UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     

Commission File No. 001-15795

RENTECH, INC.

(Exact name of registrant as specified in its charter)

Colorado		84-0957421
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

10877 Wilshire Boulevard, Suite 710
Los Angeles, California 90024
(Address of principal executive offices)

(310) 571-9800
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Name of Each Exchange on Which Registered: NYSE Amex
Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check if disclosure of delinquent filers pursuant 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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of March 31, 2009, the last business day of the registrant’s most recently completed second quarter, was approximately $67.2 million (based upon the closing price of the common stock on March 31, 2009, as reported by the NYSE Amex).

The number of shares of the Registrant’s common stock outstanding as of November 30, 2009 was 213,208,460.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 2010 annual meeting of shareholders, 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.

 

 

TABLE OF CONTENTS

		Page
PART I
ITEM 1. Business			4
ITEM 1A. Risk Factors			15
ITEM 1B. Unresolved Staff Comments			24
ITEM 2. Properties			25
ITEM 3. Legal Proceedings			25
ITEM 4. Submission of Matters to a Vote of Security Holders			25
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			26
ITEM 6. Selected Financial Data			28
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk			49
ITEM 8. Financial Statements and Supplementary Data			50
ITEM 9. Changes in and Disagreements With Accountants On Accounting and Financial Disclosure			94
ITEM 9A. Controls and Procedures			94
ITEM 9B. Other Information			95
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance			96
ITEM 11. Executive Compensation			96
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			96
ITEM 13. Certain Relationships and Related Transactions, and Director Independence			96
ITEM 14. Principal Accountant Fees and Services			96
PART IV
ITEM 15. Exhibits and Financial Statement Schedules			96
Exhibit 10.26
Exhibit 10.27
Exhibit 10.35
Exhibit 21
Exhibit 23.1
Exhibit 23.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

FORWARD-LOOKING STATEMENTS

Certain information included in this report contains, and other reports or materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its 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 Securities Act of 1933, as amended, 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 management’s 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 Rentech’s results include the risk factors detailed in “Part I, Item 1A. Risk Factors” and from time to time in the Company’s 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 are current only as of the date made.

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.

RESTATEMENT

In this report, the Company has restated its consolidated balance sheet at September 30, 2008, and its consolidated statements of operations, changes in stockholders’ equity (deficit) and comprehensive loss for the fiscal year ended September 30, 2008. This report also presents restated selected quarterly financial data for the quarters ended June 30, 2009, March 31, 2009, December 31, 2008, September 30, 2008, June 30, 2008, March 31, 2008 and December 31, 2007. These restatements and the material weakness reported herein are due to a misapplication of GAAP, the correction of which resulted in an adjustment to the treatment of forward gas purchase contracts and inventory valuation.

The Company enters into forward contracts with fixed delivery prices to purchase portions of the natural gas required to produce fertilizer for the Company’s nitrogen fertilizer business. Some of the forward contracts require the Company to pay a deposit for the natural gas at the time of contract signing, and all of the contracts require deposits in the event that the market price for natural gas falls after the date of the contract to a price below the fixed price in the contracts.

The Company previously recorded these deposits incorrectly as inventory and performed a lower of cost or market (“LCM”) analysis on this component of inventory on a monthly basis. In certain periods, the LCM analysis resulted in impairments of the component of inventory represented by the gas contract deposits, and those impairments were recognized in cost of goods sold as write-downs of inventory in those periods. As product produced from the gas associated with the impaired deposits was shipped in periods after the write-downs, the cost of gas recognized in cost of goods sold at the time of sale was lower than the cost that would have been calculated using the contracted prices, in an amount equal to the previous inventory write-downs. This prior treatment affected the timing, but not the total amount, of expense recognized in conjunction with gas purchased under forward contracts. The correction in accounting treatment had no effect on cash flows.

The Company has now determined that these deposits should have been classified on the balance sheet as deposits, rather than as inventory, because neither title nor risk of loss passed to the Company when it paid the deposits for the natural gas. The Company has also determined that the LCM adjustments related to these contract deposits were not calculated in a manner consistent with generally accepted accounting principles. In future periods, and in this report, the cost of natural gas purchased under forward contracts will be recognized at contracted prices as the gas flows through production, into finished goods inventory, and then into cost of goods sold as the product is shipped, or directly into cost of goods sold in the case of a sale of the gas. The LCM analysis will be performed by examining the projected margin on the sale of finished goods, not by examining the market price relative to the contract price for the natural gas component of inventory.

The Company has not amended its Annual Report on Form 10-K or its Quarterly Reports on Form 10-Q for prior periods affected by the restatement adjustments. Accordingly the financial statements and related financial information contained in such reports should no longer be relied upon. For a further discussion of the restatement adjustments and the background leading to the adjustments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Restatement” and Notes 2 and 21 to our consolidated financial statements included in this report.

PART I

ITEM 1. BUSINESS

Company Overview

Incorporated in 1981, Rentech’s vision is to be a provider of clean energy solutions. We are developing projects that we expect to produce certified synthetic fuels and electric power from carbon-containing materials such as biomass, waste and fossil resources. We own technologies that enable the production of such fuels and power when integrated with certain other technologies that we license or purchase. Our technologies can produce synthesis gas (“syngas”) from biomass and waste materials, and can convert syngas from our own or other gasification technologies into complex hydrocarbons that are upgraded into fuels by refining technology that we license. In addition to developing projects using these technologies, we are pursuing the licensing of our technologies to developers of projects that are expected to produce fuels and/or power. We also own and operate a nitrogen fertilizer plant in East Dubuque, Illinois.

The Rentech Process is a patented and proprietary technology based on Fischer-Tropsch (“FT”) chemistry, which converts syngas produced from a wide variety of biomass, waste and fossil resources into hydrocarbons. These hydrocarbons can be processed and upgraded into ultra-clean synthetic fuels such as military and commercial jet fuels and ultra low sulfur diesel fuel, as well as specialty waxes and chemicals. Unlike some other alternative transportation fuels, such as ethanol, fuels produced from the Rentech Process can be transported and used in existing infrastructure including pipelines and engines. Our technology portfolio also now includes the Rentech-SilvaGas biomass gasification technology that we recently acquired with the acquisition of the SilvaGas Holding Corporation (“SilvaGas”), which enables us to offer integrated technologies that can convert biomass and wastes to syngas and subsequently into clean fuels and electric power.

The Rentech Process can produce synthetic diesel fuels (“RenDiesel”) which are clean burning having lower emissions of regulated pollutants, such as nitrogen oxides, sulfur oxides and particulate matter, than traditional petroleum-based diesel fuels. These fuels either meet or exceed all fuels and environmental standards presently applicable in the U.S. including the ASTM D-975 standard for diesel fuel, which is the specification used for regular diesel engines.

The Rentech Process also can produce synthetic jet fuel (“RenJet”), including military jet fuel and commercial Jet A and Jet A-1 fuel. Synthetic jet fuel from the FT process is the only type of alternative jet fuel that has been certified by the U.S. Federal Aviation Administration for use in commercial aviation and by the U.S. Air Force for use in its aircraft. The ASTM International Committee on Petroleum Products and Lubricants and the U.S. Federal Aviation Administration have approved FT fuels for use in commercial aircraft, when blended with petroleum-based fuels at a blend of up to 50% synthetic.

A U.S. Department of Energy (“DOE”) study of the life-cycle greenhouse gas emissions from the production of fuels from fossil feedstocks using FT chemistry concluded that, when carbon capture and sequestration are used, the resulting emissions are lower than those generated in the production of petroleum-derived fuels. We believe that the lifecycle emissions of greenhouse gases for fuels and power produced from biomass using our technology without carbon capture and sequestration can be significantly lower than is the case with fossil feedstocks, and, depending on the feedstock, can be as low as zero.

We have constructed and operate our Product Demonstration Unit (“PDU”), a demonstration-scale plant at the Rentech Energy Technology Center (the “RETC”) located in Commerce City, Colorado, which we believe is the only operating synthetic transportation fuels facility in the United States. Using the PDU, we have produced thousands of gallons of ultra-clean synthetic fuels including RenJet and RenDiesel. We have shipped samples of our products for testing to potential customers, and we have sold test quantities of our jet fuel to the U.S. Air Force.

During fiscal year 2009, we acquired SilvaGas and its biomass gasification technology, which can convert a wide range of biomass feedstocks, including wood, wood residues, straw, switch grass, refuse-derived fuel, energy crops and agricultural residues, into syngas. From 1998 to 2001, the SilvaGas technology was applied at commercial scale of 400 tons per day at a gasifier in Burlington, Vermont in a series of operating campaigns. In fiscal 2009, we also acquired a 25% ownership interest in ClearFuels Technology, Inc. (“ClearFuels”), a bio-energy gasification and project development company which owns technology that can convert virgin cellulosic biomass feedstock, such as wood waste and sugar cane bagasse, into syngas.

We are pursuing the deployment of the Rentech Process and the Rentech-SilvaGas biomass gasification technology (the “Rentech-SilvaGas Technology”) by seeking to license our technology and to develop facilities that produce synthetic fuels, chemicals, natural gas substitutes, and electric power from biomass and fossil feedstocks. We are working on a number of commercial scale opportunities involving biomass, fossil-fed and a combination of biomass and fossil-fed projects to produce synthetic fuels, chemicals, and power, including a proposed project in Rialto, California (the “Rialto Renewable Energy Center”) that would produce approximately 600 barrels per day of synthetic fuels and 35 megawatts of electric power, and a proposed project near Natchez, Mississippi (the “Natchez Project”) that would produce approximately 30,000 barrels per day of synthetic fuels and chemicals and 120 megawatts of power. In addition, ClearFuels intends to build and install at their expense a demonstration scale ClearFuels gasifier at the RETC which would be integrated with our PDU. ClearFuels has been selected by the Department of Energy to receive up to $23 million as a grant to construct the gasifier.

We also own through our wholly-owned subsidiary, Rentech Energy Midwest Corporation (“REMC”), a nitrogen fertilizer manufacturing plant that uses natural gas as its feedstock. REMC’s plant, located in East Dubuque, Illinois (the “East Dubuque Plant”), manufactures and sells within the corn-belt region nitrogen fertilizer products which are currently in high demand by the American farmer and industrial users. Although our primary strategy is focused on synthetic fuels, in fiscal year 2009 our operating revenues were almost exclusively from sales at the East Dubuque Plant.

Business Strategy

Our deployment strategy includes both development of facilities and licensing of the Rentech Process and Rentech-SilvaGas Technology. The development model involves Rentech developing, co-owning and operating biomass-fed, fossil-fed and a combination of biomass and fossil-fed synthetic fuels, chemicals and/or power facilities. We believe we will be able to advance future projects by using the experience we gain through engineering, designing and constructing early facilities and by reducing the required capital and technical resources for each subsequent project. We intend to develop standard designs that are both replicable and scalable. The licensing model consists of licensing the Rentech Process and Rentech-SilvaGas Technology to parties for the development of facilities that produce synthetic fuels, specialty waxes and chemicals and/or power, thereby expanding the deployment opportunities for our technology.

Develop, Co-Own and Operate Model

Biomass Facilities. We believe biomass facilities provide an attractive business model due to feedstock costs that are expected to be significantly lower than the cost of fossil feedstocks, simpler facility designs than fossil fuel facilities and demand for the renewable fuels and energy that would be produced by these biomass facilities. Biomass can be categorized into urban streams (including waste materials such as municipal solid waste, construction and demolition waste, green wastes and sewage sludge) and rural streams (including agricultural materials such as stovers and straws, sugar cane bagasse, forestry residues, energy crops and algae). A typical biomass facility may produce renewable synthetic fuels as well as renewable power from the biomass feedstock. We also intend to develop biomass facilities that would produce natural gas substitutes or electric power without the production of synthetic fuels, depending on relative product prices in various markets around the world. These types of facilities tend to be much simpler in design than fossil-fed facilities. Therefore, biomass facilities typically should require less capital than fossil facilities which are more complex in design and likely to be much larger in scale.

Fossil Facilities. We believe that fossil facilities provide an appealing business model due to the ability to achieve capital efficiencies and attractive economic returns resulting from large-scale production of diverse high-value product streams. Fossil feedstock, particularly coal and petroleum coke, are abundant domestic resources with relatively stable historic prices. As a result, fossil resources are an attractive feedstock for large-scale synthetic fuels and chemicals facilities utilizing the Rentech Process where economies of scale and product diversification can be achieved. Carbon capture and sequestration as well as the addition of biomass as a co-feed are expected to reduce the lifecycle carbon footprint of fuels produced by fossil facilities below that of fuels produced from petroleum by conventional refineries. These types of facilities require significant capital for construction. Consequently, Rentech is seeking strategic and financial partners as well as long-term off-take agreements for products produced at these facilities in advance of their construction. The Company believes these steps will help secure the financing required to fund these types of projects. We intend to develop plants that will be economic at a scale smaller than our competitors. Although our technology would enable us to pursue larger projects, we believe that projects at this scale optimize access to capital and development time.

Licensing Model

We are actively pursuing a number of licensing opportunities domestically and internationally. Rentech intends to license the Rentech Process for both biomass and fossil feedstock applications for synthetic fuels production. Rentech also intends to license its Rentech-SilvaGas Technology for renewable power production and, in combination with the Rentech Process, synthetic fuels production. Licensing will provide us with the opportunity to expand the global deployment and acceptance of our technology without capital investment by us for plant construction. We believe that successful commercialization of Rentech technologies will enhance our licensing opportunities, resulting in additional revenue streams.

Under a typical licensing arrangement, in addition to license fees, we would expect to receive fees for providing our catalyst and technical services to licensees. After we grant a license, our licensees will be responsible for financing, constructing and operating their own facilities that will use our licensed technology. We generally would expect our licensees to acquire certain proprietary equipment that meets Rentech’s specifications. Licensees must also acquire their own feedstock and sell the products that their facilities produce.

Commercial Opportunities

We are working on the development of potential biomass projects. Our Rialto Project is furthest along in the development process. The Rialto Project is designed to produce 600 barrels per day of renewable synthetic fuels and 35 megawatts of renewable power. We have completed an engineering feasibility study for the Rialto Project which will utilize both the Rentech-SilvaGas Technology and the Rentech Process. In addition, we are conducting preliminary engineering work for the design of other biomass facilities, evaluating potential sites at which to locate these facilities and actively pursuing feedstock sources for these projects.

We have completed the engineering feasibility study for the Natchez Project and we have done additional engineering work to finalize technology selection for the facility. We own the site on which we intend to build this facility and we have a long-term agreement with Denbury Resources, Inc. under which that company will purchase all of the carbon dioxide captured during the production process.

Research and Development Program

We continue to advance our technology. Our research and development activities are centered at the RETC, where we have skilled technical, engineering and operating teams that work at our development and testing laboratories. The laboratory contains equipment and support facilities that provide us with resources for the continued development and testing of our technologies, as well as complementary technologies for additional applications and performance enhancements. In addition, the facilities allow us to conduct online analysis of feedstock and products.

Our principal research and development efforts at our laboratory are focused on improving the efficiency of the Rentech Process, and on developing the next generation of technology to further improve the efficiency of the Rentech Process. We also plan to install biomass gasifiers to supply syngas to the PDU in order to develop at demonstration scale gasification technologies that would complement the Rentech-SilvaGas Technology, and to continue to develop technology and processes that clean and condition syngas produced from biomass to make it suitable as an input for the Rentech Process. The PDU is important to our research and development activities, and provides samples of our products to potential customers.

Financial Information About Our Business Segments

Financial information about our business segments is provided in Note 19 of our Consolidated Financial Statements.

Our Proprietary Rentech Process

We have been developing our proprietary Rentech Process for nearly thirty years. The Rentech Process is a significant enhancement of the FT technology originally developed in the 1920s. Prior to application of the Rentech Process, hydrocarbon feedstock including fossil resources such as coal, petroleum coke, and natural gas and biomass resources such as forestry waste, agricultural waste, municipal solid waste and energy crops are reformed or gasified into syngas by various commercially available processes, including our Rentech-SilvaGas Technology. The syngas is then converted through the Rentech Process into differentiated hydrocarbon products in a reactor vessel containing Rentech’s patented and proprietary catalyst, and then upgraded with commercially available refining processes.

Development of the Rentech Process

Use of the Rentech Process in a commercial scale facility was successfully demonstrated in 1992 and 1993 at the Synhytech facility located in Pueblo, Colorado. The Synhytech facility was designed to produce up to 235 barrels of liquid hydrocarbons per day. Fuel Resources Development Company (“Fuelco”), our licensee at that time, had full control of the supply of syngas and the construction and operation of the facility. We designed, fabricated and operated the FT reactors and provided our catalyst for use in the Rentech reactors. Fuelco constructed the facility at the Pueblo municipal landfill, with the intent of using, at minimal cost, the methane and carbon dioxide in the landfill gas that was generated each day from the decomposition of the landfill material. Although the Rentech Process performed as expected to produce liquid hydrocarbons, Fuelco determined that the volume and the energy content of the landfill gas it captured were inadequate to operate the facility on an economic basis, and thus ceased operation of the facility.

We obtained ownership and control of the Synhytech facility in 1993. In order to further evaluate performance of the Rentech Process, we decided to operate the facility for a short period of time using natural gas supplied by pipeline as the feedstock. In July and August 1993, we operated the facility continuously for three weeks. The results confirmed that the Rentech Process operated successfully and that we had the ability to produce the desired products. We closed the Synhytech facility at the end of 1993 because no cost-efficient source of natural gas feedstock was available or convenient.

