UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission File No. 001-15795

RENTECH, INC.

(Exact name of registrant as specified in its charter)

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

10877 Wilshire Boulevard, Suite 600
Los Angeles, California 90024
(Address of principal executive offices)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes 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 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 (Do not check if a smaller reporting company)		Smaller reporting company o

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 number of shares of the Registrant’s common stock outstanding as of July 30, 2010 was 221,731,479.

 

 

RENTECH, INC.
Form 10-Q

Table of Contents

Part I — Financial Information
Item 1. Financial Statements (unaudited):		3
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statement of Stockholders’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures about Market Risk		28
Item 4. Controls and Procedures		29
Part II — Other Information
Item 1. Legal Proceedings		29
Item 1A. Risk Factors		29
Item 5. Other Information		30
Item 6. Exhibits		30
Signatures		31
Exhibit 3(i).1
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RENTECH, INC.

Consolidated Balance Sheets
(Amounts in thousands, except per share data)

		As of
		June 30,				September 30,
		2010				2009
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	47,932			$	69,117
Restricted cash, short-term			150				150
Accounts receivable, net of allowance for doubtful accounts of $100 at June 30, 2010 and $0 at September 30, 2009			11,666				9,757
Inventories			9,231				12,222
Deposits on gas contracts			1,597				724
Prepaid expenses and other current assets			3,642				3,858
Other receivables, net			52				1,809
Total current assets			74,270				97,637
Property, plant and equipment, net			55,131				54,249
Construction in progress			36,757				28,037
Other assets
Other assets and deposits			16,058				14,677
Available for sale securities, non-current			—				6,000
Total other assets			16,058				20,677
Total assets		$	182,216			$	200,600
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	6,025			$	5,495
Accrued payroll and benefits			5,249				6,204
Accrued liabilities			14,138				11,801
Capital lease obligation			464				—
Line of credit on available for sale securities			—				4,532
Deferred revenue			769				18,203
Accrued interest			1,954				2,930
Current portion of long-term debt and term loan			30,001				36,440
Total current liabilities			58,600				85,605
Long-term liabilities
Long-term debt, net of current portion			—				907
Term loan, net of current portion			28,357				—
Long-term convertible debt to stockholders			40,980				37,717
Advance for equity investment			7,892				7,892
Other long-term liabilities			358				243
Total long-term liabilities			77,587				46,759
Total liabilities			136,187				132,364
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock: $10 par value; 1,000 shares authorized; 90 series A convertible preferred shares authorized and issued; no shares outstanding and $0 liquidation preference			—				—
Series C participating cumulative preferred stock: $10 par value; 500 shares authorized; no shares issued and outstanding			—				—
Common stock: $.01 par value; 450,000 shares authorized; 221,731 and 212,696 shares issued and outstanding at June 30, 2010 and September 30, 2009, respectively			2,217				2,127
Additional paid-in capital			331,778				320,934
Accumulated deficit			(287,966	)			(254,825	)
Total stockholders’ equity			46,029				68,236
Total liabilities and stockholders’ equity		$	182,216			$	200,600

See Accompanying Notes to Consolidated Financial Statements.

RENTECH, INC.

Consolidated Statements of Operations
(Amounts in thousands, except per share data)

