrocarbon products in addition to the nitrogen fertilizers already being produced by the plants. Our patent issued in October 2003 covers integration of our Rentech Process with nitrogen fertilizer processes. By converting domestic plants in this manner, we believe we can significantly enhance the economic results of these plants. The conversion would enable us to utilize our technology in a commercial scale plant, and, we believe, greatly improve our financial results, as well as deploy our technology more rapidly in less risky circumstances than in international projects.

We are planning to initially implement this strategy by purchasing Royster-Clark Nitrogen, Inc. which owns a nitrogen fertilizer plant in East Dubuque, Illinois (East Dubuque plant). On August 5, 2004, we entered into a letter of intent with Royster-Clark Nitrogen expressing our mutual intent for us to purchase all the outstanding stock of Royster-Clark Nitrogen. The purchase price for the stock is $50 million. We are also to pay up to $13 million to acquire the net working capital of the business. The net working capital consists of current assets including accounts receivable and inventories, and current liabilities including accounts payable and accrued liabilities. We are currently negotiating the terms of a definitive purchase agreement.

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The East Dubuque plant is an operating integrated plant rated at 830 tons of ammonia per day. It produces ammonia, urea ammonium nitrate (UAN), nitric acid and urea, among other fertilizer products. We intend to continue operating the plant for the production of nitrogen fertilizer products while we add a commercially available clean coal gasification process that converts the plant to use synthesis gas derived from coal, instead of more expensive natural gas. In addition, we plan to add our Rentech Process to produce liquid hydrocarbon products from the excess synthesis gas produced from the coal gasification process.

We have conducted several studies, primarily through consultants, related to the feasibility of our plans for the East Dubuque plant. We are negotiating with Royster-Clark, Inc. for its distribution of the fertilizer products we would produce at the plant. We are also seeking financing for the purchase. No date for closing the purchase has been established. We expect the closing will be subject to several conditions, especially to our obtaining financing for the purchase.

Our executive offices are located at 1331 17th Street, Suite 720, Denver, Colorado 80202. Our telephone number is (303) 298-8008.

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.

THE RENTECH PROCESS

The Rentech Process is a major advancement in a technology developed in Germany in the 1920s known as Fischer-Tropsch. In the Rentech Process, hydrocarbon feedstocks are first reformed by various commercially available processes into synthesis gas. The synthesis gas is then converted through the Rentech Process into differentiated liquid hydrocarbon products in a reactor vessel containing Rentech’s patented and proprietary catalyst. We believe the ability of the Rentech Process to efficiently utilize a broad range of hydrocarbon feedstocks, including coal and other lower priced feedstocks, distinguishes it from competing technologies. Other key aspects of our technology are our patented and proprietary catalyst, reactor design and configuration of the process. In October 2003, we obtained a United States patent for the efficient integration of the Rentech Process with nitrogen fertilizer processes. We believe the successful integration of the Rentech Process with nitrogen fertilizer plants will enable them to operate more efficiently, and to co-produce nitrogen fertilizer products, transportation fuels and electricity, and thereby recover the capital costs of converting these plants to use coal rather than more expensive natural gas. The most important features of the Rentech Process are patented. Other features are proprietary.

Converting existing nitrogen fertilizer plants to use coal or other less expensive feedstock and adding the Rentech Process to enable the plants to produce both nitrogen fertilizers and Fischer-Tropsch liquids can significantly improve a plant’s economics by:

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By using the infrastructure already in place at existing plants and adding the equipment to enable the plant to use a much cheaper feedstock, and by the addition of the Rentech Process, we believe we can produce additional products and increase the quantity of the original products. We expect to accomplish this at significantly lower costs and in less time than would be required if we attempted to construct an entirely new plant to manufacture similar products. Acquiring and converting existing plants also allows us to generate immediate revenues by continuing to operate an existing plant throughout most of the process of reconfiguring the plant.

The Rentech Process can be used with fossil fuels like coal, petroleum coke and stranded natural gas that has little or no current market value due to lack of an economic or practical way to transport these resources to market. Other markets for the Rentech Process include remote natural gas supplies associated with producing crude oil fields that are being flared, re-injected into the reservoir or merely left in the ground. We believe that our Rentech Process can be used for on-site conversion of these resources into liquid hydrocarbon products that are more easily and cost-effectively transported to market. Increasing environmental and regulatory pressures to reduce the wasteful flaring of natural gas, the economic attractiveness of monetizing wasted assets, and the growing need for cleaner fuels are driving the growing interest of owners of these hydrocarbon resources and the energy industry in this application of the Rentech Process. Our technology could also enable refineries to more fully utilize heavier crude oil and refinery bottoms to produce an improved slate of high-value products. Potential benefits to the refiner include lower refinery feedstock costs, higher revenue, a reduction in waste disposal costs and increased margins. As previously discussed, the Rentech Process also has applications in the conversion of existing plants that produce nitrogen fertilizers, industrial off-gases or petrochemicals.

In June 2004, we organized a joint venture called FT Solutions LLC with Headwaters Technology Innovation Group, Inc. (Headwaters), a wholly-owned subsidiary of Headwaters Incorporated. The joint venture combines our iron-based Fischer-Tropsch technology with that of Headwaters. The joint venture enables us to benefit from both the marketing efforts of FT Solutions LLC, from which we will receive 50% of the net profits, and from our separate licensing and our own projects, from which we will receive 100% of the net profits, except for catalyst sales which we will share equally with Headwaters.

In order to provide representative products for testing by potential customers, FT Solutions LLC has initiated the design and construction of a Fischer-Tropsch demonstration plant. The plant will be capable of producing between 10 and 15 barrels per day of liquid hydrocarbon products. The current schedule provides for this plant to be ready for initial startup operations by September 2005.

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BUSINESS PLAN

In addition to continuing to license our technology worldwide for natural gas and other carbon-bearing feedstock, we are implementing a business plan through our wholly-owned subsidiary, Rentech Development Corporation, of acquiring existing nitrogen fertilizer plants. We plan to acquire plants of this type, particularly within the United States, to convert them to use less expensive feedstock to continue production of fertilizers and to add our technology to produce liquid hydrocarbon products. Most nitrogen fertilizer plants use natural gas as a feedstock, which has been subject to increasing and volatile prices, resulting in declining profitability throughout the domestic industry. Because our technology can utilize synthesis gas produced from a wide range of feedstocks, we believe we can convert existing nitrogen fertilizer plants from using more expensive natural gas as a feedstock to using relatively inexpensive coal as a feedstock. As another step, we plan to add our Fischer-Tropsch technology to also produce liquid hydrocarbon products. We believe these changes will result in substantially improved economic results for a plant and our company, as well as providing significant economic and environmental benefits to the region where the plant is located.

Our strategy is to acquire full or partial ownership of existing ammonia plants located in the United States that produce nitrogen fertilizer, convert the plants to use coal as a feedstock, rather than natural gas, and also add the Rentech Process for co-production of nitrogen fertilizer, liquid hydrocarbon products and electrical power. In October 2003, we obtained a United States patent for the efficient integration of the Rentech Process with ammonia nitrogen fertilizer plants. We anticipate that Rentech Development Corporation, our wholly owned subsidiary, will manage the operations of the nitrogen fertilizer plants and other projects that we may acquire or develop in the United States and elsewhere. While we are currently engaged in negotiating agreements for purchase of the East Dubuque plant, and are seeking financing to complete the acquisition, we have not yet acquired any existing nitrogen fertilizer plants.

FISCHER-TROPSCH TECHNOLOGY

The Fischer-Tropsch process that is the basis of our advanced technology is a chemical process by which carbon-bearing materials are converted into synthetic liquid hydrocarbons. The Fischer-Tropsch process includes three stages:

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The Fischer-Tropsch process was first used by several German companies during World War II in commercial-scale industrial plants constructed with government funding. These plants used coal as feedstock for the synthesis gas and primarily produced diesel fuel.

After World War II, others, notably the South African government, the United States Bureau of Mines and several companies in the United States, began research and development for improvements to the Fischer-Tropsch process. South Africa’s effort led to the Fischer-Tropsch process now owned by South African Synthetic Oil, Ltd. (“Sasol”). Sasol’s process is used at four plants in South Africa that produce a total of approximately 180,000 barrels per day of liquid hydrocarbons, primarily from coal, using an iron-based catalyst. The efforts to develop advances in F-T technology in the United States were abandoned by the 1960s because conventionally refined liquid hydrocarbons were available in the U.S. at costs lower than those for the F-T synthetic fuels. The OPEC oil embargo of 1973 created fuel shortages, especially in the United States, renewing interest by several companies in Fischer-Tropsch technology. Several companies, including ours, began work in the 1970s and 1980s to develop proprietary F-T processes. Other companies that we believe began developing F-T processes during that time include Exxon, the Royal Dutch/Shell group, and BP. We believe that except for Sasol and Rentech, which use iron-based catalysts in their Fischer-Tropsch processes, the other F-T processes developed since World War II use cobalt-based catalysts.

DEVELOPMENT OF THE RENTECH PROCESS

We developed our Fischer-Tropsch technology in the early 1980s, based on research and development conducted by two of our founders, Dr. Charles Benham and Dr. Mark Bohn. The ability of the Rentech Process 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 Process was obtained from tests conducted between 1991 and 1998 in a third pilot plant. We continue to use our third pilot plant at our testing laboratory to further advance development of the Rentech Process and to develop data in response to inquiries from our licensees and prospective licensees.