Our technology was also successfully used by Texaco Energy Systems at a facility in Laporte, Texas in 2000. Texaco leased the use of this facility from the United States Department of Energy on a short-term basis to conduct a joint demonstration integrating the Rentech Process with Texaco’s gasification process. The Laporte facility had the capacity to produce approximately ten barrels of product per day using the Rentech Process.

We have successfully produced synthetic fuels at our PDU in Commerce City, Colorado, in a series of campaigns since August 2008. We believe that the PDU is the only synthetic fuels facility in the United States producing transportation fuels. The facility is designed to produce approximately ten barrels per day of synthetic jet and diesel fuels and demonstrates the design, construction and operation of a synthetic fuels facility utilizing the Rentech Process. Achieving production at the PDU was the result of the operation and integration of all processes at the facility, including the steam methane reformer for the production of synthesis gas; the conversion of the synthesis gas in the Rentech reactor into clean hydrocarbons; the separation of the Rentech catalyst from the wax produced from the reactor; and the processing and upgrading of the hydrocarbons into ultra-clean synthetic fuels using UOP hydrocracking and hydrotreating technologies. Rentech and UOP maintain an alliance which provides a one-stop solution to developers of commercial synthetic fuels facilities worldwide for synthesis gas clean-up, conversion and product upgrading. With the PDU successfully operating, we are using the facility to confirm and refine the design parameters of the Rentech Process during longer-term production runs as well as the effect of various operating parameters on product yields and composition.

Competition in Fischer-Tropsch Technology

The development of Fischer-Tropsch technology for the production of hydrocarbon products like ours is highly competitive. Several major integrated oil companies, such as ExxonMobil, the Royal Dutch/Shell group, Statoil and BP, as well as several other companies such as Sasol, have developed or are developing competing technologies.

The fundamental differences between the various FT technologies developed by us and our competitors are the FT catalyst, the Rentech reactors where the syngas reacts with the catalyst and the process for separating catalyst from the wax product. The Rentech Process uses its proprietary iron-based catalyst which permits the efficient use of a wide range of feedstocks. We believe that most other FT technologies use cobalt-based catalysts. The Rentech Process also includes a patented process for separation of the Rentech catalyst from the wax product. Developing commercial FT technology requires significant capital and time, which we believe provides a material barrier to new competitors. Our focus on developing small to medium sized facilities require less capital and time for construction than larger capacity facilities.

Rentech-SilvaGas Technology

The patented Rentech-SilvaGas Technology generates medium-Btu syngas through the gasification of varying types of biomass feedstocks such as forestry products, pulp and paper residue, agricultural byproducts and energy crops. Biomass feedstock is loaded into the gasifier and mixed with hot sand, turning it into syngas and residual char. The residual char and sand are separated from the syngas by a cyclone separator and discharged to a combustor. The sand is then reheated in the combustor by adding air and burning the residual char. The reheated sand is removed from the combustion gas by a cyclone separator and returned to the gasifier. The resulting syngas can then be fed into a gas turbine or boiler for renewable power production. The syngas may also be used in combination with the Rentech Process for the production of renewable synthetic fuels.

Development of the Rentech-SilvaGas Technology

The Rentech-SilvaGas Technology was developed with approximately $100 million in funding from private investors and the DOE. A gasifier incorporating the technology operated over a series of campaigns for over 22,000 hours at a 10 dry ton per day pilot scale plant at the Battelle Memorial Institute in Columbus, Ohio. Then, from 1998 to 2001, the gasifier was operated successfully on a commercial scale during a series of operating campaigns at a facility in Burlington, Vermont, built in partnership with the DOE, National Renewable Energy Laboratory and Battelle Columbus Laboratory. The gasifier at the Burlington facility converted 400 dry tons per day of wood-based biomass into syngas used for power production. Rentech acquired the Rentech-SilvaGas Technology through its acquisition of SilvaGas in June 2009.

Competition in Biomass Gasification Technology

There are two primary categories of competition to the Rentech-SilvaGas Technology; conventional, proven technologies and developmental, small-scale technologies. The conventional technologies are typically used to produce low-Btu syngas that is then combusted in a boiler to generate steam for use in power production. These technologies have been deployed at large commercial scale facilities and are currently the established technologies for biomass-to-energy projects. Significant competitors in this area include Foster Wheeler, Energy Products of Idaho, Lurgi, TPS Termiska Processer AB, and Primenergy.

The developmental technologies are typically designed to produce a medium-Btu syngas which could be used for wider range of applications, including power production on a more efficient scale and for higher value fuels such as Fischer-Tropsch fuels, ethanol, butanol, or for precursors for many industrial chemicals. These technologies are generally considered to have higher technological or scale-up risk than their conventional competitors because they have only operated at small scale or pilot scale. We believe the facility in Burlington, Vermont utilizing the Rentech-SilvaGas technology is the largest facility that has operated with this type of biomass gasification technology, but other competitors have reported operating small scale facilities for several years and gained some commercial acceptance. While some of our competitors’ technologies require the use of oxygen to make medium BTU syngas, the Rentech-SilvaGas Technology does not which can help to simplify and lower the capital costs for a biomass gasification facility. Significant competitors in this area include Repotec Co., Choren Industries, Thermoselect, Range Fuels and Taylor Biomass Energy.

Products and Markets

Facilities using Rentech’s technologies can be designed and configured to produce synthetic fuels, chemicals and/or power from fossil and biomass resources.

The products we can produce include:

•

RenDiesel, RenJet, naphtha and power from fossil resources;

•

renewable RenDiesel, RenJet, naphtha and power from biomass resources; and

•

waxes, paraffins and specialty chemicals.

Synthetic fuel products that can be produced with our technology are substantially free of contaminants usually found in crude oil, such as sulfur, aromatics, nitrogen and heavy metals. Vehicle engine tests of RenDiesel 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 fuels can be used directly or as a blending component with conventionally refined petroleum based fuels without any modifications to existing engines or delivery infrastructure.

Clean Air Regulations

The Clean Air Act Amendments of 1990 (the “CAAA”) established several programs in order to improve air quality by, among other things, imposing restrictions on the emissions of hazardous pollutants into the atmosphere. As a means to address common sources of air pollution such as automobiles, trucks and electric power plants, the CAAA encourages the development and sale of alternative fuels as the nation attempts to meet national air quality standards. In addition, beginning on October 15, 2006, the United States Environmental Protection Agency (the “EPA”) required diesel vehicles traveling on interstate highways to operate using ultra-low sulfur diesel. The EPA has also started to phase-in a program to reduce the permissible sulfur content in highway diesel fuel from 500 parts per million to 15 parts per million by June 1, 2010. Furthermore, California has promulgated state specific standards to reduce the sulfur content of diesel fuel. Synthetic diesel fuel produced using the Rentech Process currently exceeds Federal and state low-sulfur standards, is clean burning fuel, and should therefore be attractive to fuel buyers and users.

The “Energy Independence and Security Act of 2007” (“EISA 2007”) greatly expanded the existing mandate for the blending of ethanol into fuels sold in the U.S. EISA 2007 increased the mandate from 7.5 billion gallons per year in 2012 to 36 billion gallons per year in 2022, with 21 billion gallons of that to be non food based ethanol and other advanced biofuels. For the first time the mandate, which was created under the authority of the Clean Air Act, requires the blending of renewable diesel fuels. Fuels produced from renewable feedstock using the Rentech Process will qualify as renewable diesel fuels.

Government Incentives

In 2000, Congress designated domestically produced Fischer-Tropsch fuels made from natural gas as an alternative fuel under the Energy Policy Act of 1992. This act also designates liquid fuels derived from coal as an “alternative fuel.”

The “Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users Act” (“SAFETEA-LU Act of 2005”) created a $0.50 per gallon tax credit for “any liquid derived from coal” using the Fischer-Tropsch process. This credit was extended in the “Emergency Economic Stabilization Act of 2008” (“EESA 2008”) to the end of 2009, and modified to require the capture of 75% of the facility’s carbon dioxide emissions and allowed the credit to be claimed on aviation fuel. The EESA 2008 also extended the existing $1.00 per gallon tax credit for renewable diesel fuels to December 31, 2009, expanded it to include aviation fuel and created a credit for capture and sequestration of anthropogenic carbon dioxide (“CO₂”) that is sequestered in the geological formations. The tax credit is $10 per ton for CO₂ used for enhanced oil recovery and $20 per ton for CO₂ injected in other geological formations.

The Energy Policy Act of 2005 (“EPACT 2005”) provides for tax credits, grants, loan guarantees and other incentives to stimulate coal gasification into Fischer-Tropsch fuels and chemicals. EPACT 2005 provides a 20% tax credit for qualifying gasification projects, including entities which produce chemicals, fertilizers, glass, steel, and forest products. In order to qualify for the tax credit, coal must comprise at least 90% of fuels required for “production of chemical feedstocks, liquid transportation fuels or co-production of electricity.” EPACT 2005 also authorizes grants for gasification and gasification co-production, which includes the production of Fischer-Tropsch fuels, fertilizer and electricity, as well as comprehensive loan guarantees for up to 80% of the project cost for deployment and commercialization of innovative technologies including gasification projects and gasifying coal to produce “ultra-clean premium fuels through Fischer-Tropsch process.” EPACT 2005 incentives may be used together with tax credits provided by the statute.

EPACT 2005 requires the Secretary of Defense to develop a strategy to use fuel produced from coal, tar sands and shale, and authorizes the U.S. Department of Defense to enter into multi-year procurement contracts.

The Highway Reauthorization and Excise Tax Simplification Act of 2005 (the “Highway Act”) also provides a $0.50 per gallon fuel excise tax credit for “any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process.”

The American Recovery and Reinvestment Act (“ARRA”) of 2009 provided funding to several renewable energy programs and created a new loan guarantee program for, among other things, the commercial development and deployment of advanced renewable power and fuels production technologies. In its 2009 Omnibus Appropriations Act, the Congress funded this “innovative technology” loan guarantee program with $8.5 billion. This new program is part of the loan guarantee program of EPACT 2005 and has similar requirements, but it is expressly targeted to renewable energy projects and could provide lower cost loans to qualifying projects.

The ARRA also provided additional funding for the DOE’s existing renewable energy programs, including funding for advanced biofuel production technologies. The DOE is currently reviewing applications for grants under several programs.

We believe the projects that produce product(s) developed with the Rentech technologies may, in appropriate circumstances, be eligible for one of more of the above incentives.

Business of Rentech Energy Midwest Corporation

Production Facility

The East Dubuque Plant is designed to produce anhydrous ammonia, nitric acid, ammonium nitrate solution, liquid and granular urea, nitrogen solutions (urea ammonium nitrate solution, or UAN) and carbon dioxide using natural gas as a feedstock. East Dubuque is located in the northwest corner of Illinois, and the facility is located on the Mississippi River.

The facility operates continuously, except for planned shutdowns for maintenance and efficiency improvements and occasional unplanned shutdowns due to equipment failures, power failures or other events. The facility can optimize the product mix according to swings in demand and pricing for its various products. During the fiscal year ended September 30, 2009, the facility produced approximately 1.02 million tons of these products, compared to approximately 1.15 million tons in the fiscal year ended September 30, 2008. Some products are final products sold to customers, and others, including ammonia, are both final products and feedstocks for other final products. Final products shipped from the facility during the fiscal year ended September 30, 2009 totaled approximately 438,000 tons of ammonia and upgraded nitrogen products, compared to approximately 534,000 tons in the fiscal year ended September 30, 2008. Carbon dioxide shipments totaled approximately 95,000 tons and 109,000 tons in the fiscal years ended September 30, 2009 and 2008, respectively.

The following table sets forth the East Dubuque Plant’s current rated production capacity for the listed nitrogen fertilizer products in tons per day.

		Capacity
Plant		(Tons per Day)
Anhydrous Ammonia			830
UAN Blending			1,100
Ammonium nitrate			600
Urea synthesis			400
Urea granulation			140
Nitric acid (2 plants)			380
Carbon Dioxide (2 plants)			650

Products

REMC’s product sales are heavily weighted toward anhydrous ammonia and UAN, which make up over 80% of total revenues. Products sold include anhydrous ammonia, UAN, nitric acid, carbon dioxide and granular and liquid urea. A majority of REMC’s products are sold through a Distribution Agreement with Agrium U.S.A., Inc. (“Agrium”) with the exception of carbon dioxide which is sold to industrial customers, generally on a contract basis. Although anhydrous ammonia and UAN are substitutes, each has its own characteristics, and customer product preferences vary according to the crop planted, soil and weather conditions, regional farming practices, relative prices and the cost and availability of appropriate storage, handling and application equipment, which are different for each of these two products.

Anhydrous Ammonia. REMC produces anhydrous ammonia (often referred to simply as “ammonia”), the simplest form of nitrogen fertilizer and the feedstock for the production of other nitrogen fertilizers. Ammonia is produced by reacting natural gas with steam and air at high temperatures and pressures in the presence of catalysts. The ammonia processing unit has a current rated capacity of 830 tons per day. Ammonia product storage consists of two 20,000 ton tanks in East Dubuque, Illinois and 15,000 tons of leased storage in Niota, Illinois. Ammonia is used in the production of all other products produced by the East Dubuque Plant, except carbon dioxide.

Ammonia contains 82% nitrogen by weight and is generally the least expensive form of fertilizer per pound of nitrogen. However, because it must be kept under pressure or refrigerated in order to keep it in a liquid state, ammonia is more costly to store, ship and apply than other nitrogen fertilizer products and must be applied in the fall during cool weather after harvest, in the spring just before planting or as side dress after the plant emerges. When used as a fertilizer, ammonia must be injected into the soil by specialized equipment, and soil conditions can limit its application.

UAN. UAN is produced by combining urea solution and ammonium nitrate solution. An aqueous solution of ammonium nitrate, referred to as AN, an intermediate in UAN manufacture, is produced in a separate AN unit by neutralizing nitric acid with ammonia. No solid ammonium nitrate is produced in the facility. UAN is a liquid fertilizer which has a slight ammonia odor and, unlike ammonia, it does not need to be refrigerated or pressurized when transported or stored. The East Dubuque Plant maintains two UAN storage tanks having a combined storage capacity of 80,000 tons.

As a liquid, UAN has many advantages over solid fertilizers and ammonia. UAN (typically sold in nitrogen concentrations of 28% and 32%) may be applied more uniformly than non-liquid products and may be mixed with various crop protection products or other nutrients, permitting the application of several materials simultaneously, thus reducing energy and labor costs. In addition, UAN, unlike ammonia, may be applied from ordinary tanks and trucks and can be applied to the soil either through spraying, injecting or through irrigation systems throughout the growing season. Moreover, due to its stable nature and due to the fact that it can be applied in the field along with other chemicals, UAN can be a preferred fertilizer choice for crops requiring soil surface applications (such as no-till row crops).

Urea. Urea product is produced through the reaction of ammonia with carbon dioxide at high pressure and temperatures creating a molten product called Urea solution at a concentration of approximately 70%. Urea solution can be further processed through the urea granulation plant to create dry granular urea (46% nitrogen concentration), used for the production of UAN or sold directly to trade customers in its state as a urea solution. The facility has a 12,000 ton capacity bulk warehouse which may be used for dry bulk granular urea storage.

Nitric Acid. REMC produces nitric acid through two separate nitric acid plants. Nitric acid is produced through the catalytic combustion of ammonia vapor in air over a platinum-rhodium (precious metals) catalyst gauze and absorption of the nitric oxide in weak acid. Nitric acid is either sold to third parties or used within the facility for the production of ammonium nitrate solution, as an intermediate from which UAN is produced. Limited storage capacity is currently available at the facility, but sufficient storage is available for efficient product loading. Storage capacity has not been a limiting factor in the sale of nitric acid.

Carbon Dioxide. Carbon dioxide is a co-manufactured gaseous product in the manufacture of ammonia (approximately 1.1 tons of CO₂ per ton of ammonia). Most plants vent the gas from their ammonia production to the atmosphere. The East Dubuque Plant utilizes CO₂ in its urea production and has developed a market for the CO₂ produced through conversion to a purified food grade liquid carbon dioxide. The CO₂ is purified, compressed and chilled to condensing conditions. It is stored as a saturated liquid for later sale to various industrial customers. The facility is a certified producer of food grade liquid CO₂ for the soft drink industry. The facility has storage capacity for approximately 1,900 tons of CO₂. Negotiated contract agreements for CO₂ allow for regular shipment of CO₂ throughout the year, so the current storage capacity is adequate.

Marketing and Distribution

REMC has a Distribution Agreement with Agrium, pursuant to which Agrium is obligated to use commercially reasonable efforts to promote the sale of, and to solicit and secure orders from its customers for nitrogen fertilizer products comprising ammonia, granular urea, UAN solutions and nitric acid and related nitrogen-based products manufactured at the East Dubuque Plant. REMC has typically sold more than 80% of the nitrogen fertilizer products manufactured at the facility through the distribution agreement with Agrium, and the remaining amounts directly to customers. We pay Agrium a commission for these services. REMC’s sales executives are typically directly involved with the customers who buy our products, and REMC’s management approves price, quantity, and other terms for each sale through Agrium. REMC’s rights under the Distribution Agreement include the right to store specified amounts of its ammonia at Agrium’s ammonia terminal in Niota, Illinois, for a monthly fee. CO₂ is not sold to Agrium, but marketed by REMC, generally on a contract by contract basis. In the event that Agrium, Inc. consummates a proposed acquisition of CF Industries Holdings, Inc., then the Distribution Agreement will be amended so that Agrium will no longer be the exclusive distributor of REMC’s products. In that event, we intend to maintain our access to storage facilities provided by Agrium, we will be required to make certain cash payments to Agrium, and we will no longer be required to pay commissions on product sales to Agrium. We believe that there would be no material impact on the sales, timing and pricing of REMC’s products, and that we will realize net cost savings.