		For the Three Months								For the Nine Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
		(Unaudited)								(Unaudited)
						(As Restated)								(As Restated)
Revenues
Product sales		$	49,377			$	93,262			$	95,583			$	160,757
Service revenues			399				71				514				133
Total revenues			49,776				93,333				96,097				160,890
Cost of sales
Product sales			34,002				42,585				78,358				107,555
Service revenues			587				—				693				—
Total cost of sales			34,589				42,585				79,051				107,555
Gross profit			15,187				50,748				17,046				53,335
Operating expenses
Selling, general and administrative expenses			7,492				6,029				21,337				18,691
Depreciation and amortization expenses			476				325				1,460				997
Research and development expenses			5,011				7,187				13,313				16,555
Total operating expenses			12,979				13,541				36,110				36,243
Operating income (loss)			2,208				37,207				(19,064	)			17,092
Other income (expense)
Interest and dividend income			23				139				192				492
Interest expense			(3,747	)			(3,584	)			(10,487	)			(10,114	)
Loss on debt extinguishment			—				—				(2,268	)			—
Realized loss, net on sale of investments			—				—				(1,231	)			—
Other expense			(151	)			(211	)			(281	)			(322	)
Total other expense			(3,875	)			(3,656	)			(14,075	)			(9,944	)
Income (loss) from continuing operations before income taxes			(1,667	)			33,551				(33,139	)			7,148
Income tax expense			10				3				10				17
Income (loss) from continuing operations			(1,677	)			33,548				(33,149	)			7,131
Income from discontinued operations			2				2				8				66
Net income (loss)		$	(1,675	)		$	33,550			$	(33,141	)		$	7,197
Basic and diluted net income (loss) per common share:
Continuing operations		$	(0.01	)		$	0.20			$	(0.15	)		$	0.04
Discontinued operations			0.00				0.00				0.00				0.00
Net income (loss)		$	(0.01	)		$	0.20			$	(0.15	)		$	0.04
Weighted-average shares used to compute net income (loss) per common share:
Basic			216,175				167,258				214,161				166,836
Diluted			216,175				167,551				214,161				167,144

See Accompanying Notes to Consolidated Financial Statements.

RENTECH, INC.

Consolidated Statement of Stockholders’ Equity
(Amounts in thousands)

										Additional								Total
		Common Stock								Paid-in				Accumulated				Stockholders’
		Shares				Amount				Capital				Deficit				Equity
		(Unaudited)
Balance, September 30, 2009 (as originally reported)			212,696			$	2,127			$	293,299			$	(246,227	)		$	49,199
Cumulative effect of accounting change (adoption of accounting standard on convertible debt instruments)			—				—				27,635				(8,598	)			19,037
Balance, September 30, 2009 (as adjusted)			212,696				2,127				320,934				(254,825	)			68,236
Payment of offering costs			—				—				(293	)			—				(293	)
Issuance of common stock			6,689				67				6,169				—				6,236
Common stock issued for stock options exercised			15				—				16				—				16
Common stock issued for warrants exercised			2,080				20				1,108				—				1,128
Stock-based compensation expense			—				—				4,094				—				4,094
Restricted stock units			251				3				(250	)			—				(247	)
Net loss			—				—				—				(33,141	)			(33,141	)
Balance, June 30, 2010			221,731			$	2,217			$	331,778			$	(287,966	)		$	46,029

See Accompanying Notes to Consolidated Financial Statements.

RENTECH, INC.

Consolidated Statements of Cash Flows
(Amounts in thousands)

		For the Nine Months
		Ended June 30,
		2010				2009
		(Unaudited)
						(As Restated)
Cash flows from operating activities
Net income (loss)		$	(33,141	)		$	7,197
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization			8,772				7,332
Accretion expense			23				—-
Utilization of spare parts			1,284				1,257
Bad debt expense			105				5
Gain on disposal of property, plant and equipment			(28	)			—
Non-cash interest expense			5,810				5,177
Reversal of non-cash marketing expense			—				(380	)
Loss on debt extinguishment			2,268				—
Realized loss, net on sale of investments			1,231				—
Gain on sale of subsidiary			(8	)			(66	)
Stock-based compensation			4,094				2,776
Equity in loss of investee			465				—
Changes in operating assets and liabilities:
Accounts receivable			(3,009	)			6,291
Property insurance claim receivable			1,795				(1,500	)
Other receivables			(43	)			35
Inventories			2,694				8,154
Deposits on gas contracts			(873	)			16,625
Prepaid expenses and other current assets			1,286				2,189
Accounts payable			948				(1,767	)
Deferred revenue			(17,434	)			(52,720	)
Accrued interest			(975	)			(418	)
Accrued liabilities, accrued payroll and other			291				(655	)
Net cash used in operating activities			(24,445	)			(468	)
Cash flows from investing activities
Purchase of property, plant, equipment and construction in progress			(19,560	)			(11,247	)
Proceeds from disposal of property, plant and equipment			2,153				—
Proceeds from sale of available for sale securities			4,769				—
Payments for acquisition			—				(338	)
Other items			(611	)			(550	)
Net cash used in investing activities			(13,249	)			(12,135	)
Cash flows from financing activities
Proceeds from term loan, net of original issue discount			60,625				—
Retirement of term loan, including costs			(38,040	)			—
Payments on debt and notes payable			(3,593	)			(15,904	)
Debt issuance costs			(3,666	)			(499	)
Payments on notes payable for financed insurance premiums			(1,372	)			(1,941	)
Payment of offering costs			(293	)			(47	)
Payments on line of credit on available for sale securities			(4,532	)			(192	)
Proceeds from issuance of common stock			6,236				6,322
Proceeds from options and warrants exercised			1,144				—
Net cash provided by (used in) financing activities			16,509				(12,261	)
Decrease in cash and cash equivalents			(21,185	)			(24,864	)
Cash and cash equivalents, beginning of period			69,117				63,722
Cash and cash equivalents, end of period		$	47,932			$	38,858

