Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended September 30, 2003

For the Transition Period from              to             

Commission File No. 0-19260

RENTECH, INC.

(Exact name of registrant as specified in its charter)

1331 17th Street, Suite 720

Denver, Colorado 80202

(Address of principal executive offices)

Telephone number: (303) 298-8008

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

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

Preferred Stock Purchase Rights

(Title of Class)

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

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

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

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

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

Table of Contents

TABLE OF CONTENTS

Table of Contents

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the federal securities laws, as well as historical and current facts. These forward-looking statements include those relating to the Rentech GTL Technology; the continued development of the Rentech GTL Technology to increase its economic efficiency and use; market acceptance of the technology; obtaining paying customers for licenses of the technology; financing for plants using the Rentech GTL Technology; ability to economically construct new plants or retrofit existing gas plants; the timing by which plants may be constructed and begin production; ability to obtain low-cost feedstocks and to economically operate the plants; successful operation of the plants; the market value and acceptance of the liquid hydrocarbon products; revenues from exploiting the Rentech GTL Technology; market acceptance of and the anticipated revenues from the stains and sealers produced by OKON, Inc.; the market demand and anticipated revenues from the oil and gas field services provided by Petroleum Mud Logging, Inc.; the ability of REN Corporation to complete its sales orders; ability to obtain needed capital; and statements about business strategies, future growth, operations and financial results. These statements often can be identified by the use of terms such as “may,” “might,” “will,” “should,” “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan,” “project,” “approximate” or “continue,” or the negative thereof. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we caution readers not to place undue reliance on any forward-looking statements. Those statements represent our best judgment as to what may occur in the future. Forward-looking statements, however, are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. Important factors that could cause actual results to differ from those reflected in the forward-looking statements include the risks of overruns in costs of constructing, retrofitting and operating commercial plants using the Rentech GTL Technology, problems with mechanical systems in the plants that are not directly related to the Rentech GTL Technology, dangers associated with construction and operation of gas processing plants like those using the Rentech GTL Technology, risks inherent in making investments and conducting business in foreign countries, protection of intellectual property rights, competition, difficulties in implementing our business strategies, and other risks described in this report.

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

PART I

ITEM 1. BUSINESS

OVERVIEW

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

2

Table of Contents

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

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

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

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

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

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

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

3

Table of Contents

SUBSEQUENT EVENT

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

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

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

FINANCIAL INFORMATION ABOUT OUR BUSINESS SEGMENTS

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

FISCHER-TROPSCH TECHNOLOGY

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

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

4

Table of Contents

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

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

DEVELOPMENT OF THE RENTECH GTL TECHNOLOGY

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

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

5

Table of Contents

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

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

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

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

FEATURES OF THE RENTECH GTL TECHNOLOGY

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

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

6

Table of Contents

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

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

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

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

OUR GAS-TO-LIQUIDS PRODUCTS

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

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

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

7

Table of Contents

SOURCES OF FEEDSTOCKS FOR THE RENTECH GTL TECHNOLOGY

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

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

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

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

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

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

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

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

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

8

Table of Contents

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

APPLICATIONS OF THE RENTECH GTL TECHNOLOGY

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

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

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

BUSINESS STRATEGY FOR THE RENTECH GTL TECHNOLOGY

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

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

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

9

Table of Contents

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

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

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

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

10

Table of Contents

LICENSES, CONTRACTS AND JOINT VENTURES FOR THE RENTECH GTL TECHNOLOGY

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

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

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

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

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

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

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

11

Table of Contents

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

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

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

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

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

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

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

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

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

12

Table of Contents

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

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

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

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

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

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

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

13

Table of Contents

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

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

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

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

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

14

Table of Contents

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

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

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

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

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

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

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

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

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

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

15

Table of Contents

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

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

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

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

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

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

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

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

16

Table of Contents

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

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

MARKETING LICENSES OF THE RENTECH GTL TECHNOLOGY

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

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

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

17

Table of Contents

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

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

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

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

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

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

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

18

Table of Contents

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

PRODUCTS FROM GTL PRODUCTS

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