Seasonality and Volatility

The fertilizer business is seasonal, based upon the planting, growing and harvesting cycles. Inventories must be accumulated to allow for customer shipments during the spring and fall fertilizer application seasons, and require significant storage capacity. The accumulation of inventory to be available for seasonal sales requires that working capital be available at REMC. This seasonality generally results in higher fertilizer prices during peak periods, with prices normally reaching their highest point in the spring, decreasing in the summer, and increasing again in the fall. Another seasonal factor affecting REMC is the ability to transport product via barges on the Mississippi River. During the winter, the Mississippi River cannot be used for transport due to lock closures. The river closure affects how REMC can transport its products and can impact profitability due to differences in transportation costs. Fertilizer products are sold both on the spot market for immediate delivery and under forward sale contracts for future delivery at fixed prices. The terms of the forward sale contracts, including the percentage of the purchase price paid as a down payment, can vary from season to season. Variations in the proportion of product sold through forward sales, and variations in the terms of the forward sale contracts can increase the seasonal and year-to-year volatility of cash flows.

Nitrogen fertilizer price levels are influenced by world supply and demand for ammonia and nitrogen-based products. Long-term demand is affected by population growth and rising living standards that determine food consumption. Shorter-term demand is affected by world economic conditions and international trade decisions. Supply is affected by increasing worldwide capacity and the availability of nitrogen product imports from major producing regions and countries such as the former Soviet Union, the Middle East, South America and Trinidad. There continue to be industry cycles of expansion and reduction of production facilities in response to the changes in market prices of natural gas and the demand for nitrogen fertilizer products.

The historical results are not necessarily indicative of results that may be expected in the future. The following table shows product tonnage shipped by quarter for the last four fiscal years including periods prior to our acquisition of the East Dubuque Plant in April 2006.

		For the Fiscal Years Ended September 30,
		2009				2008				2007				2006
		(in thousands of tons)
First Quarter			115				171				160				78
Second Quarter			65				103				77				74
Third Quarter			203				170				209				172
Fourth Quarter			150				199				125				167
Total Tons Shipped for Fiscal Year			533				643				571				491

As reflected in the table, the third fiscal quarter typically has the highest volume of tons shipped, which corresponds to end-user application of fertilizer products during the spring.

Raw Materials

The principal raw material used to produce manufactured nitrogen products is natural gas. REMC has historically purchased natural gas for use in the facility in the spot market, through the use of forward purchase contracts, or a combination of both. Forward purchase contracts have historically been used to lock in pricing for a portion of the facility’s natural gas requirements. These forward purchase contracts are generally either fixed-price or index-priced, short term in nature and for a fixed supply quantity. REMC is able to purchase natural gas at competitive prices due to its connection to the Northern Illinois Gas Company (“NICOR”) distribution system and its proximity to the Northern Natural Gas pipeline. Natural gas purchased and used in production was approximately 9.6 billion cubic feet and 11.0 billion cubic feet in the 12 month periods ended September 30, 2009 and September 30, 2008, respectively.

Natural gas prices have experienced significant fluctuations over the last few years. Prices increased in 2008 and declined in 2009. Natural gas prices trended down during 2007 and 2006 from record high prices in 2005. The price changes are driven by several supply factors, including the increasing overall demand for natural gas from industrial users, which is affected, in part, by the general conditions of the United States economy, and other factors. Seasonal fluctuations exist within each year resulting from various supply and demand factors, such as the severity of winter and its affect on the consumer demand for heating, and the severity of summer and its affect on industrial demand by utilities for electrical generation, among other factors. Several recent discoveries of large domestic natural gas deposits, combined with advances in technology for quickly and efficiently producing natural gas have caused large increases in the estimates of available reserves and production in the U.S., contributing to significant reductions in prices of natural gas. Changes in levels of natural gas prices and market prices of nitrogen-based products can materially affect REMC’s financial position and results of operations.

Transportation

Natural gas is transported to the East Dubuque Plant through a connection to the natural gas pipeline from NICOR. Products are shipped by barge, truck and rail. Approximately 70% of REMC’s products are typically transported by truck within a 150-mile radius of the plant. The facility can ship ammonia and UAN through a barge dock on the Mississippi River. The East Dubuque Plant owns a rail spur that connects to the Burlington Northern Santa Fe Railway (“BNSF”). The Canadian National Railway Company also services the East Dubuque Plant and has rights to travel on the BNSF main line.

Competition

REMC competes with a number of domestic and foreign producers of nitrogen fertilizer products, many of which are larger than REMC. Customers for nitrogen fertilizer products make purchasing decisions principally on the delivered price and availability of the product at the critical application times. Our physical location in the center of the Midwest corn belt provides us with a strategic placement and transportation cost advantage, compared to other producers who have to ship their products greater distances to the corn belt. We plan to continue to operate the East Dubuque Plant with natural gas as the feedstock. Competitors who may have access to cheaper natural gas could have a cost advantage that would act to offset our location advantage.

Intellectual Property and Patents of the Company

We own 28 issued and 26 pending United States utility patents pertaining to the Rentech Process and the Rentech-SilvaGas Technology and related processes, including the application of the processes, the products made by the Rentech Process and the materials used in connection with the Rentech Process. We protect certain patents abroad in varying countries, holding 33 issued and 40 pending foreign patents (all of which are counterparts to our United States utility patents).

The Rentech Process requires our iron-based catalyst, which we have patented. We currently have several pending United States and foreign patent applications which claim improvements to certain aspects of the Rentech Process. Five of our patents are related to the Rentech-SilvaGas Technology and several of our patent applications deal with conditioning the syngas from the Rentech-SilvaGas Technology for use in the Rentech Process for production of synthetic fuels.

The term of a utility patent is generally 20 years from the date of filing an application with the United States Patent and Trademark Office (“USPTO”). If priority of an earlier application or applications is claimed, the term can end 20 years from the filing date of the earliest of such earlier applications. Patents that are in force on or that will issue on an application that is filed before June 8, 1995 have a term that is the greater of the “20 year term” noted above or 17 years from the patent grant. Our first patent matured from an application that was filed in 1992 and expires 17 years from grant. Our most recent applications were filed in 2009.

We have registered RENTECH^® as a trademark and it is listed on the Primary Register of the USPTO. The use of RENTECH^® as just the name, or with the stylized bubbles that is our corporate logo, will identify and distinguish our services from those of other companies. We have also filed trademark applications to register the RENTECH^® mark in certain foreign jurisdictions. We have also registered RENJET^®, RENCHEM^® and RENDIESEL^® as trademarks and listed them on the Primary Register of the USPTO. The use of these trademarks identifies fuels and chemicals produced using the Rentech Process. We have filed intent to use trademark applications domestically for the mark RENFUEL™ and RENPOWER™. These marks represent the names under the Rentech brand that we intend to use for certain fuel and power products.

We also maintain trade secrets and confidential proprietary information that we use in connection with our trademarked Rentech Process. The life of a trademark is indefinite as long as there is continual use of the mark. The term of our trade secrets and proprietary information is perpetual as long as we prevent public disclosure by keeping them secret and confidential and they are not discovered or reverse-engineered by others.

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 our business. We believe that our intellectual property gives us rights to exploit our technologies and to exclude others from making, using, selling or importing certain inventions throughout the United States without our consent. If we lost the rights to exploit or exclusively exploit an intellectual property asset, the financial results of our business and our overall financial results and prospects would be materially harmed.

Regulation

The ownership and operation of nitrogen fertilizer and alternative energy facilities are subject to extensive United States federal, state and local environmental, health and safety laws and regulations, including those governing and imposing liability for the discharge of pollutants into the air and water, the management and on-site and off-site disposal of chemicals, byproducts, including waste water and spent catalyst, and hazardous wastes, worker health and safety, the investigation and cleanup of contamination at currently and formerly owned or operated sites, as well as third party sites that may have been impacted by our operations, and for natural resource damages related to any releases of hazardous substances. The Company’s facilities and operations must comply with these environmental laws and regulations. For example, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), we could be held strictly or jointly and severally liable for the removal and remediation of any hazardous substance contamination at our currently or formerly owned or operated facilities, at off-site properties (where migration of contamination from our facilities occurred) and at third party waste disposal sites at which our wastes were disposed. Because of our operations, the history of industrial or commercial uses at our currently and formerly owned and operated facilities, and the use, production, disposal and possible release of hazardous substances and wastes at or from those facilities, we may be subject to liability under environmental laws. We could also be subject to liability for personal injury based on human exposure to or natural resource damages from hazardous substances or wastes released or disposed of at or from our currently or formerly owned or operated facilities.

In addition, some of our operations require environmental permits and controls to prevent or limit pollution to the environment. Compliance with laws, regulations and requisite permits could require us to curtail our operations or increase costs of designing, installing and operating our nitrogen fertilizer and alternative energy facilities. For example, emissions from those facilities may require the installation of costly pollution control equipment in order to meet applicable environment legal and permit requirements.

Although we do not believe that costs for compliance with environmental and health and safety laws and regulations and applicable environmental permit requirements in connection with our current operations will have a material adverse effect on us, we cannot predict with certainty the future costs of complying with environmental laws, regulations and permit requirements or the costs that may be associated with investigation, remediating contamination or monitoring. The East Dubuque Plant has experienced some level of regulatory scrutiny in the past and we may be subject to further regulatory inspections, future requests for investigation relating to, or assertions of liability for, among other things, regulated materials management practices. In the future, we could incur material liabilities or costs related to environmental matters, and these environmental liabilities or costs (including fines or other sanctions) could have a material adverse effect on our business, operating results and financial condition.

In addition, the engineering design and technical services we provide to our licensees are subject to governmental licensing requirements, which require that such services comply with certain professional standards and other requirements. We believe we have all required licenses to conduct our operations and are in substantial compliance with applicable regulatory requirements. However, the loss or revocation of any license or the limitation on any services thereunder could prevent us from conducting such services and could subject us to substantial fines. In addition, changes in these requirements (including those related to future climate change regulation) could adversely affect us.

Implementation of Carbon Dioxide Emissions Reduction Strategy

In an effort to respond to concerns over climate change, the U.S. Congress is considering various proposals to reduce emissions of greenhouse gases, including carbon dioxide. Several bills have been introduced in Congress that would mandate greenhouse gas emission reductions, but none have become law, and presently there are no federal mandatory greenhouse gas requirements. While it is possible that Congress will adopt some form of mandatory greenhouse gas emission reductions legislation in the future, the timing and specific requirements of any such legislation are highly uncertain. The United States Environmental Protection Agency found that greenhouse gases are harmful pollutants, and therefore are subject to regulation under the Clean Air Act. The EPA has stated that it therefore intends to issue regulations governing the emission of greenhouse gases. Rentech is actively participating in the evolution of federal policy on this issue.

The greenhouse gas policy of the United States currently favors voluntary actions to reduce emissions and continued research and technology development over near-term mandatory greenhouse gas emission reduction requirements. In line with this policy, we are focused on initiatives to reduce greenhouse gas emissions, particularly carbon dioxide.

In the event that these legislative or regulatory initiatives increase the economic cost of emitting greenhouse gases, our businesses could be materially affected. The East Dubuque Plant is a significant emitter of greenhouse gases. The net effect on the East Dubuque Plant from such initiatives would depend on the baseline level of allowed emissions in any new carbon regulation regime, and their impact could result in significant costs for REMC. Our biomass energy projects are designed to produce low-carbon fuels and power, depending on the feedstock and its potential alternative uses, and they may benefit from carbon regulation. We do not expect to develop projects using fossil feedstocks without carbon capture and sequestration, and we expect that such projects could have lifecycle carbon footprints equal to or better than those of petroleum-based fuels. Therefore, we expect that the impact of carbon regulation on our fossil projects may be neutral to positive, although fossil projects are expected to benefit substantially less than our biomass projects.

Employees and Labor Relations

As of September 30, 2009, we had 162 non-unionized and salaried employees, and 88 unionized employees. We believe that we have good relations with our employees. Our subsidiary REMC has one labor contract in place covering the unionized employees. On October 17, 2006, this contract was renewed for a six year term that is effective until October 17, 2012. Neither the Company nor any of its subsidiaries, including REMC, have experienced work stoppages in the recent past.

Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available free of charge as soon as reasonably practical after they are filed or furnished to the Securities and Exchange Commission (“SEC”), through our website, www.rentechinc.com. Materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding our Company that we file electronically with the SEC.

ITEM 1A. RISK FACTORS

You should carefully consider the risk factors set forth below and in the other reports we file with the SEC from time to time. We may also face other risks and uncertainties, which we do not know or that we currently believe to be immaterial. If any of these risk factors were to actually occur, actual results could differ materially from those anticipated, and our business, financial condition or results of operations could be materially adversely affected.

Risks Related to Our Liquidity, Financial Condition, and Results of Operations

Our liquidity and capital resources are limited. We must raise substantial additional capital to execute our business plan and, in the event that currently expected sources of funding are not available, to fund working capital and to continue our operations.

Our liquidity and capital resources are limited. At September 30, 2009, we had working capital (current assets in excess of current liabilities) of $10.6 million, compared to working capital of $21.5 million at September 30, 2008. We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next 12 months. In fiscal year 2010, we expect our principal liquidity needs to include costs to develop the Rialto and Natchez Projects, to operate the PDU, to continue research and development of the Rentech Process and to fund general working capital needs. Based on current market conditions, we believe that our liquidity needs for our currently-budgeted activities for fiscal year 2010 can be met from cash on hand, plus the cash forecasted to be generated by REMC. Our currently-budgeted activities for our Rialto and Natchez Projects require small amounts of capital. However, if we pursue detailed engineering, procurement or construction activities at the projects, we will need significantly more capital in order to fund those activities.

In the event that currently expected sources of funding are not available, we will also need to raise additional capital to fund our working capital and to continue our operations. We will require substantial amounts of capital that we do not now have to fund our long-term liquidity requirements, which principally relate to the development, construction and operation of commercial projects. Capital markets have recently experienced extreme uncertainty, and access to those markets has been difficult. Our failure to raise additional capital when needed would have a material adverse effect on our results of operations, liquidity and cash flows and our ability to execute our business plan.

Until 2009, we had never operated at a profit. If we do not achieve significant amounts of additional revenues and become profitable on an ongoing basis, we may be unable to continue our operations.

We have a history of operating losses and until 2009 had never operated at a profit. From our inception on December 18, 1981 through September 30, 2008, we have an accumulated deficit of $249.3 million. During the fiscal year ended September 30, 2009, we had net income of $3.0 million. If we do not achieve significant amounts of revenues and operate at a profit on an ongoing basis in the future, we may be unable to continue our operations at their current level. Ultimately, our ability to remain in business will depend upon earning a profit from commercialization of the Rentech Process and deployment of the Rentech-SilvaGas Technology. We have not been able to achieve sustained commercial use of the technology as of this time. Failure to do so would have a material adverse effect on our financial position, results of operations and prospects.

REMC’s operations may not be profitable and may require substantial working capital financing.

During fiscal 2009, 2008 and 2007, REMC generated positive income from operations and positive cash flow from operations. However, during fiscal 2006, although REMC provided positive cash flow from operations, it operated at a net loss. In prior fiscal years, the East Dubuque Plant operated by REMC sustained losses and negative cash flows from operations. The net loss in fiscal 2006, was the result, among other things, of very difficult market conditions in its industry and rapidly rising costs of the natural gas feedstock and energy required to produce nitrogen fertilizers. REMC’s profits and cash flows are subject to changes in the prices for its products and it main input, natural gas, all of which are commodities. REMC’s profits depend on maintaining high rates of production of its products, and interruptions in plant operations could adversely affect profitability. In addition, REMC’s business is extremely seasonal, and the working capital requirements in its off season are substantial. If we are not able to operate the nitrogen fertilizer facility at a profit or if we are not able to access a sufficient amount of additional financing for working capital, our business, financial condition and results of operations would be materially adversely affected.

Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations.

As of September 30, 2009, out total indebtedness was $100.1 million. Of this amount, approximately $37.1 million of principal borrowings were outstanding under REMC’s Senior Credit Agreement and the remainder was represented by our convertible notes due in 2013. The obligations under the Senior Credit Agreement are secured by substantially all of our assets and the assets of most of our subsidiaries, including a pledge of the East Dubuque Plant and a pledge of the equity interests in most of our subsidiaries. Our substantial debt could have important consequences, including:

•

increasing our vulnerability to general economic and industry conditions;

•

requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

•

limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

•

requiring prepayments of principal and interest under the Senior Credit Agreement in an amount equal to distributions and loans made by REMC to its shareholders, including Rentech;

•

incurring higher interest expense in the event of increases in the Senior Credit Agreement’s variable interest rates;

•

limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have greater capital resources;

•

limiting our ability to make investments, dispose of assets, pay cash dividends or repurchase stock; and

•

subjecting us to financial and other restrictive covenants in our indebtedness, the failure of which to comply with could result in an event of default.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Failure to pay our indebtedness on time would constitute an event of default under the agreements governing our indebtedness, which would give rise to our lenders’ ability to accelerate the obligations and seek other remedies against us.

Continued recessionary conditions and the relative unavailability of credit have made it more difficult for companies to secure financing. If we are unable to access financing on terms and at a time acceptable to us for any reason, it could have a material adverse effect on our operations, financial condition and liquidity.