RENTECH, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)

(Continued from previous page)

Excluded from the statements of cash flows for the nine months ended June 30, 2010 and 2009 were the effects of certain non-cash investing and financing activities as follows:

		For the Nine Months
		Ended June 30,
		2010				2009
		(Unaudited)
Cashless exercise of warrants		$	8			$	—
Acquisition, which includes issuance of common stock			—				8,455
Warrants granted in connection with amendment to term loan			—				1,626
Warrants granted in connection with equity investment			—				629
Purchase of insurance policies financed with a note payable			1,893				2,204
Rescission of notes receivable on repurchase of common stock			—				606
Restricted stock units surrendered for withholding taxes payable			247				149
Purchase of common stock warrants paid through the reduction of loan fees			—				50
Capital lease on software			464				—

See Accompanying Notes to Consolidated Financial Statements.

RENTECH, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements of Rentech, Inc. and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial position at June 30, 2010, and the results of operations and cash flows for the periods presented. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results for the three and nine months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2010. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009 filed with the Securities and Exchange Commission (the “SEC”) on December 14, 2009 and the consolidated financial statements and notes thereto for the fiscal year ended September 30, 2009 included as exhibit 99.1 in the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2010 (collectively, the “Annual Report”). The sole purpose of that Current Report on Form 8-K was to disclose the Company’s adoption of new accounting guidance relating to convertible debt instruments (see additional information in this note).

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

Because of their short-term nature, the amounts reported in the Company’s consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and current portion of long-term debt and term loan approximate fair value.

The Company has evaluated events, if any, which occurred subsequent to June 30, 2010 through the date these financial statements were issued, to ensure that such events have been properly reflected in these statements.

Certain prior period amounts have been reclassified to conform to the fiscal year 2010 presentation.

In its Annual Report, the Company restated its consolidated balance sheet at September 30, 2008, and its consolidated statement of operations, its changes in stockholders’ equity and cash flows for the fiscal year ended September 30, 2008. The report also presented restated selected quarterly financial data for the quarters ended June 30, 2009, March 31, 2009 and December 31, 2008.

The amounts presented in this Form 10-Q related to the prior year have been restated to correct previous errors and to be consistent with the Company’s presentation of restatements in its Annual Report, by reclassifying deposits on natural gas purchase contracts from inventory to deposits, and to reverse the effects of the lower-of-cost-or-market adjustments related to those deposits in the consolidated statements of operations, changes in stockholders’ equity and cash flows. As reported in the Annual Report, these corrections materially changed the timing, but not the total amount, of the recognition of expenses for purchases of natural gas. In periods in which inventory impairments have been reversed, the costs of gas recognized are lower than under the previous treatment. In periods following the inventory impairments that were recorded under the prior treatment, the cost of goods sold are higher than the cost recognized under the previous treatment. The correction in accounting treatment had no effect on cash flows.

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

The following table (in thousands, except per share data) presents the effects of the restatement on total cost of sales, gross profit, write down of inventory to market, income from continuing operations before income taxes, net income and net income per common share for the three and nine months ended June 30, 2009, consistent with the presentation in the Annual Report.