Use of the Rentech Process in a commercial-scale Fischer-Tropsch plant was successfully demonstrated in 1992 and 1993 at the Synhytech plant located at Pueblo, Colorado. The Synhytech plant was designed to produce up to 235 barrels of liquid hydrocarbons per day. Our licensee, Fuel Resources Development Company (Fuelco), had full control of the supply of synthesis gas and the construction and operation of the plant. We designed the Fischer-Tropsch reactors and provided our catalyst for use in the F-T reactors. Fuelco constructed the plant at the Pueblo municipal landfill, with the intent of using, at minimal cost, the methane in the landfill gas that was generated each day from the decomposition of the landfill material. When Fuelco started the plant, Fuelco determined that the volume and the energy content of the landfill gas it captured were inadequate to operate the plant on an economic basis. The Rentech Process, including the F-T reactors and catalyst, performed as expected. Fuelco was able to operate the plant at a reduced capacity and to produce liquid hydrocarbons. Fuelco closed the plant in mid-1992.

We obtained ownership and control of the Synhytech plant in 1993. In order to further evaluate performance of the Rentech Process at a near-commercial-scale, we decided to operate the plant for a short period of time using natural gas supplied by pipeline. In July and August 1993, we operated the plant continuously for three weeks. The results confirmed that the Rentech Process operated successfully, demonstrating our control of the reactor temperature and its hydrodynamics, the amount of feedstock that

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was converted to liquid hydrocarbons, and our ability to produce the desired products. We closed the Synhytech plant at the end of 1993 because no cost-efficient source of natural gas feedstock was available. Although it did not operate economically for this reason, we believe the operations of the Synhytech plant demonstrated that our Rentech Process can be successfully used in commercial-scale plants to produce the desired products.

Our technology was also successfully used by Texaco Energy Systems at a plant in Laporte, 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 Process with Texaco’s gasification process. The Laporte plant had the capacity to produce approximately ten barrels of product per day using our Rentech Process. This task demonstrated the ability of the Rentech Process to convert synthesis gas produced by Texaco’s proprietary coal gasification technology.

COMPETITION IN FISCHER-TROPSCH TECHNOLOGY

Based on information from public announcements made by other companies and from other published information, our competitors in the Fischer-Tropsch field include several major oil and gas companies as well as a few smaller companies. The fundamental differences between the various F-T technologies developed by us and our competitors are the catalyst, the synthesis gas reactors where the synthesis gas reacts with the catalyst, our focus on small to medium sized plants with a production capacity of less than 50,000 barrels per day, and our patented process for the efficient integration of the Rentech Process with nitrogen fertilizer plants for improved operating and financial results.

We believe that owners of competing F-T 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 F-T 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, particularly if they intend to use an iron-based catalyst in their Fischer-Tropsch process.

We believe our Rentech Process can successfully compete against the technology developed by our competitors. This is primarily because the Rentech Process can successfully use a wide range of feedstock to produce the synthesis gas necessary for the F-T process, and because of our innovations to our catalyst and our reactor design. Unlike F-T technologies that use iron-based catalysts, Fischer-Tropsch technologies that use cobalt-based catalysts are currently only used for the conversion of synthesis gas produced from natural gas. F-T technologies that use cobalt-based catalysts can be used to convert synthesis gas produced 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. Although one of our competitors, Sasol, uses an iron-based catalyst in its Fischer-Tropsch process and uses coal to provide synthesis gas for its existing facilities, we do not expect that Sasol will compete with us in the near future. This is because Sasol’s published reports of its licensing activity suggest to us that its current business strategy is to focus on licensing its cobalt-based technology for use with natural gas feedstock, and only with large-scale plants (greater than 70,000 barrels per day if coal is to be the feedstock for the plant).

RISKS RELATING TO OUR TECHNOLOGY

We and our licensees may be unable to successfully implement use of the Rentech Process at commercial scale Fischer-Tropsch plants.

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A variety of results necessary for successful operation of the Rentech Process could fail to occur at a commercial plant. Results that could cause commercial scale Fischer-Tropsch plants to be unsuccessful include:

In addition, our plants or those of our licensees could experience mechanical difficulties related or unrelated to elements of the Rentech Process. Our inability to construct and operate a commercial scale, Fischer-Tropsch plant based on the Rentech Process could materially adversely affect our business, results of operation and financial condition by reducing our licensing prospects and our expected revenues from converting nitrogen fertilizer plants.

The Rentech Process may not compete successfully against Fischer-Tropsch technology developed by our competitors, many of whom have significantly more resources.

The development of F-T technology for the production of liquid hydrocarbon products is highly competitive. Our Rentech Process is based on F-T processes that have been known for almost 80 years and used in synthetic fuel projects for almost 50 years. Several major integrated oil companies, as well as several smaller companies, have developed or are developing competing technologies that they may offer to license to our potential customers or that they may seek to use for their own benefit rather than using our technology. Each of these companies, especially the major oil companies, have significantly more financial and other resources than we do to spend on developing, promoting, marketing and using their Fischer-Tropsch technology. The U.S. Department of Energy has also sponsored a number of research programs in F-T technology, some of which might potentially lower the cost of processes that compete with the Rentech Process. As our competitors continue to develop F-T technologies, one or more of our current technologies could become obsolete. Our ability to create and maintain technological advantages is critical to our future success. As new technologies develop, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. We may not be able to successfully develop or expend the financial resources necessary to acquire new technology.

Industry rejection of our Fischer-Tropsch technology would adversely affect our ability to receive future license fees.

As is typical in the case of new and rapidly evolving technologies, demand and industry acceptance of the Rentech Process is highly uncertain. Historically, most applications of F-T processes have not economically produced F-T fuels. Although we believe that increasing worldwide demand for environmentally clean fuels and other products of Fischer-Tropsch technology, as well as the ability of our Rentech Process to use a wide variety of readily available feedstocks, creates an opportunity to develop economic applications of our Rentech Process, we have not yet proven its economic feasibility. Failure by the industry to accept the Rentech Process, whether due to unsuccessful use, uneconomic results, the novelty of our technology, or for other reasons, or if acceptance develops more slowly than expected, would materially adversely affect our business, operating results and financial condition.

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If a high profile industry participant were to adopt the Rentech Process and fail to achieve success, or if any commercial F-T plant based on the Rentech Process were to fail to achieve success, other industry participants’ perception of the Rentech Process could be adversely affected. That could adversely affect our ability to obtain future license fees and generate other revenue. In addition, some oil companies may be motivated to seek to prevent industry acceptance of F-T technology such as the Rentech Process based on their belief that widespread adoption of F-T technology might negatively impact their competitive position.

SOURCES OF FEEDSTOCKS FOR THE RENTECH PROCESS

Economic use of Rentech Process requires substantial quantities of inexpensive carbon-bearing gases, liquids or solids that can be economically converted into feedstock gases. Many types of carbon-bearing materials are suitable sources of feedstock for the Rentech Process. Several of these materials are in abundant supply worldwide.

In the United States, we believe that coal, which is available in great quantities in the United States, is the best source of feedstock for the Rentech Process. We believe we can obtain and gasify coal to produce the synthesis gas that we use in our Rentech Process at significantly lower costs than if we were to use a natural gas feedstock. In addition, our Rentech Process allows us to use some low-grade and high-sulfur coal that may be uneconomical or marginally economic for other uses. We also believe coal will also be the best source of feedstock for the Rentech Process in China.

Other potential feedstocks for the Rentech Process include heavier crude oil and heavy, high-sulfur residual fuels created at crude oil refineries. These residual materials are commonly referred to as petroleum coke or refinery bottoms. Some petroleum coke, unless treated at considerable expense, must be disposed of as hazardous materials. If the residues are gasified, or transformed into synthesis gas for use in our Rentech Process, they could be converted by our process into an improved slate of high-value F-T products.

Outside the United States, natural gas is one of the most important feedstocks for the Rentech Process. Many large, known natural gas reservoirs around the world are presently uneconomic to develop because they are stranded in remote locations too far from markets for economic transportation in the gaseous state. Fischer-Tropsch technologies, such as our Rentech Process, may provide a means of utilizing standard reserves of carbon-bearing resources that are currently unmarketable. It may also provide a means of utilizing some of the natural gas produced in association with oil fields that is currently flared or vented into the atmosphere or re-injected into the oil field because the natural gas lacks value due to its remote location or the inaccessibility to a natural gas pipeline or other means of economic transportation. The liquid hydrocarbon products can be produced at the site of the resource and transported to market in trucks, tankers and pipelines like conventional liquid hydrocarbons.

In the case of natural gas reserves that are unmarketable due to the presence of diluting gases, including carbon dioxide or nitrogen, the use of the Rentech Process, including our iron-based catalyst, which is capable of utilizing some of the dilutants as feedstock, may permit economic development of these resources. Our process can also utilize coalbed methane gas and certain industrial waste gases as feedstock.

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PRODUCTS AND MARKETS FOR LIQUID HYDROCARBON PRODUCTS

Plants using the Rentech Process can be designed and configured to produce a variety of liquid hydrocarbon 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. We expect the principal liquid hydrocarbon product that we make at the East Dubuque plant will be clean-burning, premium-grade diesel fuel produced by our Rentech Process.

The products we can produce using the Rentech Process are:

Because of the way they are produced, our liquid hydrocarbon products are substantially free of contaminants usually found in crude oil, such as sulfur, aromatics, nitrogen and heavy metals. Vehicle engine tests of our synthetic diesel product conducted by independent labs have demonstrated that our synthetic diesel fuel is clean-burning with excellent combustion qualities, and substantially reduces harmful air emissions from vehicles. 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 requiring any modifications of the engines. We also believe that our ultra-clean diesel fuel and naphthas may be good feedstocks for use in fuel cells such as those that are currently under development, although we do not expect that market to develop in the near future. We believe the environmental benefits of our products may enable us to sell our products at a premium.

• Diesel Fuel. 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. 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 three properties that make it less polluting, namely an absence of sulfur, absence of aromatics by volume, and a higher cetane value.