Our ability to obtain any financing when needed, whether through the issuance of new equity or debt securities or otherwise, and the terms of any such financing are dependent on, among other things, our financial condition, financial market conditions, general economic conditions and conditions within our industry, and numerous other factors. In the U.S., recent market and economic conditions continue to be challenging with tight credit conditions and no or slow growth. Throughout fiscal 2009, continued concerns about the systemic impact of inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining real estate market in the U.S. contributed to increased market volatility and diminished expectations for the U.S. economy. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Many lenders and institutional investors continue to be reluctant to provide funding to borrowers. If these market conditions continue, they could limit our ability to timely replace maturing liabilities, or access the capital markets or other sources of financing to meet our liquidity needs, resulting in a material adverse effect on our operations, financial condition and liquidity.

The issuance of shares of our common stock could result in the loss of our ability to use our net operating losses.

As of September 30, 2009, we had approximately $131 million of tax net operating loss carryforwards. Realization of any benefit from our tax net operating losses is dependent on: (1) our ability to generate future taxable income and (2) the absence of certain future “ownership changes” of our common stock. An “ownership change,” as defined in the applicable federal income tax rules, would place significant limitations, on an annual basis, on the use of such net operating losses to offset any future taxable income we may generate. Such limitations, in conjunction with the net operating loss expiration provisions, could effectively eliminate our ability to use a substantial portion of our net operating losses to offset any future taxable income.

It is likely that we have incurred one or more “ownership changes” in the past, in which case our ability to use our net operating losses would be limited. In addition, the issuance of shares of our common stock could cause an “ownership change” which would also limit our ability to use our net operating losses. Other issuances of shares of our common stock which could cause an “ownership change” include the issuance of shares of common stock upon future conversion or exercise of outstanding options and warrants. In this regard, we contemplate that we would need to issue a substantial amount of additional shares of our common stock (or securities convertible into or exercisable or exchangeable for common stock) in connection with our proposed plans to finance the commercialization of the Rentech Process and the implementation of our business plan.

We may not be able to successfully manage our growing business.

If we are successful in our plans to commercialize the Rentech Process and the Rentech-SilvaGas Technology by acquiring or developing alternative energy facilities, we would experience a period of rapid growth that could place significant additional demands on, and require us to expand, our management resources and information systems. The management of our growth will require, among other things, continued development of our internal controls and information systems and the ability to attract and retain qualified personnel. Our failure to manage any such rapid growth effectively could have a material adverse effect on us and our operating results.

We could be subject to additional risks and uncertainties as a result of the restatement of our consolidated financial statements.

As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Restatement” and Notes 2 and 21 to our consolidated financial statements, we have restated our consolidated financial statements for the annual and quarterly periods within fiscal year 2008 and the first three quarters of fiscal year 2009. We determined that prepayments under forward contracts to purchase natural gas should be reclassified from inventory to deposits on gas contracts, and that the lower of cost or market adjustments related to these prepayments should be reversed. As a result of the restatement, we could become subject to a number of risks and uncertainties, including incurring unanticipated costs for accounting and legal fees.

We have disclosed a material weakness in our internal control over financial reporting, which could adversely affect investor confidence, impair the value of our common stock and increase our cost of raising capital.

In connection with the restatement discussed above, management identified a material weakness in our internal control over financial reporting for the fiscal year ended September 30, 2009 relating to our failure to maintain and communicate sufficient and consistent accounting policies with respect to GAAP. For a discussion of our internal control over financial reporting and a description of the identified material weakness, see Item 9A, “Controls and Procedures.”

The Public Company Accounting Oversight Board’s Auditing Standard No. 5 defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Although management has implemented or intends to implement certain procedures to strengthen our internal controls, a material weakness in our internal control over financial reporting could adversely impact our ability to provide timely and accurate financial information. If we are unsuccessful in implementing or following our remediation plan, we may not be able to accurately report our financial condition, results of operations or cash flows or maintain effective internal control over financial reporting. If we are unable to report financial information timely and accurately or to maintain effective disclosure controls and procedures, we could be subject to, among other things, regulatory or enforcement actions by the SEC and the New York Stock Exchange, including a delisting from the NYSE AMEX, securities litigation and a general loss of investor confidence, any one of which could adversely affect investor confidence, impair the value of our common stock and increase our cost of raising capital.

Risks Related to the Rentech Process and the Rentech-SilvaGas Technology

We and our potential licensees may be unable to successfully implement the Rentech Process or the Rentech-SilvaGas Technology at commercial scale synthetic fuels plants.

A variety of results necessary for successful operation of the Rentech Process and the Rentech-SilvaGas Technology could fail to occur at a commercial plant. Results that could cause commercial scale synthetic fuels plants to be unsuccessful, and require design revisions, include:

•

higher than anticipated capital and operating costs to design, construct or reconfigure and operate a plant using the Rentech Process;

•

reaction activity different than that demonstrated in laboratory, pilot, and demonstration plant operations, which could increase the amount of catalyst or number of reactors required to convert synthesis gas into hydrocarbons;

•

shorter than anticipated catalyst life, which would require more frequent catalyst replacement or addition, catalyst purchases, or both;

•

insufficient catalyst separation from the crude wax product stream could impair the operation of the product upgrading unit;

•

product upgrading catalyst sensitivities to impurities in the crude synthetic fuel products, which would impair the efficiency and economics of the product upgrade unit and require design revisions; and

•

higher than anticipated costs for the catalyst and other materials used to operate a plant using the Rentech technologies.

If any of the foregoing were to occur, our capital and operating costs would increase. In addition, our projects or those of our licensees could experience mechanical difficulties, either related or unrelated to elements of the Rentech Process. Our failure to construct and operate a commercial scale synthetic fuels plant based on the Rentech technologies could materially and adversely affect our business, results of operation, financial condition and prospects.

We could have indemnification liabilities to potential licensees of our technology.

We anticipate that our license agreements will require us to indemnify the licensee against specified losses relating to, among other things:

•

use of patent rights and technical information relating to the Rentech Process or the Rentech-SilvaGas Technology;

•

failure of our technology to perform according to guaranteed specifications; and

•

acts or omissions by us in connection with our preparation of preliminary and final design packages for the licensee’s plant and approval of the licensee’s construction plans.

Our indemnification obligations could result in substantial expenses and liabilities to us if intellectual property rights claims were to be made against us or our licensees, or if the plants fail to operate according to the preliminary plans.

Our success substantially depends on the performance of our management team, project development team and technology group. The loss of key individuals within these groups would disrupt our business operations.

Our successful implementation of our business plan is substantially dependent upon the contributions of our management team, project development team and technology group. Our ability to design, startup and operate plants or enter into licensing arrangements using our technology is highly reliant on the knowledge and skills of these key personnel. Moreover, we rely on these personnel to conduct research and development of our processes, products, markets and costs, and the loss of such personnel would harm our ability to successfully compete. As a result, unexpected loss of the services of key employees could have a material adverse effect on our business, operating results, financial condition and prospects.

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, trademarks, trade secrets and contractual restrictions to protect our proprietary rights. Our business and prospects depend largely upon our ability to maintain control of rights to exploit our intellectual property. Our published and issued patents both foreign and domestic provide us certain exclusive rights (subject to licenses we have granted to others) to exploit our technology. Our existing patents might be infringed upon, invalidated or circumvented by others. 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, 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 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 proprietary know-how might otherwise become known or be independently discovered by others.

We may not become aware of patents or rights of others that may have applicability in our 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 technologies. Legal actions could 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 by our joint venturers or our licensees, we could be subject to an injunction or 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, enforcing our patents or defending against the infringement claims of others, or both. If we are unable to successfully maintain our technology against claims by others, our competitive position would be harmed and our revenues could be substantially reduced, and our business, operating results and financial condition could be materially and adversely affected.

Our technology may not compete successfully against technologies developed by our competitors, many of whom have significantly more resources.

The development of Fischer-Tropsch and biomass technologies like ours is highly competitive. Several major integrated oil companies, as well as several smaller companies, have developed or are developing competing Fischer-Tropsch and gasification technologies that they may offer to license to our potential customers or use as the basis for a competing development project. Many 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. In addition, several companies are developing biomass gasification technologies that compete with our Rentech-SilvaGas Technology. Advances by others in their technologies might lower the cost of processes that compete with our technologies. As our competitors continue to develop technologies, some part or all 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.

A reduction in government incentives for FT fuels or energy from biomass, or the relaxation of clean air requirements, could materially reduce the demand for FT fuels or energy from biomass.

Federal and state law provides incentives for FT fuels, and technologies that produce the FT fuels, such as the Rentech Process, and for energy produced from renewable feedstocks. For instance, the EPACT 2005 provides for tax credits, grants, loan guarantees and other incentives to stimulate coal gasification to Fischer-Tropsch fuels and chemicals. The Highway Act also provides a $0.50 per gallon fuel excise tax credit for FT fuels from coal. The EESA 2008 provides credits for coal-to-liquids (“CTL”) based fuels and credits for carbon dioxide captured for enhanced oil recovery. The ARRA provides a number of incentives and authority for loan guarantees for the development of projects like those that we are developing. California law requires specific reductions in the carbon content of transportation fuels, as well as specific levels of the production of power from renewable resources. We anticipate that our proposed projects may qualify for us to receive the incentives under EPACT 2005 and the EESA 2008, and that FT fuels produced with the Rentech Process would qualify for the Highway Act’s tax credit. In addition, certain federal regulations that restrict air pollution provide an incentive for the use of FT fuels because they comply with the regulations in cases where conventional fuels might not. Changes in federal or state law or policy could result in a reduction or elimination in the incentives that apply to us or our ability to take advantage of them, or a relaxation of the requirements with respect to air pollutants created by conventional fuels. As a result, the reduction or elimination of government incentives or the relaxation of air pollution requirements could have a material adverse effect on our financial condition, results of operations and prospects.

Industry rejection of the Rentech Process or the Rentech-SilvaGas Technology would adversely affect our ability to receive future license fees.

As is typical in the case of unfamiliar and/or rapidly evolving technologies, demand and industry acceptance of the Rentech Process or the Rentech-SilvaGas Technology is highly uncertain. Historically, most applications of FT processes have not produced fuels that were economical compared to the price of conventional fuel sources. Failure by the industry to accept our technology, whether due to unsuccessful use, results that are not economical, the novelty of our technology, the lower price of alternatively sourced fuels, or for other reasons, or if acceptance develops more slowly than expected, would materially and adversely affect our business, operating results, financial condition and prospects.

If a high profile industry participant were to adopt the Rentech Process or the Rentech-SilvaGas Technology and fail to achieve success, or if any commercial FT plant based on our technology were to fail to achieve success, other industry participants’ perception of our technology 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 FT technology in general, or our technology in particular, based on their belief that widespread adoption of FT technology might negatively impact their competitive position.

Changes in existing laws and regulations, or their interpretation, or the imposition of new restrictions relating to emissions of carbon dioxide may give rise to additional compliance costs or liabilities and could materially reduce the demand for FT fuels or the Rentech Process which could, in turn, have a material adverse effect on our business, financial condition, results of operations or prospects.

The application of the Rentech Process in synthetic fuel projects often relies on gasification technology to create the syngas that is used to produce FT fuels and other hydrocarbon products. Coal gasification breaks down coal into its components by subjecting it to high temperature and pressure, using steam and measured amounts of oxygen, which leads to the production of gaseous compounds, including CO₂. Although the United States does not currently maintain comprehensive regulation of CO₂ emissions, various legislative and regulatory measures to address greenhouse gas emissions (such as CO₂) are currently in various phases of discussion or implementation. These include the Kyoto Protocol as well as proposed federal legislation and state actions to develop statewide or regional programs, each of which have imposed or would impose reductions in greenhouse gas emissions. Although the United States has not ratified the emissions standards called for under the Kyoto Protocol, or adopted other comprehensive regulations for greenhouse gas emissions, the Kyoto Protocol’s specific emission targets for the United States would require the reduction of greenhouse gas emissions to 93% of 1990 levels over a five-year budget period from 2008 through 2012. Future restrictions on greenhouse gas emissions could result in increased costs or liabilities associated with complying with such restrictions, or materially reduce the demand for FT fuels and the Rentech Process which, in turn, could have a material adverse effect on our business, financial condition, results of operations or prospects.

Risks Related to Possible Inability to Complete Project Developments and the Financing Required for Construction and Subsequent Operation

We are pursuing alternative energy projects, including the Rialto and Natchez Projects, that will involve substantial expense and risk.

We are pursuing opportunities to develop alternative energy projects, however we do not have the financing for any of these projects. Moreover, the pursuit of such opportunities requires that we incur material expenses, including for financial, legal and other advisors, whether or not our efforts are successful. From time to time, we may enter into letters of intent or memorandums of understanding relating to our projects, which may not proceed to completion for various reasons. Our pursuit of any of these alternative energy projects involves significant risks, and our failure to successfully develop these projects, or failure to operate them successfully after we have developed them, could have a material adverse effect on our financial condition, results of operations and prospects. The costs of constructing our projects depends substantially on general construction costs, including the costs for commodities such as steel, copper and concrete. Escalation of costs for these commodities or other construction costs may increase the cost of our projects substantially, potentially to the extent that the projects would no longer be economically feasible.

The construction of commercial scale projects that utilize our technology will require several years and substantial financing, and may not be successful.

The engineering, design, procurement of materials, and construction necessary to build a commercial scale alternative energy production project that utilizes our technology could cost hundreds of millions of dollars for a smaller scale plant and up to billions of dollars for a larger facility. It could take at least 2 to 3 years to construct a commercial scale facility, or more time depending upon many factors, particularly the size and scope of the project. We cannot assure you that we will be able to obtain financing for the projects in the time required or at all, and our failure to do so would prevent us from implementing our business plan as expected. Moreover, we have never undertaken any such projects, and the duration, cost, and eventual success of our efforts are all uncertain.

We may not be able to successfully negotiate and execute engineering, procurement and construction contracts with construction and other vendors necessary for our development projects.

Construction of our proposed Rialto Project and Natchez Project and the development of other projects will require that we identify and arrive at acceptable contracts with construction and other vendors. Among these contracts required for development of a project may be an engineering, procurement and construction (“EPC”) contract that we seek to enter into with a prime contractor and with terms satisfactory to lenders in the project finance market. We cannot assure that we will be able to enter into such contracts on acceptable terms or at all, and our failure to do so would generally limit our access to project finance lenders who require that an acceptable EPC contract be in place before funding a project. If we are unable to enter into acceptable contracts with construction and other vendors related to our projects in the future, we would not be able to implement our business plan as expected and we would be materially adversely affected.

The volatility in the price for certain commodities that we may purchase in the open market to use as feedstock; the price for oil and natural gas used to create fuels that compete with our fuels; and prices for electricity could adversely affect our ability to develop, build and operate commercial scale synthetic fuels and power plants or our ability to license our technology.

The prices of commodities, such as petroleum coke, coal, or biomass that we might use as feedstock in commercial scale projects are subject to fluctuations due to a variety of factors that are beyond our control. Additionally, there is no commodities market for biomass, so its cost will vary depending upon numerous factors which we are unable to predict, but we anticipate will include, availability of the feedstock, costs of production of the feedstock and transportation costs. An increase in the price of commodities or a high cost for biomass which we may need to operate our projects could adversely affect our ability to develop, build and operate commercial scale synthetic fuels plants or our ability to license our technology.

Additionally, the extreme volatility in the cost of crude oil results in significant variances in the market price of petroleum based fuels. For instance, during fiscal 2008, the price of crude per barrel fluctuated from approximately $80, up to a high of $145, and has dipped to as low as approximately $37 in fiscal 2009. As crude prices rose and fell, so did the price of gasoline and other petroleum derived products. The price at which we can sell our synthetic fuels will be dependent upon the market price for petroleum based fuels despite the fact that our costs of feedstock may or may not correspond to the cost of crude. This discrepancy in cost may negatively impact our ability to develop, build and operate commercial scale synthetic fuels plants or our ability to license our technology.

Risks Related to the East Dubuque Plant

The market for natural gas has been volatile. If prices for natural gas increase significantly, we may not be able to economically operate the East Dubuque Plant.

Our operation of the East Dubuque Plant with natural gas as the feedstock exposes us to market risk due to increases in natural gas prices. During 2008, natural gas prices spiked to near-record high prices. This was due to various supply and demand factors, including the increasing overall demand for natural gas from industrial users, which is affected, in part, by the general conditions of the United States economy, and other factors. The profitability of operating the facility is significantly dependent on the cost of natural gas as feedstock and the facility has operated in the past, and may operate in the future, at a net loss. Since we expect to purchase natural gas for use in the plant on the spot market we remain susceptible to fluctuations in the price of natural gas. We expect to also use short-term, fixed supply, fixed price forward purchase contracts to lock in pricing for a portion of our natural gas requirements. These may not protect us from increases in the cost of our feedstock. A hypothetical increase of $0.10 per MMBTU of natural gas would increase the cost to produce one ton of ammonia by approximately $3.50. Higher than anticipated costs for the catalyst and other materials used at the East Dubuque Plant could also adversely affect operating results. These increased costs could materially and adversely affect our business, results of operations, financial condition and prospects.

Lower prices for nitrogen fertilizers or downturns in market demands could reduce the revenues and profitability of the East Dubuque Plant’s nitrogen fertilizer business.

Nitrogen fertilizer is a global commodity that often experiences unpredictable fluctuations in demand and an increasing supply on the world-wide market. In the recent past, nitrogen fertilizer prices have been volatile, often experiencing price changes from one growing season to the next. A downturn in nitrogen prices could have a depressing effect on the prices of most of the fertilizer products that we sell, and might materially and adversely affect our ability to economically operate the East Dubuque Plant.

A reduction in demand for corn or other crops could reduce demand for the nitrogen fertilizer produced by REMC.