		Three Months Ended
		June 30, 2009
		As																As Stated
		Previously				Restatement				As								in this
		Reported				Adjustments				Restated				Adjustments				Report
Total cost of sales		$	38,850			$	1,819			$	40,669			$	1,916	(1)		$	42,585
Gross profit			52,567				(1,819	)			50,748				—				50,748
Write down of inventory to market			116				(116	)			—				—				—
Interest expense			2,821				—				2,821				763	(2)			3,584
Income from continuing operations before income taxes			36,133				(1,819	)			34,314				(763	)			33,551
Net income			36,132				(1,819	)			34,313				(763	)			33,550
EPS — Basic			0.22				(0.01	)			0.21				(0.01	)			0.20
EPS — Diluted			0.22				(0.02	)			0.20				—				0.20

		Nine Months Ended
		June 30, 2009
		As																As Stated
		Previously				Restatement				As								in this
		Reported				Adjustments				Restated				Adjustments				Report
Total cost of sales		$	99,059			$	5,889			$	104,948			$	2,607	(1)		$	107,555
Gross profit			59,224				(5,889	)			53,335				—				53,335
Write down of inventory to market			16,092				(16,092	)			—				—				—
Interest expense			7,930				—				7,930				2,184	(2)			10,114
Income from continuing operations before income taxes			15,221				(5,889	)			9,332				(2,184	)			7,148
Net income			15,270				(5,889	)			9,381				(2,184	)			7,197
EPS — Basic			0.09				(0.03	)			0.06				(0.02	)			0.04
EPS — Diluted			0.09				(0.04	)			0.05				(0.01	)			0.04

In May 2008, the Financial Accounting Standards Board (the “FASB”) issued a new accounting standard relating to the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), which specifies that issuers of such instruments shall separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This guidance was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption was not permitted. This guidance was effective for the Company’s fiscal year beginning October 1, 2009. The guidance was applied retrospectively to all periods presented. The adoption of the guidance affected the accounting for the Company’s 4.00% Convertible Senior Notes. Upon adoption of the guidance, the estimated effective interest rate on the Company’s 4.00% Convertible Senior Notes was 18.00% as of the time of issuance, which resulted in the recognition of a $30,495,000 discount to the debt portion of these notes with an amount equal to that discount recorded to paid-in capital at the time of issuance. Such discount is amortized as interest expense (non-cash) over the remaining life of the 4.00% Convertible Senior Notes. As a result of the additional interest expense, capitalized interest, which is recorded in construction in progress, also increased. In addition, the original beneficial conversion feature of $875,000 and the related interest expense amortization were reversed upon adoption of this guidance.

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Amounts related to the 4.00% Convertible Senior Notes are reflected in the Company’s consolidated balance sheets as follows:

		As of
		June 30,				September 30,
		2010				2009
		(in thousands)
Convertible senior notes		$	57,500			$	57,500
Less unamortized discount			(16,520	)			(19,783	)
Long-term convertible debt to stockholders		$	40,980			$	37,717

For the three and nine months ended June 30, 2010, the impact of adopting the accounting standard is an increase in interest expense of approximately $948,000 and $2,705,000, respectively.

Note 2 — Recent Accounting Pronouncements

In September 2006, the FASB issued a standard on fair value measurements that clarified the principle that fair value shall be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it established a fair value hierarchy that prioritizes the information used to develop those assumptions. This standard is effective for consolidated financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB provided a one year deferral for the implementation of this standard for non-financial assets and liabilities recognized or disclosed at fair value on a non-recurring basis. The provisions of this standard were effective for the Company’s financial assets and liabilities for the fiscal year beginning October 1, 2008. The provisions of this standard were effective for the Company’s non-financial assets and liabilities for the fiscal year beginning October 1, 2009. The adoption of this standard for financial and non-financial assets and liabilities did not have a material impact on the Company’s consolidated financial position or results of operations.

In April 2009, the FASB issued a staff position on accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. The staff position amends the provisions of a previously issued standard for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. This guidance eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria. It is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This guidance is effective for the Company’s fiscal years beginning on or after October 1, 2009. In the absence of any definitive future business combinations, the Company does not currently expect this guidance to have a material impact on the Company’s consolidated financial condition, results of operations or disclosures.

In June 2009, the FASB issued a standard which provides guidance about the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. This standard is effective for fiscal years beginning after November 15, 2009. It is effective for the Company’s fiscal years beginning on or after October 1, 2010. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position, results of operations or disclosures.