EPA regulations currently require the reduction of the sulfur content of diesel sold on the market to 15 parts per million by 2007. EPA regulations also require manufacturers of diesel engines, by 2007, to reduce harmful air emissions from diesel engines used in tractor-trailers, buses and other heavy trucks by 95% from 2001 levels. We believe our diesel fuel exceeds all current and proposed federal and state diesel emissions requirements, including new requirements adopted by the United States Environmental

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Protection Agency and those adopted by the California Air Resources Board. We anticipate that it could help users meet the increasingly stringent requirements for cleaner fuels and the reduction of harmful exhaust emissions within the United States.

We believe the diesel fuel produced by use of the Rentech Process would be 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 sulfur content and increases the cetane index of commercial diesel. We have obtained a United States patent on the blending of our Fischer-Tropsch diesel with conventional diesel.

Unlike alternative fuels such as methanol and compressed natural gas, we believe our diesel fuel can also be used in conventional compression ignition engines without any engine or vehicle modification. Although fuel mileage may be slightly decreased, we believe minor engine adjustments would increase the fuel mileage to the level provided by conventional diesel fuel. We anticipate that our diesel fuel could be distributed through the nation’s existing refining and transportation infrastructures.

In 2000, Congress designated domestically produced Fischer-Tropsch fuels made from natural gas as an alternative fuel under the Energy Policy Act of 1992. The Act also designates liquid fuels from coal as an alternative fuel. The designation of F-T fuels, such as those produced by use of our Rentech Process, could lead to reduction of the federal excise taxes and road taxes that apply to conventional fuels. This may reduce the costs of F-T fuels to our customers. 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.

• Naphtha. Naphthas are liquid hydrocarbon products that are lighter than diesel fuel. Naphthas can be used as a fuel or as a feedstock for petrochemicals. Naphthas are used in manufacturing processes for products as diverse as paint, printing ink, polish, adhesives, perfumes, glues and fats. We expect naphthas produced by use of the Rentech Process to be in demand due to their comparatively low toxicity and aromatic content. We estimate the market in the United States for the type of naphtha produced using the Rentech Process is a minimum of 60,000 barrels per day.

• Wax Products. The waxes produced by Rentech Process are useful in hot-melt adhesives, inks, coatings, and several other wax-based products. The market price for these waxes is high, but demand is limited. As an alternative, the waxes produced by the Rentech Process can also be thermally or hydro-cracked to yield additional naphtha, diesel fuel, kerosene, jet fuel, solvents, and specialty products. Another option is the hydrosomerization of the wax to produce base oil used for lubricating oils.

• Light Crude Oil. If required, the Rentech Process can be easily modified to produce a light crude oil for sale to refineries. The Rentech Process produces a high-grade crude oil that is already partially refined. We believe it could be inexpensively refined in existing refineries into various end products.

• Normal Paraffins. Normal paraffins are saturated linear hydrocarbons with molecular ranges between 9 and 15 carbon atoms. They are primarily used in the production of laundry detergent, cosmetics, pharmaceuticals, paints, stains, ink oils, aluminum rolling oils, and lamp oils. Paraffins produced by the Rentech Process are essentially free of sulfur, a requirement for many of these products.

• Synthetic Lube Base Oil. We anticipate that specifications for motor oil will become more stringent in the future as automobile manufacturers respond to tightening emissions requirements. This

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could result in increased demand for high quality base oils as blending stock for manufacture of premium lubricating oils. We believe the hydrocarbons with molecular ranges between 20 and 50 carbon atoms that are produced by the Rentech Process would provide excellent blending material for production of synthetic lube oil.

• Synthetic Drilling Fluid. The hydrocarbons produced by the Rentech Process with a molecular range from 17 to 22 carbon atoms would be a potential base material for synthetic drilling fluids used in the drilling of oil and gas wells as a coolant and lubricant for the drill bit. In off-shore operations, oil-based fluids, which have been used historically, degrade slowly and can suffocate aquatic plant and animal life. In response to increased environmental pressures, synthetic drilling fluids have been developed and used in the Gulf of Mexico and other offshore locations. The key advantage of synthetic drilling fluids is that cuttings associated with use of these fluids appear to be environmentally acceptable in regard to crude contamination and toxicity and therefore can be discharged in many Gulf locations instead of being barged to shore for disposal. This yields considerable cost savings to drillers.

FT SOLUTIONS LLC — JOINT VENTURE WITH HEADWATERS

In June 2004, we formed a joint venture with Headwaters Technology Innovation Group, Inc., or (Headwaters), a wholly-owned subsidiary of Headwaters Incorporated, to combine our iron-based Fischer-Tropsch technology with that of Headwaters. In connection with the joint venture, we and Headwaters formed FT Solutions LLC, a Delaware limited liability company. We hold 50% of the membership interests in FT Solutions. The joint venture enables us to carry on our separate Fischer-Tropsch business, and to receive 100 percent of the revenues from projects that we separately develop, except in China where FT Solutions is our exclusive licensor. In all projects, we share net profits from sales of catalysts on a 50-50 basis with Headwaters.

By joining with Headwaters in the joint venture, we expect to participate in additional revenues that Headwaters develops for FT Solutions. Headwaters is concentrating on obtaining projects for FT Solutions in China. Coal-based Fischer-Tropsch technology is receiving increased attention in China because of high oil prices, political instability in oil rich countries and increased emphasis on cleaning the environment. China is currently importing approximately 2.4 million barrels per day of oil and desires to decrease its dependence on foreign oil. China has large reserves of coal that could be converted to liquid fuels. In addition, China has excess capacity in coal-based ammonia plants that could be retrofitted to co-produce F-T diesel fuels and ammonia for nitrogen fertilizers. FT Solutions is evaluating potential projects in China to determine if a demonstration plant can be constructed on a fast-track basis to stimulate rapid commercialization of the technology in China. Two feasibility studies have been performed and efforts on those projects have been continued.

The purpose of our FT Solutions joint venture is to deliver the most advanced and cost effective iron catalyst-based F-T technology available in the marketplace. The joint venture enables us to take advantage of the F-T experience and iron catalyst-based proprietary F-T technology of Headwaters, as well as the clean coal technologies developed by Headwaters. We and Headwaters will continue developing our combined Fischer-Tropsch technology through FT Solutions.

FT Solutions will license the combined technology to any projects in China and any other projects throughout the world in which Headwaters participates. We are entitled to half of the profits of FT Solutions, including any profits from license fees and royalties for projects licensed by FT Solutions. We have the exclusive right to develop and license the combined technology for our own Fischer-Tropsch projects worldwide, except in China. For our projects outside of China that we develop separately from FT Solutions, we will be entitled to 100% of all the related license fees and royalties.

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FT Solutions has the exclusive right itself, or through a licensee, to manufacture and sell Fischer-Tropsch catalysts for all of its projects and all of Rentech’s separate projects. We expect that our catalyst will be the ones sold by FT Solutions.

Engineering and technical services for all of FT Solutions’ projects will be performed by Rentech Services Corporation and Headwaters Technology Innovation Group, Inc., the other member of FT Solutions. FT Solutions will contract with its customers to provide engineering services performed either through Rentech Services Corporation or by Headwaters Technology Innovation Group. FT Solutions will receive all of those fees under its contract with its customers, and FT Solutions will pay Rentech Services Corporation and Headwaters Technology Innovation Group for the services they provide. We and Headwaters will each contribute one-half of the costs of the engineering services to FT Solutions, including those charged by us, and all other expenses of the joint venture.

FT Solutions has initiated the design and construction of a Fischer-Tropsch demonstration plant capable of producing ten to fifteen barrels per day of liquid hydrocarbon products. The current plan is to install the plant at a coal gasification test facility owned by Gas Technology Institute (GTI) that is located in Des Plaines, Illinois. The plant will be able to use the proprietary and patented iron-based catalysts of both Headwaters Technology Innovation Group and Rentech. The purpose of the project is to provide significant quantities of representative products for testing by potential end users. In addition, it will demonstrate the integration of the F-T module utilizing synthesis gas produced by GTI’s coal-fed gasifier. GTI, with more than 60 years of experience, is the leading research, development and training organization serving the natural gas industry. More than 800 patents have resulted from GTI research, and more than 400 products incorporating GTI-developed technology have been introduced to the market. According to the current schedule, we expect the F-T pilot plant to be ready for initial startup operations by September 2005. We are to contribute half the cost of this plant.

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 other state-of-the-art equipment and support facilities that we believe provides us with a resource for development and testing that is unmatched in the field of Fischer-Tropsch technology. Our laboratory staff currently consists of 10 employees.

Our principal research and development efforts at our laboratory are now focused on increasing the efficiency of our catalyst, and cooperating with Headwaters Technology Innovation Group, Inc. to combine our Fischer-Tropsch technologies for use by FT Solutions and by us. We are also developing additional catalysts, attempting to further increase the amount of the feedstock that is converted into liquid hydrocarbons, and working on other ways of reducing the cost of our process. Our research efforts are focused on supporting our goal of achieving commercial use of the Rentech Process with as many types of hydrocarbon feedstocks as are available.

During the fiscal years ended September 30, 2004, 2003, and 2002, we spent $749,230, $747,081, and $701,201, respectively, on research and development activities on the Rentech Process. During each of the same fiscal years, we received revenues from third parties for research and development activities of our technology of $817,279, $776,658, and $2,354,550, respectively.

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INTELLECTUAL PROPERTY AND PATENTS

Our intellectual property consists of three types of property. We own 18 United States patents to limit infringement of the Rentech Process. We own various trade secrets and confidential proprietary information that we use in connection with our Rentech Process. Our wholly owned subsidiaries own various trade secrets and confidential proprietary information that they use in connection with their respective stains and sealer business, oil and gas well field services business and industrial automation products business. One of our wholly-owned subsidiaries also owns United States trademarks on the product names of its stains and sealers.