The demand for nitrogen fertilizer is closely tied to the demand for, and the price of, corn and other crops. Fluctuations in such demand could significantly affect the demand for and the price of nitrogen fertilizer. The demand for corn depends on, among other things, overall economic growth both in the U.S. and overseas, demand for grain-fed animals, and the demand for corn as a feedstock in the production of ethanol. Government mandates for production of ethanol are subject to change, and any reduction in such mandates could have a significant effect on demand for corn and, as a result, our business, financial condition and results of operations.

Weather conditions may materially impact the demand for REMC products.

Weather conditions can have a significant impact on the farming economy and, consequently, on demand for the fertilizer products produced by the East Dubuque Plant. For example, adverse weather such as flood, drought or frost can cause a delay in, or even the cancellation of, planting, reducing the demand for fertilizer. Adverse weather conditions can also impact the financial position of the farmers who will buy our nitrogen fertilizer products. This, in turn, may adversely affect the ability of those farmers to meet their obligations in a timely manner, or at all. Accordingly, the weather can have a material effect on our business, financial condition, results of operations and liquidity.

We are substantially dependent on our East Dubuque Plant, and any operational disruption at the plant could result in a reduction of sales volumes and could cause us to incur substantial expenditures.

Our East Dubuque Plant may be subject to significant interruption if it were to experience a major accident, equipment failure or were damaged by severe weather or other natural disaster. In addition, operations at the East Dubuque Plant are subject to hazards inherent in chemical manufacturing. Some of those hazards may cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Significant downtime at the East Dubuque Plant could significantly reduce the amount of product available for sale, which could reduce or eliminate profits and cash flows from REMC. Repairs to the plant in such circumstances could be expensive, and could be so extensive that the plant could not economically be placed back into service. We currently maintain property insurance, including business interruption insurance, but we may not have sufficient coverage, or may be unable in the future to obtain sufficient coverage at reasonable costs. As a result, operational disruptions at the East Dubuque Plant could materially adversely impact our business, financial condition and results of operations.

The business of the East Dubuque Plant is highly seasonal.

Sales of nitrogen fertilizer products from the East Dubuque Plant are seasonal, based upon the planting, growing and harvesting cycles. Most of the East Dubuque Plant’s annual sales have occurred between March and July of each year due to the condensed nature of the planting season. Since interim period operating results reflect the seasonal nature of our business, they are not indicative of results expected for the full fiscal year. In addition, results for comparable quarters can vary significantly from one year to the next due primarily to weather-related shifts in planting schedules and purchase patterns. We expect to incur substantial expenditures for fixed costs for the East Dubuque Plant throughout the year and substantial expenditures for inventory in advance of the spring planting season. Seasonality also relates to the limited windows of opportunity that nitrogen fertilizer customers have to complete required tasks at each stage of crop cultivation. Should events such as adverse weather or transportation interruptions occur during these seasonal windows, we would face the possibility of reduced revenue without the opportunity to recover until the following season. In addition, because of the seasonality of agriculture, we expect to face the risk of significant inventory carrying costs should our customers’ activities be curtailed during their normal seasons. The seasonality can negatively impact accounts receivable collections and increase bad debts. In addition, variations in the proportion of product sold through forward sales, and variances in the terms of the forward sales contracts can affect working capital requirements, and increase the seasonal and year-to-year volatility of cash flows.

The nitrogen fertilizer industry is very competitive and the actions of our competitors could materially affect the business, results of operations and financial position of the Company.

REMC operates in a highly competitive industry, particularly with respect to the price of its nitrogen fertilizer products. Its principal competitors in the distribution of crop production inputs include agricultural co-operatives (which have the largest market share in many of the locations that it serves), national and international fertilizer producers, major grain companies and independent distributors and brokers. Some of these competitors have greater financial, marketing and research and development resources than we do, or better name recognition, and can better withstand adverse economic or market conditions. In addition, as a result of increased pricing pressures caused by competition, REMC may in the future experience reductions in its profit margins on sales, or may be unable to pass future input price increases on to its customers.

We rely on Agrium as distributor of the nitrogen fertilizer products we produce at the East Dubuque Plant.

We rely on Agrium as exclusive distributor of REMC’s products, pursuant to a Distribution Agreement between it and REMC. However, to the extent Agrium and we are not able to reach an agreement with respect to the purchase and sale of products, Agrium is under no obligation to sell such products. In addition, in the event that Agrium, Inc. consummates its proposed acquisition of CF Industries Holdings, Inc., then Agrium will no longer be the exclusive distributor of REMC’s products. If we cannot reach an agreement with Agrium for the sale of products or its services to REMC terminate, we cannot assure that we would be able to find other buyers for the products. Our inability to sell products manufactured at the East Dubuque Plant could result in significant losses and materially and adversely affect our business.

We could be subject to claims and liabilities under environmental, health and safety laws and regulations arising from the production and distribution of nitrogen fertilizers and alternative energy products at our facilities.

The production and distribution of nitrogen fertilizers at the East Dubuque Plant are subject to compliance with United States federal, state and local environmental, health and safety laws and regulations. These regulations govern operations and use, storage, handling, discharge and disposal of a variety of substances. For instance, under CERCLA, we could be held strictly or jointly and severally responsible for the removal and remediation of any hazardous substance contamination at our facilities, at neighboring properties (where migration from our facilities occurred) and at third party waste disposal sites. We could also be held liable for any consequences arising out of human exposure to these substances or other environmental damage. We may incur substantial costs to comply with these environmental, health and safety law requirements. We may also incur substantial costs for liabilities arising from past releases of, or exposure to, hazardous substances. In addition, we may discover currently unknown environmental problems or conditions. The discovery of currently unknown environmental problems or conditions, changes in environmental, health and safety laws and regulations or other unanticipated events could give rise to claims that may involve material expenditures or liabilities for us.

We may be required to install additional pollution control equipment at the East Dubuque Plant in order to maintain compliance with applicable environmental requirements.

Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at ongoing operations. We may be required to install additional air and water quality control equipment, such as low emission burners, scrubbers, ammonia sensors and continuous emission monitors, at our East Dubuque Plant in order to comply with applicable environmental requirements. Such investments would reduce income from future operations. Present and future environmental laws and regulations applicable to operations, more vigorous enforcement policies and discovery of unknown conditions may require substantial expenditures and may have a material adverse effect on results of operations, financial position or business.

Risks Related to the Market for Rentech Common Stock

We have a substantial overhang of common stock and future sales of our common stock will cause substantial dilution and may negatively affect the market price of our shares.

As of September 30, 2009, there were 212.7 million shares of our common stock outstanding. As of that date, we also had an aggregate of 37.2 million shares of common stock that may be issued upon exercise or conversion of outstanding convertible notes, restricted stock units, options and warrants. During fiscal 2009, we issued an aggregate of 45.2 million shares of our common stock which includes 14.5 million shares issued in connection with our acquisition of SilvaGas. Also, during 2009, we issued warrants to purchase 7.0 million shares of common stock in connection with amendments to our Senior Credit Agreement and our investment in ClearFuels. During fiscal 2008, sales of common stock were minimal. During fiscal 2007, the Company sold and issued 20.1 million shares of common stock along with warrants to purchase 4.0 million shares of common stock through a registered direct offering. During fiscal 2006, we issued an aggregate of 18.4 million shares of our common stock and $57.5 million aggregate principal amount of convertible senior notes, which are initially convertible for up to 14.3 million shares of our common stock upon the satisfaction of certain conditions. In addition, we have one shelf registration statement covering $58.6 million aggregate offering price of securities (up to all of which could be issued as shares of common stock) for issuance in future financing transactions.

We expect the sale of common stock and common stock equivalents in material amounts will be necessary to finance the progress of our business plan and operations. Certain holders of our securities have, and certain future holders are expected to be granted, rights to participate in or to require us to file registration statements with the SEC for resale of common stock.

We cannot predict the effect, if any, that future sales of shares of our common stock into the market, or the availability of shares of common stock for future sale, will have on the market price of our common stock. Sales of substantial amounts of common stock (including shares issued upon the exercise, conversion or exchange of other securities), or the perception that such sales could occur, may materially and adversely affect prevailing market prices for our common stock.

The market price of the Company’s common stock may decline. A lower stock price would result in more dilution if we issue shares to raise equity capital, and could prevent us from raising sufficient equity capital to implement our business plan.

The market price of our stock may decline for a number of reasons, including if:

•

the construction of a commercial scale synthetic fuels plant, including the Rialto and Natchez Projects, or other plants is not completed in a timely, economical and efficient manner;

•

the construction of a commercial scale synthetic fuels plant, including the Rialto and Natchez Projects or other plants, does not yield the expected benefits to our revenues and profits as rapidly or to the extent that may be anticipated by financial or industry analysts, shareholders or other investors;

•

the effect of the construction of a commercial scale synthetic fuels plant, including the Rialto and Natchez Projects or other plants, on our consolidated financial statements is not consistent with the expectations of financial or industry analysts, shareholders or other investors;

•

our significant shareholders decide to dispose of their shares of common stock because of any of the above or other reasons; or

•

any of the other risks referred to in this section materialize.

In the event that we seek to raise additional equity capital, a lower stock price would result in more dilution to our existing stockholders or could prevent us from raising sufficient equity capital to implement our business plan.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 2. PROPERTIES

Rentech Energy Midwest Corporation Properties

REMC operates an ammonia fertilizer plant on an approximately 200 acre site in East Dubuque, Illinois adjacent to the Mississippi River. All of the East Dubuque Plant’s properties and equipment are owned; these include land, roads, buildings, several special purpose structures, equipment, storage tanks, and specialized truck, rail and river barge loading facilities. REMC also has 15,000 tons of leased storage tank capacity for ammonia products in Niota, Illinois.

Product Demonstration Unit Properties

We own the site located in Commerce City, Colorado where we have constructed our PDU. The site consists of 17 acres located in an industrial area adjacent to a rail line and an interstate highway. Approximately six acres of the site are occupied by the PDU and the remaining approximately 11 acres of the site are available for other uses. There is an approximately 12,000 square foot building on that site that is primarily used for laboratory and maintenance functions supporting the PDU. We also lease a 2 1/2 acre industrial site located adjacent to the site, which includes a single building of approximately 3,000 square feet and is used for the storage and maintenance of construction equipment.

Former Research and Development Property

We own a 20,000 square foot industrial building in Denver, Colorado, which we formerly used as a research and development facility. We rented the building to a third party for most of 2009 but currently it is vacant. This property is currently for sale.

Natchez Project Property

We own an approximately 500 acre site in Adams County, Mississippi near the city of Natchez, where we intend to develop our Natchez Project.

Office Leases

Our executive offices are located in Los Angeles, California, and consist of approximately 9,000 square feet of leased office space. The lease expires in June 2010.

Our other principal leased offices are located in Denver, Colorado, and consist of approximately 8,000 square feet of office space. In July 2009, the lease was extended until October 2014.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business, we are party to litigation from time to time. We maintain insurance to cover certain actions and believe that resolution of such litigation will not have a material adverse effect on us.

In October 2009 the United States Environmental Protection Agency (“EPA”) Region 5 issued a Notice and Finding of Violation pursuant to the Clean Air Act (“CAA”) related to the #1 nitric acid plant at the East Dubuque Plant. The notice alleges violations of the CAA’s New Source Performance Standard for nitric acid plants, Prevention of Significant Deterioration requirements and Title V Permit Program requirements. The notice appears to be part of the EPA’s Clean Air Act National Enforcement Priority for New Source Review/Prevention of Significant Deterioration related to nitric acid plants, which seeks to reduce emissions from nitric acid plants through proceedings that result in the installation of new pollution control technology. We believe we have valid defenses to assert in response to the alleged violations and we will be discussing these with the EPA. We cannot at this time estimate what the cost to resolve this matter may be, but we do not believe it will have a material adverse effect on us.

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

Not applicable.

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 NYSE Amex under the symbol RTK. The following table sets forth the range of high and low closing prices for the common stock as reported by NYSE Amex.

Fiscal Year Ended September 30, 2009		High				Low
First Quarter, ended December 31, 2008		$	1.31			$	0.46
Second Quarter, ended March 31, 2009		$	0.88			$	0.53
Third Quarter, ended June 30, 2009		$	0.73			$	0.51
Fourth Quarter, ended September 30, 2009		$	2.40			$	0.46

Fiscal Year Ended September 30, 2008		High				Low
First Quarter, ended December 31, 2007		$	2.37			$	1.75
Second Quarter, ended March 31, 2008		$	1.72			$	0.83
Third Quarter, ended June 30, 2008		$	2.41			$	0.90
Fourth Quarter, ended September 30, 2008		$	2.43			$	1.25

The approximate number of shareholders of record of our common stock as of November 30, 2009 was 523. 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 39,800.

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 on our common stock in the foreseeable future.

Company Purchases of Equity Securities

Not applicable.

Recent Sales of Unregistered Securities

Not applicable.

STOCK PERFORMANCE GRAPH

The following graph and table compares the cumulative total shareholder return on our common stock to that of the NYSE Amex Composite Index and a customized peer group of six companies for the five fiscal year period ended September 30, 2009, the date of our fiscal year end. The customized peer group of six companies includes: Evergreen Energy, Inc., Fuel Tech, Inc., Headwaters, Inc., Pacific Ethanol, Inc., Syntroleum Corporation and Verasun Energy Corporation. The following graph and table assumes that a $100 investment was made at the close of trading on September 30, 2004 in our common stock and in the index and the peer group, and that dividends, if any, were reinvested. The stock price performance shown on the graph below should not be considered indicative of future price performance.

Rentech is using the peer group index as a comparison for its cumulative shareholder return because Rentech believes that the selected companies are more comparable to Rentech than published indices. The peer group is made up of companies that engage in the development of lower emission fuel technologies and related businesses as a significant element of their overall business, although not all of the companies included in the peer group participate in all of the lines of business in which Rentech is engaged and some of the companies included in the peer group also engage in lines of business in which Rentech does not participate. In addition, the market capitalizations of many of the companies included in the peer group index are different from Rentech’s.

		9/04				9/05				9/06				9/07				9/08				9/09
Rentech, Inc.			100.00				281.11				514.44				240.00				147.78				180.00
NYSE Amex Composite			100.00				146.79				163.07				206.80				161.04				169.27
Peer Group			100.00				163.49				108.23				73.17				35.64				14.21

ITEM 6. SELECTED FINANCIAL DATA

The following tables include selected summary financial data for each of our last five fiscal years. As discussed in Part II, Item 8, Note 2, “Restatements of Consolidated Financial Statements,” our financial statements for the year ended September 30, 2008 have been restated and the data below should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8, “Financial Statements and Supplementary Data.” We have not filed, and are not required to file, amendments to any previously filed Annual Report on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by this restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Annual Report on Form 10-K.

		Years Ended September 30,
		2009				2008				2007				2006				2005
						(Restated)
		(in thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues		$	183,000			$	210,971			$	132,320			$	44,517			$	589
Cost of Sales		$	122,204			$	154,420			$	116,567			$	44,077			$	617
Gross Profit (Loss)		$	60,796			$	56,551			$	15,753			$	440			$	(28	)
Research and Development Expense		$	21,381			$	64,477			$	43,127			$	12,054			$	496
Income (Loss) from Continuing Operations		$	2,956			$	(56,973	)		$	(94,867	)		$	(39,912	)		$	(15,615	)
Income from Discontinued Operations		$	72			$	91			$	3,150			$	1,265			$	1,256
Net Income (Loss)		$	3,028			$	(56,882	)		$	(91,717	)		$	(38,647	)		$	(14,359	)
Dividends		$	—			$	—			$	—			$	(75	)		$	(9,341	)
Net Income (Loss) Applicable to Common Stockholders		$	3,028			$	(56,882	)		$	(91,717	)		$	(38,722	)		$	(23,700	)
Net Income (Loss) per Common Share:
Basic:
Continuing Operations (1)		$	0.02			$	(0.34	)		$	(0.63	)		$	(0.31	)		$	(0.27	)
Discontinued Operations			0.00				0.00				0.02				0.01				0.01
Net Income (Loss)		$	0.02			$	(0.34	)		$	(0.61	)		$	(0.30	)		$	(0.26	)
Diluted:
Continuing Operations (1)		$	0.02			$	(0.34	)		$	(0.63	)		$	(0.31	)		$	(0.27	)
Discontinued Operations			0.00				0.00				0.02				0.01				0.01
Net Income (Loss)		$	0.02			$	(0.34	)		$	(0.61	)		$	(0.30	)		$	(0.26	)
Weighted-average shares used to compute net income (loss) per common share:
Basic			174,445				165,480				151,356				127,174				92,919
Diluted			175,578				165,480				151,356				127,174				92,919
CONSOLIDATED BALANCE SHEET DATA
Working Capital		$	10,591			$	21,484			$	37,960			$	65,316			$	32,031
Construction in Progress		$	27,328			$	19,548			$	4,192			$	3,916			$	—
Total Assets		$	200,900			$	204,745			$	158,541			$	150,686			$	43,492
Total Long-Term Liabilities		$	66,096			$	118,787			$	65,728			$	58,135			$	2,850
Total Stockholders’ Equity (Deficit)		$	49,199			$	(7,084	)		$	42,712			$	76,585			$	34,271

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 read our consolidated financial statements and the notes thereto and the other disclosures herein, including the discussion of our business and the risk factors.

RESTATEMENT

In this report, we have restated our consolidated balance sheet at September 30, 2008, and our consolidated statements of operations, changes in stockholders’ equity (deficit) and comprehensive loss for the fiscal year ended September 30, 2008. This report also presents restated selected quarterly financial data for the quarters ended June 30, 2009, March 31, 2009, December 31, 2008, September 30, 2008, June 30, 2008, March 31, 2008 and December 31, 2007. These restatements and the material weakness reported herein are due to a misapplication of GAAP, the correction of which resulted in an adjustment to the treatment of forward gas purchase contracts and inventory valuation.

We enter into forward contracts with fixed delivery prices to purchase portions of the natural gas required to produce fertilizer for our nitrogen fertilizer business. Some of the forward contracts require the Company to pay a deposit for the natural gas at the time of contract signing, and all of the contracts require deposits in the event that the market price for natural gas falls after the date of the contract to a price below the fixed price in the contracts.

We previously recorded these deposits incorrectly as inventory and performed a lower of cost or market (“LCM”) analysis on this component of inventory on a monthly basis. In certain periods, the LCM analysis resulted in impairments of the component of inventory represented by the gas contract deposits, and those impairments were recognized in cost of goods sold as write-downs of inventory in those periods. As product produced from the gas associated with the impaired deposits was shipped in periods after the write-downs, the cost of gas recognized in cost of goods sold was lower than the cost that would have been calculated using the contracted prices, in an amount equal to the previous inventory write-downs. This prior treatment affected the timing, but not the total amount, of expense recognized in conjunction with gas purchased under forward contracts. The correction in accounting treatment had no effect on cash flows.

We have now determined that these deposits should have been classified on the consolidated balance sheet as deposits, rather than as inventory, because neither title nor risk of loss passed to us when we paid the deposits for the natural gas. We have also determined that the LCM adjustments related to these contract deposits were not calculated in a manner consistent with generally accepted accounting principles. In future periods, and in this report, the cost of natural gas purchased under forward contracts will be recognized at contracted prices as the gas flows through production, into finished goods inventory, and then into cost of goods sold as the product is shipped, or directly into cost of goods sold in the case of a sale of the gas. The LCM analysis will be performed by examining the projected margin on the sale of finished goods, not by examining the market price relative to the contract price for the natural gas component of inventory.

We have restated our consolidated balance sheet at September 30, 2008, and our consolidated statements of operations, changes in stockholders’ equity (deficit), and comprehensive loss for the fiscal year ended September 30, 2008, to correct these errors by reclassifying the deposits from inventory to deposits, and to reverse the effects of the LCM adjustments in the statements of operations, changes in stockholders’ equity (deficit), and comprehensive loss. These corrections materially change the timing, but not the total amount, of the recognition of expenses for purchases of natural gas. In periods in which inventory impairments are being reversed, the cost of gas recognized will be lower than under the previous treatment. In periods following previously recognized inventory impairments, the cost of goods sold will now be higher than the cost recognized under the previous treatment. In fiscal year 2008, the cost of goods sold is now reported as approximately $6.0 million less than the amount previously reported. As described below, results of operations reported herein for fiscal year 2009 would have been materially different had the prior treatment of forward natural gas contracts and of inventory impairment been applied for the three quarters in fiscal year 2009 previously reported.

Note 2 to our consolidated financial statements included in this report discloses the nature of the restatement adjustments and details the impact of the restatement adjustments on our consolidated financial statements as of September 30, 2008 and the fiscal year ended September 30, 2008. Note 21 to our consolidated financial statements included in this report presents selected quarterly financial data reflecting the impact of the restatement adjustments on our consolidated financial statements for the quarters ended June 30, 2009, March 31, 2009, December 31, 2008, September 30, 2008, June 30, 2008, March 31, 2008 and December 31, 2007.

The following tables (in thousands, except per share data) set forth the effects of the restatement on selected line items within our previously reported consolidated financial statements for the fiscal year ended September 30, 2008. The following tables provide only a summary of the effects of the restatement, do not include all line items that have been impacted by the restatement and should be read in conjunction with the restated consolidated financial statements contained in Part II, Item 8 of this report.

		As Previously				Restatement
		Reported				Adjustments				As Restated
Total cost of sales		$	160,425			$	(6,005	)		$	154,420
Gross profit			50,546				6,005				56,551
Write down of inventory to market			8,650				(8,650	)			0
Loss from continuing operations before income taxes			(62,965	)			6,005				(56,960	)
Net loss			(62,887	)			6,005				(56,882	)
EPS — Basic			(0.38	)			0.04				(0.34	)
EPS — Diluted			(0.38	)			0.04				(0.34	)

		As Previously				Restatement
		Reported				Adjustments				As Restated
Inventories		$	29,491			$	(12,362	)		$	17,129
Deposits on gas contracts			—				18,368				18,368
Accumulated deficit			(255,260	)			6,005				(249,255	)
Total stockholders’ deficit			(13,089	)			6,005				(7,084	)

In 2009, as a result of the restatement adjustments and as discussed in further detail below, cost of sales was increased and net income was decreased as the cost of natural gas purchased under forward contracts was recognized at contracted prices as the gas flowed through production, into finished goods inventory, and then into cost of goods sold as the product was shipped.

In 2008, as a result of the restatement adjustments and as discussed in further detail below, cost of sales and net loss were reduced.

The following tables (in thousands, except per share data) and subsequent sections discuss the effect of the restatement on quarterly total cost of sales, gross profit, write down of inventory to market, loss from continuing operations before income taxes, net loss and net loss per common share for the quarters presented below. Note 21 to our consolidated financial statements included in this report sets forth unaudited restated quarterly financial information for each of these quarters.

		Year Ended September 30, 2009
		First Quarter												Second Quarter												Third Quarter
		December 31, 2008												March 31, 2009												June 30, 2009
		As												As												As
		Previously				Restatement				As				Previously				Restatement				As				Previously				Restatement				As
		Reported				Adjustments				Restated				Reported				Adjustment				Restated				Reported				Adjustment				Restated
Total cost of sales		$	40,416			$	(4,061	)		$	36,355			$	19,793			$	8,131			$	27,924			$	38,850			$	1,819			$	40,669
Gross profit (loss)			9,661				4,061				13,722				(3,004	)			(8,131	)			(11,135	)			52,567				(1,819	)			50,748
Write down of inventory to market			10,115				(10,115	)			0				5,861				(5,861	)			0				116				(116	)			0
Income (loss) from continuing operations before income taxes			(4,320	)			4,061				(259	)			(16,592	)			(8,131	)			(24,723	)			36,133				(1,819	)			34,314
Net income (loss)			(4,323	)			4,061				(262	)			(16,539	)			(8,131	)			(24,670	)			36,132				(1,819	)			34,313
EPS — Basic			(0.03	)			0.03				0.00				(0.10	)			(0.05	)			(0.15	)			0.22				(0.01	)			0.21
EPS — Diluted			(0.03	)			0.03				0.00				(0.10	)			(0.05	)			(0.15	)			0.22				(0.02	)			0.20

		Year Ended September 30, 2008
		First Quarter												Second Quarter												Third Quarter
		December 31, 2007												March 31, 2008												June 30, 2008
		As												As												As
		Previously				Restatement				As				Previously				Restatement				As				Previously				Restatement				As
		Reported				Adjustments				Restated				Reported				Adjustments				Restated				Reported				Adjustments				Restated
Total cost of sales		$	37,182			$	(82	)		$	37,100			$	20,616			$	82			$	20,698			$	42,807			$	0			$	42,807
Gross profit			10,278				82				10,360				7,917				(82	)			7,835				17,567				0				17,567
Write down of inventory to market			82				(82	)			0				0				0				0				0				0				0
Loss from continuing operations before income taxes			(23,437	)			82				(23,355	)			(22,812	)			(82	)			(22,894	)			(7,788	)			0				(7,788	)
Net loss			(23,414	)			82				(23,332	)			(22,796	)			(82	)			(22,878	)			(7,772	)			0				(7,772	)
EPS — Basic			(0.14	)			0				(0.14	)			(0.14	)			0				(0.14	)			(0.05	)			0				(0.05	)
EPS — Diluted			(0.14	)			0				(0.14	)			(0.14	)			0				(0.14	)			(0.05	)			0				(0.05	)

		Year Ended September 30, 2008
		Fourth Quarter
		September 30, 2008
		As Previously				Restatement
		Reported				Adjustments				As Restated
Total cost of sales		$	59,820			$	(6,005	)		$	53,815
Gross profit			14,784				6,005				20,789
Write down of inventory to market			8,568				(8,568	)			0
Loss from continuing operations before income taxes			(8,928	)			6,005				(2,923	)
Net loss			(8,905	)			6,005				(2,900	)
EPS — Basic			(0.05	)			0.04				(0.01	)
EPS — Diluted			(0.05	)			0.04				(0.01	)

For the first three quarters of 2009, the Company previously reported a write down of inventory to market of $16,092,000 and net income of $15,270,000. The restatement adjustments eliminated the write down of inventory to market, reversed the resulting reductions in cost of goods sold during the fiscal 2009 quarters, and resulted in a reduction to net income of $5,889,000. The reversal of inventory impairments recorded in the year ended September 30, 2008 also increased cost of goods sold for product shipped in fiscal year 2009, as the cost of those products included the cost of gas inventory that had been written down during fiscal 2008.

The restatement did not have a material effect on the first three quarters of 2008 as $8,568,000 of the $8,650,000 of write down of inventory to market occurred in the fourth quarter. The impact of the restatement on the fourth quarter is a reduction to cost of sales and net loss due to the elimination of the write down of inventory to market.

OVERVIEW OF OUR FINANCIAL CONDITION, LIQUIDITY, AND RESULTS OF OPERATIONS

At September 30, 2009, we had working capital of $10,591,000. Historically, we have relied upon sales of our equity securities and borrowings for working capital. Until 2009, when we had net income of $3,028,000, we have had a history of significant net losses.

Our primary needs for working capital in fiscal year 2010 include REMC related costs to operate, pay debt service, and make capital investments in the East Dubuque Plant, as well as non-REMC costs to operate the PDU, to pay for research and development of the Rentech Process, to pay for costs for continued development of commercial projects, including our Rialto Project and our Natchez Project, and to fund working capital needs. Based on current market conditions, we believe that our liquidity needs for our currently-budgeted activities for fiscal year 2010 can be met from cash on hand, plus the cash presently forecasted to be generated by REMC. Our currently-budgeted development activities for our Rialto and our Natchez Projects require small amounts of capital expenditures, which we believe can be provided from cash on hand plus the cash flow from REMC. If during fiscal 2010 we decide to pursue unbudgeted engineering, procurement or construction activities at these or other projects that require larger amounts of capital, we will need significantly more capital in order to fund those activities. Depending on capital market conditions, we also could seek to satisfy our liquidity requirements through public or private offerings of our securities or other financing transactions. However, capital markets have recently experienced extreme uncertainty, and access to those markets has been difficult. Our failure to raise additional capital when needed would have a material adverse effect on our business, financial condition and results of operations.

For further information concerning our potential financing needs and related risks, see Item 1 — Business, and Item 1a — Risk Factors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — A Replacement of FASB Statement No. 162,” (FASB Accounting Standards Codification (“FASB ASC” or the “Codification”) 105-10) which will become the source of authoritative United States generally accepted accounting principles (“US GAAP”) to be applied by nongovernmental entities superseding all pre-existing accounting and reporting standards other than the rules of the SEC. Updates to the Codification are being issued as Accounting Standards Updates. FASB ASC 105-10 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. FASB ASC 105-10 is effective for the Company’s fiscal year ended September 30, 2009. In accordance with the Codification, citations to accounting literature in this report are to the relevant Topic of the Codification or are presented in plain English. The adoption of FASB ASC 105-10 did not have a material impact on the Company’s consolidated financial position, results of operations or disclosures.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions relate to: inventories, the valuation of long-lived assets, intangible assets, investment in advanced technology companies, revenue recognition, accounting for fixed price contracts, stock based compensation and the realization of deferred income taxes. Actual amounts could differ significantly from these estimates.

Revenue Recognition. We recognize revenue when the following elements are substantially satisfied: there are no uncertainties regarding customer acceptance; there is persuasive evidence that an agreement exists documenting the specific terms of the transaction; the sales price is fixed or determinable; and collectibility is reasonably assured. Management assesses the business environment, the customer’s financial condition, historical collection experience, accounts receivable aging and customer disputes to determine whether collectibility is reasonably assured. If collectibility is not considered reasonably assured at the time of sale, we do not recognize revenue until collection occurs.

Product sales revenues from our nitrogen products manufacturing segment are recognized when the customer takes ownership upon shipment from the East Dubuque Plant or its leased facility and assumes risk of loss, collection of the related receivable is probable, persuasive evidence of a sale arrangement exists and the sales price is fixed or determinable.

Certain product sales occur under product prepayment contracts which require payment in advance of delivery. The Company records a liability for deferred revenue in the amount of, and upon receipt of, cash in advance of shipment. The Company recognizes revenue related to the product prepayment contracts and relieves the liability for deferred revenue when products are shipped. A significant portion of the revenue recognized during any period may be related to prepayment contracts, for which cash may have been collected during an earlier period, with the result that a significant portion of revenue recognized during a period may not generate cash receipts during that period.

Natural gas, though not purchased for the purpose of resale, occasionally is sold under certain circumstances. Natural gas is sold when contracted quantities received are in excess of production and storage capacities, in which case the sales price is recorded in product sales and the related cost is recorded in cost of sales. Natural gas is also sold with a simultaneous gas purchase in order to receive a benefit that reduces raw material cost, in which case the net of the sale price and the related cost of sales are recorded within cost of sales.

Technical service revenues from our alternative energy segment are recognized as the services are provided during each month. Revenues from feasibility studies are recognized based on the terms of the services contract.

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

Inventories. Our inventory is stated at the lower of cost or estimated net realizable value. The cost of inventories is determined using the first-in first-out method. We perform an analysis on at least a quarterly basis of our inventory balances to determine if the carrying amount of inventories exceeds their net realizable value. The analysis of estimated net realizable value is based on customer orders, market trends and historical pricing. If the carrying amount exceeds the estimated net realizable value, the carrying amount is reduced to the estimated net realizable value. We allocate fixed production overhead costs to inventory based on the normal capacity of our production facilities.

Valuation of Financial Instruments, Long-Lived Assets and Intangible Assets. We assess the realizable value of financial instruments, long-lived assets and intangible assets for potential impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of our assets, we make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. As applicable, we make assumptions regarding the useful lives of the assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets.

Stock Based Compensation. All stock based compensation awards granted subsequent to September 30, 2005 are included in compensation expense based on grant-date fair value. We use the Black-Scholes valuation model to value the equity instruments issued. The Black-Scholes valuation model uses assumptions of expected volatility, risk-free interest rates, the expected term of options granted, expected rates of dividends and forfeitures. Management determines these assumptions by reviewing current market rates and reviewing conditions relevant to our Company, such as our historical experience relating to the exercise and forfeitures of grants.

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

Business Segments

The Company operates in two business segments as follows: (i) nitrogen products manufacturing and (ii) alternative energy. In nitrogen products manufacturing, the Company manufactures a variety of nitrogen fertilizer and industrial products. In alternative energy, the Company develops and markets processes for conversion of low-value, carbon-bearing solids or gases into valuable hydrocarbons and electric power.

FISCAL YEAR 2009 COMPARED TO FISCAL YEAR 2008

Continuing Operations:

Revenues

		For the Years Ended
		September 30,
		2009				2008
		(in thousands)
Revenues:
Product shipments		$	180,384			$	206,615
Natural gas sales of excess inventory			2,378				3,678
Total nitrogen products manufacturing		$	182,762			$	210,293
Alternative energy			238				678
Total revenues		$	183,000			$	210,971

		For the Year								For the Year
		Ended September 30, 2009								Ended September 30, 2008
		Tons				Revenue				Tons				Revenue
		(in thousands)								(in thousands)
Product Shipments:
Ammonia			126			$	90,419				173			$	90,743
Urea Ammonium Nitrate			267				68,893				313				93,179
Urea (liquid and granular)			36				15,555				34				15,778
Carbon Dioxide			95				2,571				109				2,860
Nitric Acid			9				2,946				14				4,055
Total			533			$	180,384				643			$	206,615

Nitrogen products manufacturing. Our nitrogen products manufacturing segment provides revenue from sales of various nitrogen fertilizer products manufactured at our East Dubuque Plant, primarily utilized in corn production. The East Dubuque Plant is designed to produce anhydrous ammonia, nitric acid, urea liquor, ammonium nitrate solution, granular urea and carbon dioxide using natural gas as a feedstock. Revenues are seasonal based on the planting, growing, and harvesting cycles of customers utilizing nitrogen fertilizer.

The decrease in sales for the year ended September 30, 2009 compared to the year ended September 30, 2008 was primarily due to decreased sales volume. Sales volume decreased primarily due to reduced shipments in the first and fourth quarters of fiscal year 2009. During the first quarter of 2009, there was a reduction in fall fertilizer application due to rain-delayed planting and harvesting cycles and due to an early onset of winter weather. During the fourth quarter of 2009, fertilizer shipments decreased due to the general downturn in the economy.

The average sales price per ton in the current fiscal year as compared with the prior fiscal year increased by 37% for anhydrous ammonia and decreased by 13% for urea ammonium nitrate solutions. These two products comprised approximately 88% and 89% of the product sales for each of the years ended September 30, 2009 and 2008, respectively. The average ammonia sales price increased due to selling most of our spring 2009 ammonia shipments on product prepayment contracts, most of which were entered into when fertilizer prices were at their peak. However, we entered into about half of our spring 2009 product prepayment contracts for urea ammonium nitrate solutions after fertilizer prices started to decline, causing the average sales price to decrease.