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

Our patents were 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 in 2004. 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.

We have obtained U.S. patents that apply to our Fischer-Tropsch processes, to applications of our processes, and to the products produced and the materials used in the Rentech Process. Our patents include patents with respect to the overall F-T 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, ultra-clean, diesel fuel as an additive to conventional diesel fuel; control of the tail gas from our process to maximize either the production of electricity from our tail gas, F-T products or a near-pure form of carbon dioxide; and integration of the Rentech Process with nitrogen fertilizer plants to enable them to co-produce nitrogen fertilizers, F-T fuels, and electricity.

Use of the Rentech Process requires use of our iron-based catalyst we have patented. Two of our patents include key elements of a process that improves the carbon conversion efficiency of the Rentech Process by over 30% and enables our iron-based catalyst to compete with the cobalt-based catalysts used by most other Fischer-Tropsch processes.

We have filed additional patent applications in the United States relating to improvements to certain aspects of the Rentech Process. We have also filed several foreign patent applications based on some of our U.S. patents.

OKON’s formulas for the manufacture of its stains, sealers and coatings are proprietary. They are maintained as trade secrets. OKON relies upon confidentiality agreements with its employees and manufacturers of key components of its stains, sealers and coatings to protect these trade secrets.

Petroleum Mud Logging provides its services based upon an integrated system of computer software, skilled geological analysts who interpret the data and communications devices to transmit the

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information to the mineral owner in real time. The essential elements of these programs and devices are proprietary, and are maintained as trade secrets. Petroleum Mud Logging relies 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. 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 often do not provide as much protection of intellectual property rights as the United States. 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 and trade names. If we are not successful in protecting and maintaining our exclusive rights to our intellectual property, the value of our technologies that are affected would be severely limited. To date, no claims of patent infringement have been made against us, and we have not made any patent infringement claims against any of our competitors.

Our success depends in part on our ability to protect our intellectual property rights, which involves complexities and uncertainties.

We rely on a combination of patents, copyrights, trademarks, trade secrets and contractual restrictions to protect our proprietary rights. Our success depends in part on our ability to protect our intellectual property rights, which involves complex legal, scientific and factual questions and uncertainties. Additional patents may not be granted, and our existing patents might be infringed upon, invalidated or circumvented by others. We may not become aware of patents or rights of others that may have applicability in our Fischer-Tropsch technology until after we have made a substantial investment in the development and commercialization of our technologies. Third parties may claim that we have infringed upon past, present or future F-T technologies. Legal actions might be brought against us, our co-venturers or our licensees claiming damages and seeking an injunction that would prevent us, our co-venturers or our licensees from testing, marketing or commercializing the affected technologies. If an infringement action were successful, in addition to potential liability for damages, our joint venturers or our licensees and we could be required to obtain a license from a third party in order to continue to test, market or commercialize our affected technologies. Any required license might not be made available or, if available, might not be available on acceptable terms, and we could be prevented entirely from testing, marketing or commercializing the affected technology. We may have to expend substantial resources in litigation, either in enforcing our patents, defending against the infringement claims of others, or both. Many possible claimants, such as the major energy companies that have or may be developing competing F-T technologies, have significantly more resources than we do to spend on litigation. If we are unable to successfully defend our technology, including the Rentech Process, against claims of infringement upon the patents or proprietary rights of others, our business, operating results and financial condition could be materially adversely affected.

In addition, the availability of patents in foreign markets, and the nature of any protection against competition that may be afforded by those patents, is often difficult to predict and varies significantly from country to country. We, our licensors or our licensees may choose not to seek, or may be unable to obtain, patent protection in a country that could potentially be an important market for our F-T technology. The confidentiality agreements that are designed to protect our trade secrets could be breached, and we might not have adequate remedies for the breach. Additionally, our trade secrets and

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proprietary know-how might otherwise become known or be independently discovered by others. If a trade secret is acquired by a competitor, our competitive position would be harmed and our revenues could be substantially reduced.

LICENSING AND ENGINEERING SERVICES

Fischer-Tropsch or coal-to-liquid plants that use the Rentech Process may be designed to produce from several thousand to 50,000 or more barrels per day of product. Smaller plants could be assembled from modular systems that can be 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. We focus on licensing our technology in connection with small to medium-sized projects with production capacities ranging from 500 to 50,000 barrels per day of liquid hydrocarbon products. While our technology would enable us to pursue larger projects, we believe that small to medium size projects are economic and represent a substantial portion of the near-term market.

Under our licensing arrangements, we typically have the right to receive license fees and ongoing royalties for each barrel of liquid hydrocarbons produced by process plants that use the Rentech Process. 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, purchase catalyst from FT Solutions, and sell the products that their plants produce. We generally expect licensees to pay for our synthesis gas reactor modules that we or our fabricator supplies to meet the unique specifications required for each plant.

We market licenses of our Rentech Process to owners of gas, liquid and solid carbon-bearing materials, and to owners of existing industrial gas plants that could add our technology. To facilitate business development, we often meet with oil and gas companies, owners of fossil fuel resources, and others involved in the energy industry. Our senior officers are frequent participants and speakers at Fischer-Tropsch seminars and energy conferences. We employ one person whose primary duties are marketing. We have also entered into marketing arrangements with:

• FT Solutions LLC. Marketing of our Fischer-Tropsch technology in China is conducted through FT Solutions, our 50/50 joint venture with Headwaters Technology Innovation Group. We entered into this joint venture in June 2004. Our initial targets for licenses are two proposed projects in China. Please read the more complete description of this joint venture in this section under “BUSINESS, FT Solutions LLC—Joint Venture With Headwaters.”

• Jacobs Engineering UK. In February 2000, we arranged with Jacobs Engineering UK Limited, an international engineering company, for joint marketing of the Rentech Process and Jacobs’ engineering services. We are marketing our combined capabilities to potential customers in several locations throughout the world. We have received approximately $108,042 as a result of feasibility studies performed for potential customers introduced to us by Jacobs Engineering.

For licenses granted by FT Solutions LLC, Rentech Services Corporation and Headwaters Technology Innovation Group will separately provide engineering and technical services to the licensees through FT Solutions.

We provide preliminary engineering design and technical services through Rentech Services Corporation, our wholly owned subsidiary, for our own licensees when they design and construct their plants. To assist our licensees, we may also contract to provide limited operational support services

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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 Process. The reactors must be specially configured for each plant according to the composition of the synthesis gas to be converted and the products desired. Our patented catalyst available through FT Solutions is a necessary component of the Rentech Process and must be used by our licensees.

The successful use of the Rentech Process by licensees largely depends upon their ability to successfully finance, design, construct and operate commercial scale plants. The design of a plant for use of the Rentech Process is complex. Each design must be developed to fit the chemical composition of the feedstock and must also be tailored to produce the desired products. The ability of a licensee to obtain low-cost feedstock is essential to economical use of the technology. The licensees 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. The cost of constructing plants that use the Rentech Process 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. 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. Business dealings in foreign countries, the ability of licensees to obtain financing for construction of plants, and the complexity of design are among the factors that may result in delays in schedules for financing, design, construction and startup of operations of our licensees’ plants following the initial decision to proceed with construction. This may result in delays or loss of revenues to us.

Some of our current licenses and joint ventures that are underway for the use of the Rentech Process include:

• ChevronTexaco Technology Venture. In 1998, we granted a technology license to Texaco Natural Gas, Inc. now ChevronTexaco Technology Venture, a division of ChevronTexaco Corporation (“Texaco”). The license allowed Texaco to use the Rentech Process in projects where solid and liquid hydrocarbons are used as feedstock. This license originally granted exclusive rights in this particular field, but was amended in March 2003 to grant only non-exclusive rights. The agreement also granted a non-exclusive license for conversion of natural gas to liquids.

Under the license, Texaco may use the Rentech Process 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.

In 1999, Texaco entered into a technical services agreement with us related to our 1998 licensing agreement. From 1999 to 2003, we studied the integration of the Rentech Process with Texaco’s gasification process. Texaco paid us a total of $1,779,766 during that time for our technical services and costs. This funding enabled us to further refine our technology at the same time we were performing under the agreement.

• Early Entrance Coproduction Plant. 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.” Texaco’s goal was

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to combine its gasification technology with the Rentech Process to produce both high quality transportation fuels and electricity from coal and petroleum coke at a coproduction plant. The data was obtained and the designs were completed in 2003. We were paid $2,935,782 on this subcontract.

• Wyoming Coal. We have received a $500,000 grant from the State of Wyoming to perform an engineering and economic analysis for a F-T plant that would use gasified Wyoming coal as feedstock. The proposed plant would produce 10,000 barrels per day of ultra-low sulfur F-T diesel fuel for distribution in Wyoming, California and other Western states.

• Australian Coal Project. GTL Energy Limited of Australia intends to use our technology in connection with a coal project it is developing in that country. The proposed plant would be located at a coal mine that supplies coal to an electric power plant. Additional coal from the mine would be gasified to provide synthesis gas feedstock to the proposed 10,000 barrels per day plant. GTL Energy is seeking financing for this project. We have received no revenues from this project.

• Pertamina. We have completed a feasibility study for a 15,000 barrels per day Fischer-Tropsch plant for Pertamina, the largest Indonesian privately owned oil and gas mining company. The plant would use Pertamina’s stranded natural gas as feedstock. The intended products are synthetic diesel fuels, naphthas and other high-value liquid hydrocarbons. Pertamina is now conducting additional well drilling to define the extent of the proposed gas field before financing and other arrangements can be made. We have received no revenues from this project.

• GTL Bolivia. GTL Bolivia, S.A. is planning a 11,500 barrel per day Fischer-Tropsch facility using the Rentech Process, which is designed to supply the local Bolivian market with diesel fuel. GTL Bolivia has identified the gas supply for the project and a site near Santa Cruz. GTL Bolivia is seeking financing from local sources in the area of the proposed plant. We have received no revenues from this project.

• Papua New Guinea. In June of 2004, we entered into a memorandum of understanding with the government of Papua New Guinea and Niugini Gas & Chemicals Pte Ltd of Singapore to develop a methane facility in Papua New Guinea using our Rentech Process. The proposed plant would produce 15,000 barrels per day of F-T liquid hydrocarbon products, 120 megawatts of electrical power for a liquefied natural gas facility being developed by Papua New Guinea, and approximately 1,200 tons per day of ammonia fertilizer. The feedstock is planned to be natural gas owned by an arm of the government of Papua New Guinea. South Korean Investors are expected to provide financing and own the plant. The investors are conducting due diligence investigations of various aspects of the plan, and anticipate the results of their studies will be available before the end of 2004. We have received no revenues from this project.

Revenues related to licensing the Rentech Process represented approximately 10%, 9%, and 27% of our total revenues during the fiscal years ended September 30, 2004, 2003, and 2002, respectively.

OTHER SUBSIDIARIES AND INTERESTS

We also have several subsidiaries engaged in lines of business that are not related to Fischer-Tropsch technology. These are OKON, Inc., Petroleum Mud Logging, Inc. and REN Corporation.

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OKON, Inc.

OKON, our wholly-owned subsidiary, is engaged in the business of manufacturing and marketing a complete line of water based, water repellents sealers and stains for concrete, masonry and wood on a wholesale basis. OKON products are environmentally friendly and VOC compliant.

The OKON business was started in 1973, and was acquired by Rentech in 1997. OKON, located in Denver, markets and sells its products nationwide through a variety of channels. These include distribution through paint dealers, paint manufacturers, mass merchandisers and direct to OEM accounts. Architectural specifications help drive the business. The brand name OKON and its performing water based products are recognized broadly throughout the paint and coatings industry. The formulas used by OKON for manufacturing its products are proprietary.

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 product quality, product innovation, distribution, the VOC’s (volatile organic content) of these products. There are a minimum of at least five major competitors in this nationwide market of environmentally sound sealer and stain products. We believe that OKON products are competitive and OKON is recognized as an industry leader in meeting new lower 2006 VOC requirements. State and federal agencies are proposing further restrictions to limit the levels of VOC’s by the paint industry in an effort to substantially reduce smog and improve air quality of highly populated cities. The restrictions have effectively prohibited the sale and use of high VOC products in some states such as California and the East Coast.

OKON’s products are realizing increased placement with new, smaller dealers through the wholesaler distribution programs. As many of OKON’s larger customers have been acquired by national or international companies, OKON sales have declined. The addition of smaller independent customers has offset the sales decreases in larger accounts. OKON has acquired capabilities to identify, track and capture projects where it is specified and expects to be better able to increase closing rates on its bids. OKON anticipates enhancing its position in the commercial segment with its capability to identify and demonstrate to the commercial contractor OKON’s price and performance competitive advantage.

OKON’s environmentally friendly performance sealers and stains have increasing appeal as state and city governments adopt California’s stringent environmental standards for paints, stains and coatings. We believe that a window of opportunity exists for OKON to exploit a broader solvent based market being required to convert to water-based products. Environmental and fire hazard concerns with utilizing solvent based sealers and stains in the manufacturing of pre-cast concrete shelters have increased demand and sales of OEM products. OKON’s OEM customers are projecting increased demand for their products, especially transit shelters. We expect a gradual trend to develop for increasing orders and inventory of OKON products.

OKON’s sales revenue to several of their customers constitutes a significant portion of OKON’s revenues. For the years ended September 30, 2004, 2003, and 2002, one OKON customer accounted for approximately 35% of OKON’s total revenue.

Loss of OKON’s largest customers would materially reduce our total revenues.

OKON’s sales of products to some customers may constitute a significant portion of our revenues. For the years ended September 30, 2004, 2003, and 2002, one customer of OKON accounted

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for 11%, 16%, and 10%, of our total revenues. OKON has provided material portions of our total revenues. During the latter part of our fiscal year 2004, OKON’s largest customer reduced its customary level of purchases to reduce inventory levels from a 90-day supply to a 30-day supply. This loss of sales to OKON’s largest customer is responsible for OKON’s loss for the year. We anticipate that our customers will be restocking their levels of inventories. We are attempting to establish alternative distribution channels with new strategic partners and expand our product draw through direct contact with architects and architectural specifiers. Revenues from OKON’s business segment represented approximately 26%, 25%, and 20%, of our total revenues in the years ended September 30, 2004, 2003, and 2002, respectively.

Petroleum Mud Logging, Inc.

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 primarily located in Oklahoma, Texas, New Mexico and Louisiana.

PML owns 35 manned mobile well logging units that are moved from well to well. During fiscal 2004, PML added eight remote controlled mobile well logging units that perform most of the same functions and can be operated without a human operator at the drill site. The logging equipment within the mobile units 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 and their geologists immediately, either by 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.

During the past several years, demand for our logging services has increased, particularly for natural gas wells. We expect this trend to continue as exploration for natural gas intensifies due to increasing demand for that energy source. We plan to add more remote controlled units to meet a growing need for high-quality, cost-effective sensing solutions in specific geologic basins.

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 and competitive prices. 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 direct the drilling without being at the site. During fiscal year 2002, we upgraded PML’s 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 adopted by several states. It provides PML a competitive advantage over most other mud logging companies that have not added this equipment.

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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 and improve their equipment and provide more well logging services. The number of new natural gas wells that are drilled may decline if 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.

Revenues provided by our mud logging business segment represented approximately 54%, 42%, and 21%, of our total revenues during the fiscal years ended September 30, 2004, 2003, and 2002, respectively. PML’s revenues from some customers may constitute a significant portion of its revenues. For the years ended September 30, 2004, 2003, and 2002, one customer of PML accounted for 14%, 9%, and 7% 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.

REN Corporation

In August 2001, we acquired 56% of the outstanding stock of REN Corporation. REN is a Colorado corporation, originally 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 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’s competitors who manufacture and sell computerized test equipment for use in manufacturing include approximately ten other companies. We have approximately three principal competitors. REN’s competitors have substantially more financial assets and other resources than REN. REN has been able to compete in the past 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.

Sales inside the U.S. were $789,993, $1,333,379 and $2,629,237, during the years ended September 30, 2004, 2003, and 2002, respectively. Sales outside the U.S. were $11,277, $486,473, and $271,500 during the same years.

REN had no backlog of orders as of September 30, 2004 as compared to backlogs in the approximate amount of $515,000 as of September 30, 2003 and approximately $1,375,000 as of September 30, 2002.

Revenues provided by our industrial automation systems segment represented approximately 9%, 21% and 30%, of our total revenues during the fiscal years ended September 30, 2004, 2003, and 2002, respectively. The U.S. Army was REN’s largest customer in 2004, accounting for 43% of its total revenues in the year ended September 30, 2004, and none in 2003 and 2002. REN is not currently doing further work for the U.S. Army.

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REN’s business is based on individual large project bids, and it does not have a recurring major customer. Reduced industry activity for new testing equipment orders in general could impact REN’s ability to book major projects, and hence affect its profitability. REN has experienced a decline in contracts, and may not obtain sufficient new contracts to sustain its operations.

Over fiscal year 2004, because of the lack of major equipment orders throughout the industry, REN has developed a service business to refurbish equipment it has previously sold.

REN may not be able to readily and economically develop the computerized test equipment that it may seek to manufacture if it obtains large orders.

Design and manufacture of the specialized test equipment that REN sells requires a period of development and specialized skills. REN has reduced its workforce in order to reduce its operating losses due to a reduction in contracts for its products. If REN is not able to economically and timely produce the equipment that might be ordered, the costs would be increased and the anticipated revenues would be reduced. If REN succeeds in obtaining potential new sales orders, we may not be able to obtain the financing that REN may require to expand its business to meet its requirements.

Investment In Advanced Technology Companies

We own minority interests in two advanced technology companies. We own 2.28% of Global Solar Energy, Inc., which is engaged in production of thin-film photovoltaics. We also own 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.

Development of the advanced technology businesses will require substantial capital, which may not be available to them.

Both Global Solar Energy and Infinite Power Solutions remain in the development stage, and they do not operate profitably. They may not be able to obtain the substantial amounts of additional capital they require to complete development of their products and to successfully market the products. This could cause them to go out of business, in which case we would lose our investment.

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.

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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, 2004, we had 109 employees. Among our subsidiaries, Rentech Services Corporation had 10 employees, who work at our development and testing laboratory; OKON, Inc. had 11 employees; Petroleum Mud Logging, Inc. had 63 employees; and REN Corporation had 9 employees. If we succeed in acquiring the East Dubuque plant, we will have approximately 100 employees at that facility.

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 was $71,076 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 that we use with Fischer-Tropsch technologies. 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, laboratory and lab equipment in fiscal 1999 to provide a state-of-the-art laboratory and support facilities for F-T technologies. We believe that our laboratory is one of the most comprehensive Fischer-Tropsch facilities in the field today.

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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. The building houses production facilities and offices. The lease extends to March 2009. The rent is approximately $62,000 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 the PML shop facility and leases an additional building for its office and training space. The rent is approximately $30,000 per year. PML’s personal property includes 35 special vehicles equipped as mobile laboratories, each operated by an employee to provide well logging services, and eight similarly equipped remote controlled units. PML 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 PML’s current needs and anticipated growth. The shop facility is adequate for maintenance of the vehicles and trailers, and the well logging units are in good condition.