Alternative Energy. This segment generates revenues for technical services related to the Rentech technologies provided by the scientists and technicians who staff our development and testing laboratory and rental income from leasing part of a building. This rental income is included in our alternative energy segment because the rental income is generated from a building used by some of our research and development employees. The revenue earned during fiscal 2009 was technical service revenue of $145,000 from progress billings for work performed under contracts and rental revenue of $93,000. The revenue earned during fiscal 2008 was technical service revenue of $547,000 from progress billings for work performed under contracts and rental revenue of $131,000.

Cost of Sales

		For the Years Ended
		September 30,
		2009				2008
		(in thousands)
Cost of sales:
Product shipments		$	95,430			$	147,540
Natural gas sales of excess inventory			3,996				3,731
Natural gas sales with simultaneous purchase			22,775				3,040
Total nitrogen products manufacturing			122,201				154,311
Alternative energy			3				109
Total cost of sales		$	122,204			$	154,420

		For the Year Ended
(in thousands)		September 30, 2008
Total cost of sales (as previously reported)		$	160,425
Restatement adjustments			(6,005	)
Total cost of sales (as restated)		$	154,420

Nitrogen Products Manufacturing. The cost of sales for product shipments for the year ended September 30, 2009 declined from the prior year primarily due to lower sales volume. Natural gas comprised approximately 64% and labor and benefit costs comprised approximately 13% of cost of sales on product shipments for the year ended September 30, 2009. Natural gas comprised approximately 71% and labor and benefit costs comprised approximately 9% of cost of sales on product shipments for the year ended September 30, 2008.

Natural gas, though not purchased for the purpose of resale, is occasionally sold when contracted quantities received are in excess of production requirements and storage capacities, in which case the sales proceeds are recorded as a revenue and the related cost is recorded as a cost of sale. Natural gas is also sold with a simultaneous gas purchase in order to receive a benefit that reduces raw material cost, in which case the net of the sale price and the related cost of sales are recorded within cost of sales.

Depreciation expense included in cost of sales from our nitrogen products manufacturing segment was $8,280,000 and $8,361,000 for the years ended September 30, 2009 and 2008, respectively.

Alternative Energy. The cost of sales for our alternative energy segment during the year ended September 30, 2009 and 2008 was for costs incurred for work performed under a contract.

Gross Profit

		For the Years Ended
		September 30,
		2009				2008
		(in thousands)
Gross profit (loss):
Product shipments		$	84,954			$	59,075
Natural gas sales of excess inventory			(1,618	)			(53	)
Natural gas sales with simultaneous purchase			(22,775	)			(3,040	)
Total nitrogen products manufacturing			60,561				55,982
Alternative energy			235				569
Total gross profit		$	60,796			$	56,551

		For the Year Ended
(in thousands)		September 30, 2008
Total gross profit (as previously reported)		$	50,546
Restatement adjustments			6,005
Total gross profit (as restated)		$	56,551

Nitrogen Products Manufacturing. The segment had a gross profit on product shipments of 47% for the year ended September 30, 2009 as compared to a gross profit margin on product shipments of 29% for the year ended September 30, 2008 driven by higher ammonia sales prices.

Alternative Energy. The decrease in gross profit for alternative energy was primarily due to the decrease in technical service revenue between fiscal year 2009 and fiscal year 2008.

Operating Expenses

		For the Years Ended
		September 30,
		2009				2008
		(in thousands)
Operating expenses:
Selling, general and administrative		$	24,061			$	33,352
Depreciation and amortization			1,478				1,184
Research and development			21,381				64,477
Loss on impairment			—				9,482
Recovery of payment to vendor			—				(1,473	)
Total operating expenses		$	46,920			$	107,022

Selling, General and Administrative Expenses. During the year ended September 30, 2009 as compared to the year ended September 30, 2008, selling, general and administrative expenses decreased by $9,291,000 or 28%. Stock-based compensation decreased by $1,937,000 as a result of prior grants having become fully vested before the most recent period. Consulting expenses decreased by $1,687,000 due to a one-time modification of warrants in 2008 which resulted in additional stock-based compensation of $813,000 in 2008 and the use of consultants was reduced in 2009. The modification of warrants involved amendments to the exercise prices and expiration dates of warrants to purchase 4,192,000 shares of common stock. Salaries and benefits decreased by $2,357,000 as a result of reductions in staff. $760,000 of the decrease is related to the rescission of a marketing agreement in 2009 which led to a reversal of non-cash marketing expense which was previously recorded in 2008. Travel costs decreased by $891,000 as a result of reduced travel. Information technology expense decreased by $732,000 because 2008 includes non-capitalized costs associated with the implementation of our Oracle financial accounting and enterprise resource planning system.

Depreciation and Amortization. A portion of depreciation and amortization expense is associated with assets supporting general and administrative functions and is recorded in operating expense. The majority of depreciation and amortization expense originates at our nitrogen products manufacturing segment and, as a manufacturing cost, is distributed between cost of sales and finished goods inventory, based on product volumes. The amount of depreciation expense within operating expenses increased by $294,000 for the year ended September 30, 2009 which was mostly attributable to an increase in depreciable computer equipment and software assets.

Research and Development. We incur 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. These expenses are included in our alternative energy segment. During fiscal 2008, we incurred significant research and development expense related primarily to the construction of the PDU and also incurred expenses related to the operation of the PDU and other research and development expense. Research and development expenses decreased by $43,096,000 during the year ended September 30, 2009 compared to the year ended September 30, 2008. The decrease was primarily due to the completion of the construction of the PDU, for which the costs were recorded as research and development expense. Of the research and development expense recorded in the year ended September 30, 2008, $40,046,000 represented construction costs for the PDU.

Loss on Impairment. During the year ended September 30, 2008, the Company suspended development on the conversion of the East Dubuque Plant and recorded an impairment loss of $9,482,000 on assets recorded as capitalized costs incurred in winding down the REMC conversion project. No impairment was recorded on any project in fiscal year 2009.

Recovery of Payment to Vendor. During the year ended September 30, 2008, the Company recovered $1,473,000 that was previously paid to a vendor for work related to the conversion of the East Dubuque Plant. This amount was subsequently applied to unpaid invoices from the vendor on projects other than the conversion of the East Dubuque Plant.

Operating Income (Loss)

		For the Years Ended
		September 30,
		2009				2008
		(in thousands)
Operating income (loss):
Product shipments		$	81,441			$	55,829
Natural gas sales of excess inventory			(1,618	)			(53	)
Natural gas sales with simultaneous purchase			(22,775	)			(3,040	)
Total nitrogen products manufacturing			57,048				52,736
Alternative energy			(43,172	)			(103,207	)
Total operating income (loss)		$	13,876			$	(50,471	)

		For the Year Ended
(in thousands)		September 30, 2008
Total operating loss (as previously reported)		$	(56,476	)
Restatement adjustments			6,005
Total operating loss (as restated)		$	(50,471	)

Nitrogen Products Manufacturing. The increased income from operations for the year ended September 30, 2009 as compared to the prior fiscal year was primarily due to higher ammonia sales prices.

Alternative Energy. The decreased loss from operations for alternative energy of $60,035,000 for the year ended September 30, 2009, was primarily due to the completion of the PDU construction during the year ended September 30, 2008 and no loss on impairment or costs incurred for the REMC conversion.

Other Income (Expense)

		For the Years Ended
		September 30,
		2009				2008
		(in thousands)
Other income (expense):
Interest and dividend income		$	561			$	1,849
Interest expense			(11,050	)			(5,442	)
Loss on investments			—				(3,011	)
Other income (expense)			(370	)			115
Total other expense		$	(10,859	)		$	(6,489	)

Interest Income. The decrease in interest income for the year ended September 30, 2009 as compared to the prior fiscal year was primarily due to marked decreases in interest rates, partially offset by an overall increase in the amount of funds invested in interest-bearing cash accounts by the nitrogen products manufacturing segment. Interest income from our holdings of available for sale securities decreased during the year ended September 30, 2009 compared to the year ended September 30, 2008 due to lower balances along with the impact of lower interest rates on all balances maintained.

Interest Expense. Interest expense increased by $5,608,000 during the year ended September 30, 2009 as compared to the prior fiscal year. This increase was primarily due to interest payments under the Senior Credit Agreement which we entered into during the third quarter of fiscal 2008. Interest capitalized to construction in progress increased by $1,266,000 during the year ended September 30, 2009 as compared to the prior fiscal year primarily due to the Company’s purchase of the site for the Natchez Project in June 2008.

Loss on Investments. During fiscal 2008, we recognized an impairment loss of $3,011,000 on available for sale securities, which was included in our alternative energy segment. These securities were substantially impacted by economic and market pressures and experienced sustained declines in estimated fair values. We experienced no such losses during fiscal 2009.

Other Income (Expense). Other expense for the year ended September 30, 2009 was primarily comprised of early payment fees on term debt.

FISCAL YEAR 2008 COMPARED TO FISCAL YEAR 2007

Continuing Operations:

Revenues

		For the Years Ended
		September 30,
		2008				2007
		(in thousands)
Revenues:
Product shipments		$	206,615			$	124,498
Natural gas sales of excess inventory			3,678				7,318
Total nitrogen products manufacturing		$	210,293			$	131,816
Alternative energy			678				504
Total revenues		$	210,971			$	132,320

		For the Year								For the Year
		Ended September 30, 2008								Ended September 30, 2007
		Tons				Revenue				Tons				Revenue
		(in thousands)								(in thousands)
Product Shipments:
Ammonia			173			$	90,743				145			$	50,013
Urea Ammonium Nitrate			313				93,179				275				56,317
Urea (liquid and granular)			34				15,778				32				12,141
Carbon Dioxide			109				2,860				103				2,650
Nitric Acid			14				4,055				16				3,377
Total			643			$	206,615				571			$	124,498

Nitrogen products manufacturing. The increase in sales for the year ended September 30, 2008 compared to the year ended September 30, 2007 was due to higher prices and sales volume.

The average sales price per ton for fiscal year 2008 as compared with fiscal year 2007 increased by 52% for anhydrous ammonia and increased by 46% for urea ammonium nitrate solutions. These two products comprised approximately 89% and 85% of the product sales for the years ended September 30, 2008 and 2007, respectively. The higher demand for fertilizer was driven by strong farm income, high corn prices and global demand for corn for food and fuel.

Alternative Energy. This segment generates revenues for technical services related to the Rentech Process provided by the scientists and technicians who staff our development and testing laboratory and rental income from leasing part of a building. The increase in revenue between fiscal year 2008 and fiscal year 2007 was primarily due to additional technical service revenue of $165,000 from progress billings for work performed under contracts.

Cost of Sales

		For the Years Ended
		September 30,
		2008				2007
		(in thousands)
Cost of sales:
Product shipments		$	147,540			$	107,596
Natural gas sales of excess inventory			3,731				7,666
Natural gas sales with simultaneous purchase			3,040				—
Write down of inventory to market			—				644
Total nitrogen products manufacturing			154,311				115,906
Alternative energy			109				661
Total cost of sales		$	154,420			$	116,567

Nitrogen Products Manufacturing. The cost of sales for product shipments for the year ended September 30, 2008 increased from the prior year primarily due to higher sales volume and higher gas prices. Natural gas comprised approximately 71% and labor and benefit costs comprised approximately 9% of cost of sales on product shipments for the year ended September 30, 2008. Natural gas comprised approximately 73% and labor and benefit costs comprised approximately 9% of cost of sales on product shipments for the year ended September 30, 2007.

Natural gas, though not purchased for the purpose of resale, is occasionally sold under certain circumstances. Natural gas is sold when contracted quantities received are in excess of production requirements and storage capacities, in which case the sales proceeds are recorded as a revenue and the related cost is recorded as a cost of sale. Natural gas is also sold with a simultaneous gas purchase in order to receive a benefit that reduces raw material cost, in which case the net of the sale price and the related cost of sales are recorded within cost of sales.

Depreciation expense included in cost of sales from our nitrogen products manufacturing segment was $8,361,000 and $7,720,000 for the years ended September 30, 2008 and 2007, respectively. The increase of $641,000 for the year ended September 30, 2008 was due to a combination of an increase in machinery and equipment and change in product tonnage sold.

Alternative Energy. For both 2008 and 2007, these amounts were primarily third party consulting costs associated with our technical service agreements.

Gross Profit

		For the Years Ended
		September 30,
		2008				2007
		(in thousands)
Gross profit (loss):
Product shipments		$	59,075			$	16,902
Natural gas sales of excess inventory			(53	)			(348	)
Natural gas sales with simultaneous purchase			(3,040	)			—
Write down of inventory to market			—				(644	)
Total nitrogen products manufacturing			55,982				15,910
Alternative energy			569				(157	)
Total gross profit		$	56,551			$	15,753

Nitrogen Products Manufacturing. The segment had an increase in gross profit compared to the prior comparable period for the year ended September 30, 2008. The segment had a gross profit on product shipments of 29% for the year ended September 30, 2008 as compared to a gross profit margin on product shipments of 14% for the year ended September 30, 2007. The increase in gross profit and improved gross margin percentage for the fiscal year ended September 30, 2008 over the comparable period in 2007 was due to increased sales prices driven by the increased average cost of natural gas along with higher demand.

Alternative Energy. The increase in gross profit for alternative energy is primarily due to improved gross profit from the technical service agreements. Due to timing, the costs we incurred during fiscal 2007 associated with our services agreements exceeded the contractually-defined amount of revenues that were billed and collected.

Operating Expenses

		For the Years Ended
		September 30,
		2008				2007
		(in thousands)
Operating expenses:
Selling, general and administrative		$	33,352			$	28,093
Depreciation and amortization			1,184				799
Research and development			64,477				43,127
Loss on impairment			9,482				38,197
Recovery of payment to vendor			(1,473	)			—
Total operating expenses		$	107,022			$	110,216

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $33,352,000 during the fiscal year ended September 30, 2008, compared to $28,093,000 for the fiscal year ended September 30, 2007 which was an increase of $5,259,000. This increase resulted primarily from increases in expenses for salaries and benefits, professional fees, bad debt, consulting and marketing which was offset by a decrease in information technology expense. Explanations for each of these changes are as follows:

•

Salaries and benefits increased by $3,904,000. The increase was a result of hiring new employees primarily related to the construction and operation of the PDU and operations at REMC.

•

Professional fees including legal services and accounting fees for audit and tax services increased by $957,000. Significant components of the increase included preparation of tax returns, analysis and guidance for disclosures regarding income taxes, legal fees for development of the Natchez Project, and costs for continued development of the Company’s intellectual property portfolio.

•

During fiscal 2008, we charged $571,000 to bad debt expense as a result of uncertainties on the collectibility of billings under a technical services agreement.

•

Consulting costs increased by $481,000 due primarily to non-cash expenses associated with changes in terms to previously granted warrants.

•

Non-cash marketing expenses increased by $380,000 due to expenses associated with equity-based compensation to a vendor that provided marketing services.

•

Information technology expense decreased by $874,000 as the Company completed efforts that enhanced its data and communication infrastructure.

Depreciation and Amortization. A portion of depreciation and amortization expense is associated with assets supporting general and administrative functions and is recorded in operating expense. The majority of depreciation and amortization expense originates at our nitrogen products manufacturing segment and, as a manufacturing cost, is distributed between cost of sales and finished goods inventory, based on product volumes. The amount of depreciation expense within operating expenses increased by $385,000 for the year ended September 30, 2008 which was mostly attributable to an increase in depreciable computer equipment and software assets.

Research and Development. Research and development expense, which was included in our alternative fuels segment, was $64,477,000 during the fiscal year ended September 30, 2008 compared to $43,127,000 for the fiscal year ended September 30, 2007 or an increase of $21,350,000. Expenses incurred for the design, construction and procurement of equipment for the PDU comprised $40,046,000 or 62% of the total in research and development expense for fiscal 2008. Expenses incurred for post construction efforts including commissioning and start up were $16,943,000 or 26% of the total in research and development expense. Also included in the increase for the fiscal year ended September 30, 2008, were expenses incurred for work on advanced catalysts, catalyst separation from crude wax, process optimization, and product upgrading.

Loss on Impairment and Recovery of Payment to Vendor. During fiscal 2007, we recognized an impairment on the construction in progress and land purchase option assets associated with the REMC conversion for the total amount of $38,197,000. During fiscal 2008, $9,104,000 of additional costs were incurred related to winding down the REMC conversion and $378,000 of costs were impaired relating to other development projects. During the second and third quarters of fiscal 2008, we recovered $1,473,000 that was previously paid to a vendor for work related to the conversion of the East Dubuque Plant which was then applied to unpaid invoices from the vendor on other projects.

Operating Income (Loss)

		For the Years Ended
		September 30,
		2008				2007
		(in thousands)
Operating income (loss):
Product shipments		$	55,829			$	14,214
Natural gas sales of excess inventory			(53	)			(348	)
Natural gas sales with simultaneous purchase			(3,040	)			—
Write down of inventory to market			—				(644	)
Total nitrogen products manufacturing			52,736				13,222
Alternative energy			(103,207	)			(107,685	)
Total operating income (loss)		$	(50,471	)		$	(94,463	)

Loss from operations during the fiscal year ended September 30, 2008 was $50,471,000 as compared to a loss from operations for the fiscal year ended September 30, 2007 of $94,463,000. The decrease in the loss resulted from an increase in gross profit of $40,798,000, primarily due to an increase in gross profit from the nitrogen products manufacturing segment partially offset by research and development expenses associated with the completion of the PDU.