REN Corporation Properties

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. We believe that the buildings and the site are adequate for REN’s current needs and anticipated growth. 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.

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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 2004.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The American Stock Exchange under the symbol RTK. The following table sets forth the range of high and low closing prices for the common stock as reported by AMEX. 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 October 31, 2004 was 608. 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 8,500.

We have never paid cash dividends on our common stock. 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.

Equity Compensation Plan Information

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The equity securities issued as compensation without shareholder approval consist of stock options and stock purchase warrants. These convertible securities have exercise prices equal to the closing market prices of our common stock, as reported by the American Stock Exchange, on the date the securities were granted. The options and warrants may be exercised for a term of five years after the date granted. They may be exercised in whole or in part at any time after they were issued.

ITEM 6. SELECTED FINANCIAL DATA

The following consolidated selected financial data has been derived from the historical consolidated financial statements and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 8, “Financial Statements and Supplementary Data,” and our consolidated financial statements and the notes appearing in them, and the risk factors included elsewhere in this report.

Rentech, Inc. and Subsidiaries

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

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 in this section, you should first read the expanded discussion of our business and the risk factors included in Item 1–“Business” of this Form 10-K.

OUR BUSINESSES

Rentech Process - Alternative Fuels Segment.

We are an energy technology company engaged in the Fischer-Tropsch (F-T) business. We have developed and own patented and proprietary F-T technology that we license to members of the energy industry, including owners of carbon-bearing materials who could use them as feedstock for our technology. Our technology, which we call the Rentech Process, is an advanced derivative of the well established Fischer-Tropsch technology developed in Germany in the 1920s. We have successfully used the Rentech Process for a short period in a large demonstration plant and for longer periods in several pilot plants.

Our Rentech Process is useful for converting feedstock consisting of synthesis gases derived from carbon-bearing materials, either natural gas, liquids or solids, into synthetic liquid hydrocarbons. The products include clean-burning diesel fuel, naphthas used for making gasoline and certain petrochemicals, and specialty products such as petroleum waxes, petrochemical feedstocks, and synthetic lubricant base oil. The liquid hydrocarbons resulting from our F-T process are similar to analogous products derived from crude oil refining, but with significant environmental benefits. Tests of our diesel fuel show that it is clean burning. Unlike conventional transportation fuels, our fuels emit ultra-low amounts of sulfur and aromatics that cannot be detected by standard tests.

Our efforts have been focused on achieving commercial use of our proprietary F-T process. We are seeking revenues from licensing the technology, from royalties charged for each barrel of liquid hydrocarbons produced by process plants that would use the technology, and from contract payments for the engineering designs and technical services we provide for evaluating the feasibility of proposed plants, and after a license is granted, for the engineering design of a plant. We have maintained a F-T development and testing laboratory to support use of this technology. The laboratory staff has concentrated on further developing and refining the Rentech Process. The lab has also conducted contract work for Texaco Energy Systems LLC (Texaco), a licensee, and for other companies that are potential licensees and that want to evaluate the feasibility of their feedstock for use with the Rentech Process.

We have historically exploited the Rentech Process by marketing licenses to energy companies, owners of industrial gas plants, and owners of other carbon-bearing sources of feedstock such as natural gas. No commercial plant is now using the technology, and economic operation of the technology has not been fully demonstrated. We believe the advancements we have made in F-T technology will enable use of the Rentech Process on a cost-effective basis in some situations.

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Marketing of Licenses

We are discussing proposals with several owners of energy feedstocks for use of the Rentech Process through licenses or other business ventures.

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 1998 license of the Rentech Process to Texaco and revenues from our 1999 technical services contract with Texaco. We are not now receiving royalties on production of liquid hydrocarbons from use of the Rentech Process, or license fees. We receive revenues from prospective businesses that engage us to perform studies for their potential projects that would use the Rentech Process. 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 Process 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 at this time related to our efforts to commercialize the Rentech Process.

Subsidiaries. In addition to our Fischer-Tropsch alternative fuels segment, we own interests in three subsidiary businesses. OKON, Inc. and Petroleum Mud Logging Inc. are wholly owned, and we own 56 percent of REN Corporation.

OKON, Inc. – Paint Segment.

OKON manufactures and markets water-based wood stains, concrete stains, concrete block pluggers and other water repellent sealers. All of the coatings we produce are environmentally clean.

Petroleum Mud Logging, Inc. – Oil and Gas Field Services Segment.

PML provides well logging services to the oil and gas industry. We own special vehicles equipped as mobile laboratories that are moved in the field from well to well and eight remote controlled units that are similarly outfitted. Through state-of-the-art instruments, the logging equipment measures traces of gases and water throughout the depth of a well bore by analyzing the drilling mud recovered from the well as drilling progresses. The mineral owners use this information to detect the presence of oil and gas deposits in underground formations, and to direct the exploration and development drilling of their properties.

REN Corporation – Industrial Automation Systems Segment.

REN manufactures computer-controlled testing equipment systems and sells them on a custom-order basis to industrial manufacturers. These manufacturers use REN’s industrial automation systems for controlling quality 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 assembles. REN’s primary market has been automated test equipment for the fluid power industry.

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OVERVIEW OF FINANCIAL CONDITION

At September 30, 2004, we had negative working capital of $1,266,653. Historically, we have relied for working capital upon private placements of our equity represented by our common stock, supplemented by debt financing. On March 19, 2004, our stockholders approved an amendment to our articles of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 150,000,000. To achieve our objectives as planned for fiscal year 2005, we will need substantial amounts of capital that we do not now have. We expect to issue additional shares of common stock, and we may issue shares of convertible preferred stock or other securities convertible into common stock to fund our working capital requirements and to fund the acquisition of the East Dubuque plant. In addition, we are seeking a buyer to purchase our one-half interest in the assets of Sand Creek Energy, LLC. We are also engaged in negotiations for the sale of OKON. We believe that our current available cash, revenues from operations, and the potential sale of assets will not be sufficient to meet our cash operating requirements through the fiscal year ended September 30, 2005 without additional debt and equity financing. Obtaining equity financing through placements of additional securities or loans depends upon obtaining investors who are willing to invest in our equity securities or debt instruments.

Selected Business Segment Information

The revenue and operating income (loss) amounts in this report are presented in accordance with accounting principles generally accepted in the United States of America. Segment information appearing in Note 16 of the Notes to the Consolidated Financial Statements is presented in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information.

The following table provides revenues, operating income (loss) from operations and net loss applicable to common stockholders by each of our business segments for the years ended September 30, 2004, 2003 and 2002. More complete details about the results of operations of our business segments are set forth later in this report under the section heading “Results of Operations”.

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Overview of Revenues Associated with Licensing the Rentech Process

During the fiscal periods discussed in this report, we realized revenues associated with licensing activities in our alternative fuels segment. These revenues included royalties earned up to March 2003 under our October 1998 license of the Rentech Process to Texaco Energy Systems, LLC, now a division of ChevronTexaco Corporation, and contract payments for technical engineering services provided to Texaco and certain other companies.

Effective March 24, 2003, our license agreement with Texaco was modified. By the change, Texaco’s exclusive rights to use the Rentech Process 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 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. In March 2003, we completed work for Texaco under a 1999 contract by which we performed technical services to make the Rentech Process compatible for use with Texaco’s gasification technology. In early 2003, we completed our subcontract with Texaco on its contract with the U.S. Department of Energy on developing plans for an Early Entrance Co-production Plant. This contract was focused on developing a program for the Department of Energy for an energy plant that produces both transportation fuels and electricity.

With the change to the Texaco license, we are now able to offer licenses of our Rentech Process 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 F-T projects using the Rentech Process. No commitments have been made to proceed with these projects, however, we have received revenues from several studies of the feasibility of these projects.

In the future, we expect to receive revenues associated with licensing the Rentech Process from the following principal sources:

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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 marketing licenses of the Rentech Process until we obtain a customer and grant a license for a commercial-scale plant using the technology and work on designing the plant is underway. We are cooperating with several energy companies and related businesses to prepare and evaluate their proposals to develop new plants that would use our technology. There are no assurances that they will pursue these projects or that adequate financing will be available or that we will succeed in retrofitting and successfully operating any existing plant at a profit. Other factors affecting our success include competition by other Fischer-Tropsch 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.

The revenues from our license fees and royalties and the contract work performed at our Fischer-Tropsch laboratory, including payments we previously received from contract work for Texaco, have not been adequate to fund our operations. We do not expect activities associated with marketing licenses of our Fischer-Tropsch technology to produce a net profit until we obtain additional contracts for feasibility studies and engineering designs for planning for a Fischer-Tropsch plant using our technology, and fees for grants of licenses. During the year ended September 30, 2004, we incurred a net loss of $7,087,316 associated with the Rentech Process in our alternative fuels segment, compared with a net loss of $9,026,220 for the year ended September 30, 2003.

Reducing our activities related to the Rentech Process would materially adversely impact our ability to commercialize the Rentech Process. We believe it is important to continue work on further improvements to the technology, improving its economic efficiency, and seeking patents to protect our proprietary rights in any advancements. Cutting back these operations might delay commercial use of the Rentech Process and could limit our ability to realize full economic benefits from its exploitation.

We believe that important events within the Fischer-Tropsch industry during 2003 and after indicate increasing interest in the energy industry and the investment community in the commercial use of Fischer-Tropsch technology. Seven major banking institutions joined in agreements to finance construction of a 33,000 barrel per day Fischer-Tropsch plant to be constructed by Sasol in Qatar at a cost of approximately $1 billion. Royal Dutch Shell announced in October 2003 that it would invest approximately $5 billion in its Fischer-Tropsch technology for construction of a 140,000-barrel per day

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Fischer-Tropsch plant in Qatar. We believe that this indicates that key members of the financial community are recognizing Fischer-Tropsch projects as economically viable. Conoco Phillips Petroleum announced a proposal to construct a 130,000-barrel per day Fischer-Tropsch plant, also in Qatar. We believe that these announcements signal that the energy industry, with support from financial institutions, may be moving toward commercial use of Fischer-Tropsch technologies like ours.