Nitrogen Products Manufacturing. Income from operations for the fiscal years ended September 30, 2008 and 2007 were $52,736,000 and $13,222,000, respectively. The increase in income from operations for fiscal 2008 over fiscal 2007 was primarily due to the increase in gross profit as discussed above. This increase was partially offset by increased payroll and benefit expenses resulting from hiring additional personnel.

Alternative Energy. Loss from operations was $103,207,000 during the fiscal year ended September 30, 2008, compared to $107,685,000 for the same period in 2007, a decrease of $4,478,000. The primary component of the loss was research and development expenses associated with construction and operation of the PDU.

Other Income (Expense)

		For the Years Ended
		September 30,
		2008				2007
		(in thousands)
Other income (expense):
Interest and dividend income		$	1,849			$	2,800
Interest expense			(5,442	)			(2,430	)
Loss on investments			(3,011	)			—
Loss on disposal of fixed assets			(5	)			(826	)
Other income			120				52
Total other expense		$	(6,489	)		$	(404	)

Interest and Dividend Income. Interest and dividend income during the fiscal years ended September 30, 2008 and 2007 was $1,849,000 and $2,800,000, respectively. The decrease for the fiscal year ended September 30, 2008 was primarily due to reduced interest income that was earned on a smaller average balance of cash and available for sale securities.

Interest Expense. Interest expense for the fiscal year ended September 30, 2008 was $5,442,000, compared to $2,430,000 for the same period ended September 30, 2007. The increase was primarily due to interest payments under the Senior Credit Agreement, which we entered into during the third quarter of fiscal 2008, and the amortization of the related debt issue costs recorded in interest expense. Interest expense in fiscal 2008 and 2007 was offset by $596,000 and $698,000, respectively, from interest expense that was capitalized in conjunction with costs incurred for construction in progress.

Loss on Investments. During fiscal 2008, we recognized an impairment loss of $3,011,000 on available for sale securities, which was included in our alternative fuels segment. These securities were substantially impacted by economic and market pressures and experienced sustained declines in estimated fair values. We incurred no such expense during fiscal 2007.

Loss on Disposal of Fixed Assets. During the fiscal year ended September 30, 2008, we had a loss on disposal of fixed assets of $5,000. Comparatively, during the year ended September 30, 2007, we incurred a loss on disposal of fixed assets of $826,000 resulting primarily from our nitrogen products manufacturing segment’s write-off of the remaining book value of damaged process catalysts net of salvage value.

Discontinued Operations:

Revenues and Net Income from Discontinued Operations

		For the Years Ended
		September 30,
		2008				2007
		(in thousands)
		(Net of tax)
Revenues		$	—			$	1,179
Cost of sales			—				762
Gross profit		$	—			$	417
Operating expenses			—				192
Net income from discontinued operations		$	—			$	225
Gain on sale of discontinued operations			91				2,925
		$	91			$	3,150

The Company’s oil and gas field services segment was comprised of results of operations earned or incurred by our former subsidiary PML and was classified as a discontinued operation on our Consolidated Statements of Operations. On November 15, 2006, we sold PML. The revenue from discontinued operations was $0 for fiscal 2008 and $1,179,000 for fiscal 2007 to the date of the sale. The net income from discontinued operations for the oil and gas field services segment was $0 for fiscal 2008 and $225 for fiscal 2007 to the date of the sale.

Gain on Sale of Discontinued Operations

		For the Years Ended
		September 30,
		2008				2007
		(in thousands)
		(Net of tax)
Gain on sale of PML		$	—			$	2,721
Earn-out on sale of REN			91				129
Reversal of accrued liability for OKON			—				75
Total gain on sale of discontinued operations		$	91			$	2,925

Gain on sale of discontinued operations. The sale of PML to privately held PML Exploration Services, LLC, for approximately $5.4 million in cash occurred in the first quarter of fiscal 2007. The approximate gain from the sale of this business was $2,721,000, as shown below (in thousands):

Sales price		$	5,398
Less transaction costs			(49	)
Net sales price to Rentech, after transaction costs		$	5,349
Book value of Rentech’s ownership in PML			2,628
Rentech’s gain on sale of PML		$	2,721

Earn-out on Sale of REN. Effective August 2005, the Company sold its 56% ownership interest in REN Testing Corporation (“REN”), an Oklahoma based company specializing in computer-controlled testing equipment. The sale agreement entitled the Company to receive earn-out payments until the sale price of $1,175,000 is paid in full. As of September 30, 2008 the unpaid balance of the sales price was $779,000 which is included in other receivables on the Consolidated Balance Sheets and is reserved. For the twelve months ended September 30, 2008 and 2007, the Company recognized other income of $91,000 and $129,000, respectively, on earn-out payments which were included in gain on sale of discontinued operations in the Consolidated Statements of Operations.

INFLATION

Inflation has and is expected to have an insignificant impact on the Company’s results of operations and sources of liquidity.

ANALYSIS OF CASH FLOWS

The following table summarizes our Consolidated Statements of Cash Flows:

		For the Years Ended
		September 30,
		2009				2008
		(in thousands)
Net Cash Provided by (Used in):
Operating activities		$	4,072			$	(8,144	)
Investing activities			(20,015	)			(16,883	)
Financing activities			21,338				55,057
Net Increase in Cash		$	5,395			$	30,030

Cash Flows From Operating Activities

Net Income. The Company had net income of $3,028,000 during fiscal 2009, as compared to a net loss of $56,882,000 during fiscal 2008. The cash flows provided by (used in) operations during these periods resulted from the following operating activities:

Impairment of Assets. There was no impairment recognized on any project in fiscal year 2009. In fiscal year 2008, we recognized impairment expenses on various construction in progress assets in the amount of $9,482,000.

Recovery of Payment to Vendor. During fiscal 2008, we recovered $1,473,000 that was previously paid to a vendor for work related to the conversion of the East Dubuque Plant. This amount was subsequently applied to unpaid invoices from the vendor on projects other than the conversion of the East Dubuque Plant.

Bad Debt Expense. During fiscal 2008, we charged $571,000 to bad debt expense as a result of uncertainties on the collectibility of billings under a technical services agreement.

Non-Cash Interest Expense. Total non-cash interest expense recognized during the fiscal year ended September 30, 2009 was $3,597,000, compared to $1,348,000 during the fiscal year ended September 30, 2008. The non-cash interest expense recognized was due to the amortization of bond issue costs and beneficial conversion feature expenses of our convertible notes, amortization of debt issuance costs on borrowings under the term loan and the 2008 write-off of loan fees related to the line of credit with The CIT Group/Business Credit, Inc. (“CIT”) that was cancelled.

Loss on Investments. During fiscal 2008, we recognized a loss of $3,011,000 due to the impairment of available for sale securities. We incurred no such expense during fiscal 2009.

Accounts Receivable. During fiscal 2009, accounts receivable decreased by $2,951,000 compared to an increase of $1,594,000 during fiscal 2008. The year-over-year change was the combined impact of lower sales volume and a lower average sales price towards the end of 2009 compared to 2008.

Property Insurance Claim Receivable. During fiscal 2009, we recorded a property insurance recovery receivable of $2,295,000 for insured property losses related to a weather-related shutdown of REMC in January 2009. As of September 30, 2009, $1,795,000 was still outstanding.

Inventories. Inventories decreased during the year ended September 30, 2009 by $5,278,000 as compared to an increase during the year ended September 30, 2008 of $4,183,000. Inventories decreased during 2009 due to a high volume of product deliveries during the spring 2009 planting season and lower product inventory costs caused by lower natural gas costs. Inventories increased during 2008 due to increased quantities on hand caused by lower than normal product deliveries during the wet spring 2008 planting season, and higher product inventory costs caused by higher natural gas prices.

Deferred Revenue. We record deferred revenue for product pre-sale contracts to the extent we receive cash payments for those contracts. Deferred revenue decreased $44,605,000 during the year ended September 30, 2009, versus an increase of $40,349,000 during the year ended September 30, 2008. As of September 30, 2009, we had entered into a relatively small volume of pre-sale contracts, mainly for product delivery in the fall of 2009. In contrast, as of September 30, 2008, we had entered into larger volumes of product prepayment contracts for both the following fall and spring, at historically high sales prices, due to high demand, high prices and customer expectations of continuing price increases at that time.

Cash Flows From Investing Activities

Proceeds from Sales of Available for Sale Securities. During fiscal 2009, we made no additional purchases of available for sale securities nor did we change the value of the securities that were held. During fiscal 2008, our investment securities held for sale decreased by $13,762,000 as investment securities were liquidated to fund working capital needs.

Purchase of Construction in Progress, Net of Assets Placed in Service. During fiscal 2009, we incurred $8,693,000 of net additions to construction in progress assets. Comparatively, during fiscal 2008, we incurred $23,305,000 of net additions to construction in progress assets most of which was for the conversion of the East Dubuque Plant and acquisition of the Natchez site.

Cash Flows From Financing Activities

Payments of and Proceeds from Debt. During the year ended September 30, 2009, we made $18,364,000 of debt payments, which included required prepayments of $15,888,000 pursuant to the Senior Credit Agreement, compared to debt payments of $19,000 for 2008. We received term loan proceeds of $49,903,000 under the Senior Credit Agreement in June 2008. We did not receive any proceeds in the form of long-term debt in fiscal 2009.

Proceeds from the Issuance of Common Stock. During the year ended September 30, 2009, net proceeds from the issuance of common stock totaled $39,800,000. We issued 11,000,000 shares of Company common stock directly to selected institutional investors for a purchase price of $0.58 per share in cash, which resulted in us receiving net proceeds of $6,300,000. Also, we issued 8,571,428 shares of Company common stock, through a placement agent, to selected institutional investors for a purchase price of $1.75 per share in cash, which resulted in us receiving net proceeds of $14,300,000; and we issued 11,111,000 shares of Company common stock, through a placement agent, to selected institutional investors for a purchase price of $1.80 per share in cash, which resulted in us receiving net proceeds of $19,200,000.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

At September 30, 2009, our current assets totaled $96,196,000, including cash and cash equivalents of $69,117,000 and net accounts receivable of $9,757,000. Our current liabilities were $85,605,000, of which $36,416,000 is composed of term borrowings under the Senior Credit Agreement. We had long-term liabilities of $66,096,000, of which $57,054,000 related to our $57,500,000 principal amount of convertible notes. Our total stockholders’ equity was $49,199,000.

During fiscal year 2009, we funded our operations primarily from cash flow from REMC’s operations and the issuance of our common stock. Under the terms of our Senior Credit Agreement, any distributions or loans from REMC to the Company must be matched with an equal amount of principal payment. For fiscal year 2009, operating income from our nitrogen products manufacturing segment was $57,048,000 and we raised an aggregate of approximately $39,800,000 of net proceeds from the sale of our common stock.

Based on current market conditions, we believe that Rentech’s and REMC’s currently-budgeted liquidity needs for fiscal year 2010 can be met from cash on hand, plus the cash forecasted to be generated by REMC’s operations. However, in the event that the amount of cash flow generated by REMC’s operations is less than expected or the actual amount of spending exceeds our current budget, we could require external sources of financing to maintain our liquidity during fiscal year 2010. Depending on capital market conditions, we may also seek to satisfy our liquidity requirements or increase our liquidity position through public or private offerings of our securities or other financing transactions.

On May 20, 2009, the SEC declared effective our shelf registration statement permitting us to issue up to $100,000,000 of securities from time to time. Under the shelf registration statement, we may issue shares of common stock, preferred stock, debt securities and other securities. As of September 30, 2009, $59,000,000 aggregate offering price of securities was available to be sold under the shelf registration statement. Capital markets have recently experienced extreme uncertainty, and access to those markets has been difficult. Our failure to raise additional capital when needed would have a material adverse effect on our business, financial conditions and results of operations.

Liquidity Requirements

Short-Term Liquidity Requirements. We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next 12 months. In fiscal year 2010, we expect our principal non-REMC liquidity needs to include costs to develop the Rialto and Natchez Projects, operate the PDU, continue research and development of the Rentech technologies and fund general working capital needs. Our currently-budgeted activities for our Rialto and Natchez Projects require low levels of spending. However, if we pursue detailed engineering, procurement or construction activities at the projects, we will need significantly more capital in order to fund those activities.

In fiscal year 2010, we expect our principal REMC liquidity needs to include costs to operate the East Dubuque Plant, including its working capital needs. REMC’s fertilizer business is seasonal, based upon the planting, growing and harvesting cycles. Inventories must be accumulated to allow for customer shipments during the spring and fall fertilizer application seasons. The accumulation of inventory to be available for seasonal sales requires that working capital be available at REMC. Our practice of selling substantial amounts of our fertilizer products through prepayment contracts also significantly affects working capital needs at REMC. Working capital available at REMC is also affected by changes in commodity prices for natural gas and nitrogen fertilizers, which are the East Dubuque Plant’s principal feedstock and products.

Our Senior Credit Agreement matures on May 29, 2010, unless we elect to extend the maturity date for one year and pay the required extension fee. We may also refinance this debt in fiscal 2010, however there can be no assurance that refinancing debt will be available. The Senior Credit Agreement includes the following covenants (the violation of which could give rise to the lenders’ ability to exercise remedies including acceleration of the loan):

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Minimum EBITDA requirements (EBITDA, as calculated under the Senior Credit Agreement, is presented not as a measure of operating results, but rather as a measure of REMC’s ability to service debt. It should not be construed as an alternative to either (i) income from operations or (ii) cash flows from operating activities. EBITDA as presented is not an indicator of future EBITDA, which may vary and could decrease to a level below the minimum requirements of the Senior Credit Agreement).

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REMC must maintain a minimum rolling twelve-month EBITDA as of the end of each quarter, as defined in the agreement. The minimum EBITDA requirement at September 30, 2009 was $42.5 million and REMC’s EBITDA, calculated in accordance with the Senior Credit Agreement and shown below (in thousands), was $65.1 million.

Consolidated net income		$	3,028
Non-REMC net loss			44,392
Interest expense			6,755
Depreciation and amortization			8,463
Non-cash charges			2,500
REMC EBITDA		$	65,138

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For fiscal year 2010, the minimum EBITDA requirement will range from $46 million to $60 million in the various measurement periods.

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REMC must maintain at least $7.5 million of cash on deposit or in permitted short term investments, provided that in the months of February, March and April the requirement is reduced to $5 million. REMC had $36.7 million of cash and cash equivalents as of September 30, 2009.

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REMC cannot spend more than a maximum amount of capital expenditures in each fiscal year. For fiscal year 2009, REMC’s aggregate limit on capital expenditures was approximately $24.0 million. For fiscal year 2009, REMC incurred $12.6 million of capital expenditures. If REMC’s capital expenditures are less than the maximum amounts, in a fiscal year, then the unused amount will be carried over to subsequent fiscal years.

On December 14, 2009, we entered into a Third Amendment and Waiver to the Amended and Restated Credit Agreement (the “Third Amendment and Waiver”), without which we would not have been able to meet all of the covenants in the Senior Credit Agreement. The Third Amendment and Waiver reduces the minimum EBITDA covenant requirements for the periods ending June 30, 2010 and September 30, 2010, and due to the accounting changes described above and in Notes 2 and 21 to our consolidated financial statements, provides for a waiver of the requirement that the past financial statements delivered to the lenders be prepared in accordance with GAAP. We paid a fee equal to 1% of the outstanding principal amount of the term loan upon execution of the Third Amendment and Waiver and will be required to pay a fee equal to 7% of the outstanding principal amount if we elect to extend the maturity date of the term loan for one year on May 29, 2010. The prepayment fee on the term loan will be reduced by 1.0% if we repay the term loan on or before February 15, 2010 and by 0.5% if we repay the term loan after February 15, 2010 but on or before March 15, 2010, and the prepayment fee will be increased by 1.0% if we repay the term loan after May 29, 2010.

We have a line of credit with Barclays for up to $5,000,000. We had $4,532,000 outstanding under the line of credit as of September 30, 2009. The terms of the line of credit include a provision that the outstanding balance is payable on demand at any time. The line of credit is secured by auction rate securities for which there is currently no liquid market. We can repay the line of credit with existing cash, however there can be no assurance that we would have sufficient, immediately available funds to repay the line of credit if it were to be called by Barclays, or that we will be able to quickly liquidate the auction rate securities securing the line of credit to pay off the debt.

Long-Term Liquidity Requirements. We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next 12 months. Our principal long-term needs for liquidity are to fund development, construction and operation of commercial projects. The most progressed commercial projects now under development are the Rialto Project and the Natchez Project, and we anticipate the development of additional projects in the future. We will require substantial amounts of capital that we do not now have to fund our long-term liquidity requirements and develop commercial projects, which we anticipate will range in costs to construct from hundreds of millions of dollars to multiple billions of dollars depending upon their size and scope. We expect these projects to be funded by various combinations of project debt and equity, corporate debt and equity, equity from strategic partners and suppliers, and various forms of government support.

CONTRACTUAL OBLIGATIONS

The following table lists our significant contractual obligations and their future payments at September 30, 2009:

						Less than												More than
Contractual Obligations		Total				1 Year				1-3 Years				3-5 Years				5 Years
		(in thousands)
Continuing Operations
Line of credit		$	4,532			$	4,532			$	—			$	—			$	—
Term loan debt (1)			37,112				37,112				—				—				—
Mortgage debt			931				24				54				61				792
Long-term convertible debt (2)			57,500				—				—				57,500				—
Interest payments on debt			13,340				5,776				4,716				2,409				439
Natural gas (3)			6,615				6,615				—				—				—
Purchase obligations (4)			8,423				8,423				—				—				—
Asbestos removal (5)			237				—				—				—				237
Operating leases			1,458				600				421				420				17
Total		$	130,148			$	63,082			$	5,191			$	60,390			$	1,485