Operating Expenses

Our operating expenses have historically been grouped primarily into several categories of major expenses. These are development of the Rentech Process through pilot plants and the Synhytech commercial-scale plant in Pueblo, Colorado; acquiring and funding our other business segments in efforts to achieve profitable operations; investing in advanced technologies; acquiring 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.

We have incurred large expenses associated with our feasibility studies and consulting contracts related to our efforts to acquire the East Dubuque plant from Royster-Clark, Inc., including expenses in connection with negotiating a purchase contract and related agreements and obtaining feasibility studies and consulting services. If we succeed in acquiring the plant, we expect to have significantly larger expenses related to financing the acquisition, operation and construction work to retrofit the East Dubuque plant. If we invest with others in developing another plant that uses our Rentech Process, we expect to also incur large costs. When production is achieved from any plant, we anticipate incurring new expenses to market and sell the products. Because of the substantial capital investments we anticipate making in plants in which we may acquire an equity interest, we believe that we will incur significant depreciation and amortization expenses in the future.

Overview of the Status of Our Subsidiaries

Our business strategy includes operating our subsidiaries in the expectation of revenues and cash flow to offset some of the costs of bringing the Rentech Process to commercial use and profitable operations as soon as feasible. We have 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; and from the manufacture of complex microprocessor controlled industrial automation systems by REN Corporation, a 56% owned subsidiary. During the years ended September 30, 2004 and 2003, OKON, Inc. and REN Corporation experienced net losses. We are attempting to increase the revenues of OKON, Inc. and REN Corporation to achieve positive cash flows from them.

During the year ended September 30, 2004, OKON expanded its net revenues over those in the same period in fiscal 2003 through increased sales to wholesalers who distribute OKON’s products to independent retail stores, as well as to national and retail paint manufacturers. The increase in paint revenue reflects the success of our continued marketing efforts in our primary distribution markets that

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we have been expanding over the past year. OKON’s net loss for the year ended September 30, 2004 was $109,832, compared to a net loss of $219,085 for the year ended September 30, 2003. This loss is a function of a reduction in sales to OKON’s largest customer, which advised us it was reducing its inventory of OKON products and no longer distributing some of them on an exclusive basis.

Petroleum Mud Logging, Inc. continued to perform well during the year ended September 30, 2004, increasing its net revenues over those for the same period in fiscal 2003. PML is benefiting from our investments made over the last several fiscal years in upgrading its technology, as well as from increased demand for drilling for natural gas, and increased marketing efforts. PML’s net income for the year ended September 30, 2004 was $594,758, compared to $213,900 for the year ended September 30, 2003.

REN Corporation experienced a decline in contract orders for its automated test systems during fiscal 2004 compared to fiscal 2003. We believe this reduction is due to a decrease in industry orders resulting from a general economic downturn and a series of corporate reorganizations that have affected REN’s historical customers, and deferred placements of new orders with REN. REN’s net loss for the year ended September 30, 2004 was $473,384, compared to a net loss of $504,000 for the year ended September 30, 2003. This decreased loss is due to certain cost reductions implemented during the year. We believe the net loss also reflects a lack of new contracts required to provide sufficient revenue to cover operating costs. REN Corporation is considering alternatives to increase its revenues. These include an aggressive program to develop a more standardized test stand and to expand its contracts to service test stands it has previously sold as well as test stands manufactured by its competitors.

RESULTS OF OPERATIONS

More detailed information about our financial statements is provided in the following portions of this section. The following discussions should be read in conjunction with our consolidated financial statements included in this annual report and the notes to those statements.

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The following table sets forth, for the years ended September 30, 2004, 2003 and 2002, a comparison of changes between the periods in the components of our Consolidated Statements of Operations:

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FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003

Revenues

Revenues. We had revenues from product sales, service revenues and royalty income of $8,773,117 in fiscal 2004 and $8,477,001 in fiscal 2003, an increase of 3%.

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 $2,265,567 in fiscal 2004. This compares to revenues from this segment of $2,161,138 for the 2003 fiscal year, an increase of 5%. The increase in paint revenue reflects the success of our continued marketing efforts in our primary distribution markets that we have been expanding over the past year.

Service Revenues. Service revenues are provided by three of our business segments. The segments are the oil and gas field services segment, the Rentech Process technical services portion of the alternative fuels segment and the industrial automation systems segment. The Rentech Process 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.

Petroleum Mud Logging, Inc. Service revenues in the amount of $4,721,788 were derived from contracts for the oil and gas field services in fiscal 2004. Our oil and gas field service revenues for fiscal year 2004 increased by $1,141,340, or 32%, from the service revenues of $3,580,448 in fiscal 2003. 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. This resulted in a higher percentage of our 35 mud logging vehicles being under contract in the field in fiscal 2004 as compared to fiscal 2003. We were also able to increase our billing rates for services.

REN Corporation provided service revenues in the amount of $801,270 during fiscal 2004 and $1,819,852 during fiscal 2003. These revenues were derived from contracts for the manufacture of complex microprocessor controlled industrial automation systems. We believe the $1,018,582 decrease

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in its revenue during fiscal 2004 occurred because REN did not obtain as many contracts as before for manufacture of systems due to curtailed capital spending in the fluid power industry, one of REN’s key markets. Recognition of revenue was decreased because fewer systems were manufactured in the current year. REN has reduced its operating costs during the last fiscal year in efforts to develop and maintain a positive cash flow. REN has received numerous requests for proposals for new work from several former and new customers for development of new test equipment, which suggests that capital equipment spending may be on the rise. Whether new contracts will be received, and the timing and amount of revenues they would generate, is uncertain. If new revenues are not developed from pending proposals, REN may not be able to continue its manufacturing operations. If REN were to discontinue its manufacturing operations, we estimate we may have to recognize impairment of our investment. We would also have estimated exit costs, termination charges and related liabilities of at least $50,000.

Our alternative fuels segment provided service revenues, including revenue earned for technical services provided to certain customers with regard to the Rentech Process. These technical services were performed at our development and testing laboratory. Our service revenues for these technical services were $867,279 during fiscal 2004 as compared to $701,658 during fiscal 2003. Compared to the prior year, our service revenues from these technical services increased by $165,621 or 24%, during fiscal 2004. During the year ended September 30, 2004, we recognized revenue of $439,253, or 51% of total technical services revenue, from our technical services agreement with Royster-Clark Nitrogen, Inc. which began in fiscal 2004. In addition, we recognized revenue of $192,720, or 22% of total technical services revenue, from our contract with the Wyoming Business Council, which began in fiscal 2004. This increase in technical services revenue was partially offset by a decrease in the work for Texaco during the year ended September 30, 2004 as our services to it under our 1999 technical services contract with Texaco ceased upon the modification in March 2003 of our license agreement with it.

Rental Income is also included in our service revenue. We leased part of our development and testing laboratory building in Denver, to a tenant. Rental income from this tenant contributed $117,213 in revenue during fiscal 2004 as compared to $113,905 during fiscal 2003. 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.

Royalty income, which is generated through licensing the Rentech Process, is included in our alternative fuels segment. Royalty income consisted of royalties that we received as a result of our 1998 license of the Rentech Process to Texaco. Under the license agreement, we earned no royalties during the year ended September 30, 2004 and $100,000 during the year ended September 30, 2003. No royalties were received subsequent to February 2003, and no royalties will be received in the future under the 1998 license agreement with Texaco as a result of modification to the license agreement in March 2003.

Cost of Sales

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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 2004, the combined costs of sales were $5,797,136 compared to $5,207,654 during fiscal 2003. The increase for fiscal 2004 resulted from an increase in cost of sales for the product sales, oil and gas field services segment and for the alternative fuels segment, only partially offset by a decrease in cost 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 2004, our costs of sales for the paint segment increased by $129,897, or 13%, to $1,166,816, as compared to fiscal 2003. The increase in costs was due to an increase in raw materials used in the manufacturing process resulting from increased product sales. The increase in paint revenue reflects the success of our continued marketing efforts in our primary distribution markets that we have been expanding over the past year.

Costs of sales for oil and gas field services increased to $3,356,371 during fiscal 2004, up from $2,624,377 during fiscal 2003. Of the increase of $731,994, 66% was related to field labor and benefits and field living expenses, while the remainder was made up of supplies and other 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 expand in our service market.

Costs of sales for the industrial automation systems segment were $594,541 during fiscal 2004 as compared to $1,230,713 during fiscal 2003. The decrease in costs of $636,172 during fiscal 2004 was directly related to the decrease of 56% in revenues from this segment as compared to fiscal 2003. The decrease in revenue occurred because we did not obtain as many contracts as before for manufacture of systems.

Costs of sales for technical services were $679,408 during fiscal 2004, up from $315,645 during fiscal 2003, an increase of $363,763. Costs incurred under the technical services agreement with Royster-Clark Nitrogen resulted in a $369,666 increase in this item during the year ended September 30, 2004. This increase was partially reduced by a decrease in work for Texaco and other customers during the year ended September 30, 2004 as compared to the year ended September 30, 2003.

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Gross Profit

Gross Profit. Our gross profit for fiscal 2004 was $2,975,981, as compared to $3,269,347 for fiscal 2003. The decrease of $293,366, or 9% resulted from a combination of the contributions from each of our operating segments. The gross profit contribution of our oil and gas field services segment increased by $409,346. This increase was more than offset by decreases of $25,468 for the paint segment, $382,410 for the industrial automation systems segment and $198,142 from technical services during fiscal 2004 as compared to fiscal 2003. Gross profit was further decreased by a reduction in contribution during fiscal 2004 from royalty income of $100,000.

Operating Expenses

Operating expenses consist of general and administrative expense, depreciation and amortization and research and development. Our operating expenses have historically been grouped into several categories of major expenses. These include research and development related to the Rentech Process through operation of pilot plants and the Synhytech commercial-scale plant in Pueblo, Colorado; management time and other costs related to acquiring and funding the subsidiaries that constitute our other business segments in efforts to bring them to profitable operations; marketing our technology; other general and administrative expenses; and the costs of financing our operations.

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We incur substantial research and development expenses in our testing laboratory where we actively conduct work to further improve our technology and to perform services for our customers. We have had significant growth in our general and administrative expenses as our salary expenses and operating costs have grown. We are incurring holding 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 expenses for our one-half interest in the plant.

We expect to experience operating costs on a much larger scale than in the past for the East Dubuque nitrogen fertilizer plant that we expect to acquire in early 2005.. We plan to make substantial capital investments to reconfigure the plant to improve its economic results and to use our Fischer-Tropsch technology for additional revenues and other benefits. If we make substantial capital investments in plants in which we may acquire an equity interest, we would incur significant depreciation and amortization expenses in the future.

General and Administrative Expenses. General and administrative expenses were $6,978,625 during fiscal 2004, down $943,916 from fiscal 2003 when these expenses were $7,922,541. Legal expenses decreased $60,672, or 16% during the year ended September 30, 2004 due to hiring of in-house legal counsel starting June 2004. Bad debt expense decreased by $499,881, or 80% during the year ended September 30, 2004 due to fully reserving against the $580,657 note receivable from related party in fiscal 2003. Commissions expenses decreased by $74,685, or 33% during the year ended September 30, 2004. This was caused by the decrease in the number of systems manufactured and sold by our industrial automation systems subsidiary. Contract salaries and consulting expenses decreased by $214,004, or 36% during the year ended September 30, 2004. This was the result of reductions in contract labor in our technical services and product sales segments. Many other general and administrative expenses experienced increases and decreases during the year ended September 30, 2004, none of which were individually significant.

Depreciation and Amortization. Depreciation and amortization expenses during fiscal 2004 and 2003 were $748,503 and $1,027,138. Of these amounts, $206,518 and $173,187 were included in costs of sales. Amortization of capitalized software costs decreased by $283,930 during the year ended September 30, 2004 as compared to the year ended September 30, 2003. This was due to a write-off of capital and software costs in September 2003. This decrease was partially offset by an increase in depreciation expense attributable to new vehicles and logging equipment acquired in our oil and gas field services segment during the year ended September 30, 2004.

Research and Development. Research and development expenses were $772,353 during fiscal 2004. These expenses consisted of $749,230 for our alternative fuels segment, $17,187 for our paint segment and $5,936 for our industrial automation segment. This expense decreased by $13,504 from fiscal 2003, when these expenses were $785,857. The expense for 2003 included $747,081 for our alternative fuels segment, $23,517 for our paint segment and $15,259 for our industrial automation systems segment. Due to an increase in billable technical services work performed at the development and testing laboratory for customers, including time spent working on feasibility studies for others, we reduced our own research and development work on the Rentech Process. We performed extensive work in the areas of product upgrading and wax catalyst filtration, and completed our plan for further catalyst development.

Total Operating Expenses. Total operating expenses during fiscal 2004 were $8,292,963, as compared to $9,562,349 during fiscal 2003, a decrease of $1,269,386. The decrease is a result of a reduction in general and administrative expenses of $943,916, a decrease in depreciation and amortization charges included in operating expenses of $311,966, and a decrease in research and development expenses of $13,504.

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Loss From Operations

Loss from operations during fiscal 2004 decreased by $976,020 to a loss of $5,316,982. This compares to a loss of $6,293,002 during fiscal 2003. The decreased loss resulted from a decrease in total operating expenses of $1,269,386 during fiscal 2004 in addition to a decrease in gross profit of $293,366.

Other Income (Expense)

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

Loss on Investments. During fiscal year 2004, we recognized $646,367 as loss on investments, compared to $2,201,682 in fiscal 2003. The majority of the decrease in loss on investments related to our 2.28% ownership in the common stock of Global Solar Energy, Inc. and our 5.76% ownership in the common stock of Infinite Power Solutions, Inc. 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. During the fourth quarter of fiscal 2004, 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 $588,500 in fiscal year 2004. In fiscal year 2003 we recorded an impairment of 1,879,107 on this same investment. At September 30, 2004, our investment in the two advanced technology companies is recorded at the estimated net realizable value of $611,500. The assessment that we performed is based upon estimates. The actual value that we realize from these investments may be more or less than $611,500. We will recognize gains on these investments, if any, when realized.

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Equity in Loss of Investee. During fiscal 2004, we recognized $252,415 in equity in loss of investee, as compared to $205,890 during fiscal 2003. In fiscal 2004, $181,890 represents our 50% share of the loss incurred by our joint venture in Sand Creek Energy LLC. The LLC is maintaining the mothballed Sand Creek methanol plant and offering it for sale. The decrease during fiscal 2004 is due to a decrease in insurance and other maintenance costs of the facility. In fiscal 2004, we recognized $70,525 in equity in loss of investee from our 50% share of the loss in our joint venture FT Solutions, LLC, which formed in the fourth quarter of fiscal 2004. This loss represents our share of research and development expenses incurred in the fourth quarter of fiscal year 2004.

Interest Income. Interest income during fiscal 2004 was $14,842, decreased from $23,338 during fiscal 2003. The decreased interest income was due to having fewer funds invested in interest-bearing cash accounts.

Interest Expense. Interest expense during fiscal 2004 was $911,647, decreased from $999,492 during fiscal 2003. The net decrease of $87,845 represents a reduction of $157,179 from the recognition of non-cash interest expenses related to convertible promissory notes issued in order to obtain working capital. That was partially offset by increases related to financing of annual insurance premiums, interest on lines of credit and vehicles acquired.

Gain (Loss) on Disposal of Fixed Assets. During fiscal 2004 we had a loss on disposal of fixed assets of $252,393 as compared to a loss on disposal of fixed assets during fiscal 2003 of $1,118. $224,826, or 89% of the disposals in fiscal 2004 related to the impairment of the Case machine owned by REN Corporation. We impaired the value of the Case machine, as management concluded that REN did not have the resources to proceed with its plan to provide testing services to customers using the machine. The remaining value of the Case machine was reclassed to component inventory during the fourth quarter of fiscal 2004. The remaining disposals represent the disposal of out-dated office furniture and equipment, computer equipment and vehicles.

Total Other Expenses. Total other expenses decreased to $2,047,980 during fiscal 2004 from total other expenses of $3,384,844 during fiscal 2003. The decrease of $1,336,864 resulted from a $646,367 impairment of investments during fiscal 2004, as compared to $2,201,682 during fiscal 2003; an increase in equity in loss of investee of $46,525; a decrease in interest income of $8,496; a decrease in interest expense of $87,845; and an increase in loss on disposal of fixed assets of $251,275.

Minority Interest in Subsidiary’s Net Loss

Minority Interest in Subsidiary’s Net Loss. The minority interest in subsidiary’s net loss of $154,269 during fiscal 2004, as compared to $142,441 during fiscal 2003, resulted from the acquisition of 56% of REN Corporation on August 1, 2001. REN Corporation has incurred net losses in operations since the acquisition of our interest. As of September 30, 2004, we had a minority interest excess loss of $134,919. It was charged against the majority interest in the Consolidated Statement of Operations, reducing the total minority interest expenses from $289,188 to $154,269.

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Net Loss Applicable to Common Stockholders

Net Loss Applicable to Common Stock. The loss applicable to common stock was $7,210,693 or $0.08 per share during fiscal 2004 and $9,535,405 or $0.13 per share during fiscal 2003. The decrease of $2,324,712 resulted from a decrease in loss from operations of $976,020, a decrease in total other expenses of $1,336,864, and an increase in minority interest in subsidiary’s net loss of $11,828.

FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002

Revenues

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, an increase of 12% compared to revenues from this segment of $1,927,854 for the 2002 fiscal year. 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 Process technical services portion of the

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alternative fuels segment and the industrial automation systems segment. The Rentech Process 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 a lease of a portion of the development and testing laboratory building to a tenant.

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 continued to increase in our service market. This resulted from a higher percentage of our 35 mud logging vehicles being 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 reduced revenue from 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 Process. 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, as well as with natural gas. In March 2003 we completed our subcontract with Texaco on its contract with the U.S. Department of Energy on developing plans for an Early Entrance Co-production plant. This contract was focused on developing a program for the U.S. Department of Energy for an energy plant that produces both transportation fuels and electricity. 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 also included rental income. 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 Process 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 modifications of the license agreement in March 2003. By those changes, 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 Process, is included in our alternative fuels segment.

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Cost of Sales

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, partially 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 to $1,036,919, an increase of $104,242, or 11%, as compared to fiscal 2002. The increase in costs was due to our purchase of more 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 additional contract work we performed to meet the increased 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 and 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 the cost of labor and supplies

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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.

Gross Profit

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.

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Operating Expenses

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. 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. This primarily resulted 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 reductions in marketing expenses 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 and sold by our industrial automation systems subsidiary. Many other general and administrative expenses experienced increases and decreases during fiscal 2003, none of which were individually significant.

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 in those years were included in costs of sales. Of the decrease of $202,834, 68% was related to the amortization of our 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. This included $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 Process 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

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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.

Loss From Operations

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 (Expense)