In June 2009, the FASB issued a standard which amends guidance issued in an interpretation as it relates to determining whether an entity is a variable interest entity and ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This standard is effective for fiscal years beginning after November 15, 2009. It is effective for the Company’s fiscal years beginning on or after October 1, 2010. The Company is assessing the impact this guidance may have on its consolidated financial statements.

Note 3 — Available for Sale Securities

The Company’s available for sale securities were primarily auction rate securities which invested in long-term investment grade obligations purchased at par. Prior to fiscal 2008, these investments were classified as short-term investments and the trading of auction rate securities took place through a descending price auction occurring in 7, 28 and 35 day cycles with the interest rate reset at the beginning of each holding period. At the end of each holding period the interest was paid to the investor. The Company recorded the interest when earned as interest income.

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

During fiscal 2008, conditions in the global credit markets prevented the Company and other investors from liquidating holdings of auction rate securities because the amount of securities submitted for sale at auction exceeded the amount of purchase orders for such securities. As a consequence of the failed auctions, the investments were not readily convertible to cash until a future auction of these investments occurred, the underlying securities were redeemed by the issuer or the underlying securities matured. During the second quarter of fiscal 2008, the Company reclassified its available for sale securities from current assets to noncurrent assets because the Company was unable to readily redeem these securities into cash for current operations.

In May 2008, the Company executed a line of credit with the custodian of its available for sale securities. In September 2008, the line of credit was assumed by Barclays Capital, Inc. (“Barclays”). The line of credit provided for aggregate borrowings up to $5,000,000 and such loans were collateralized by the Company’s available for sale securities. Borrowings under the line of credit accrued interest at the rate of LIBOR plus 1.50%. The line of credit was paid off during the nine months ended June 30, 2010 as a result of the sale through a tender offer of a portion of the securities and various sales of the remaining securities, which resulted in proceeds of approximately $4.8 million and a net realized loss on sale of investments of approximately $1.2 million.

Due to the absence of market activity and other observable pricing as of the measurement date, estimates that are not observable (Level 3 inputs) were used in determining the fair value which is in accordance with applicable guidance. The following table shows a reconciliation of the Company’s available for sale securities which were measured at fair value on a recurring basis using Level 3 inputs as the dates of the consolidated balance sheets (in thousands).

Balance at September 30, 2009		$	6,000
Net purchases and sales			(6,000	)
Balance at June 30, 2010		$	—

Note 4 — Accounts Receivable

Accounts receivable consisted of the following:

		As of
		June 30,				September 30,
		2010				2009
		(in thousands)
Trade receivables from nitrogen products		$	11,641			$	8,717
Trade receivables from alternative energy			125				1,040
Total accounts receivable, gross			11,766				9,757
Allowance for doubtful accounts on trade accounts receivable			(100	)			—
Total accounts receivable, net		$	11,666			$	9,757

Note 5 — Inventories

Inventories consisted of the following:

		As of
		June 30,				September 30,
		2010				2009
		(in thousands)
Finished goods		$	8,661			$	11,834
Raw materials			570				388
Total inventory		$	9,231			$	12,222

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 6 — Property, Plant and Equipment and Construction in Progress

Property, plant and equipment consisted of the following:

		As of
		June 30,				September 30,
		2010				2009
		(in thousands)
Land and land improvements		$	1,811			$	1,933
Buildings and building improvements			9,966				11,017
Machinery and equipment			72,836				64,697
Furniture, fixtures and office equipment			977				882
Computer equipment and computer software			4,509				4,073
Vehicles			172				172
Leasehold improvements			66				441
Conditional asset (asbestos removal)			210				210
			90,547				83,425
Less accumulated depreciation			(35,416	)			(29,176	)
Total depreciable property, plant and equipment, net		$	55,131			$	54,249

Construction in progress consisted of the following:

		As of
		June 30,				September 30,
		2010				2009
		(in thousands)
Construction in progress for projects under development		$	25,830			$	17,931
Accumulated capitalized interest costs related to projects under development			5,217				3,197
Construction in progress for machinery and equipment			5,219				6,882
Software in progress (under capital lease)			464				—
Conditional asset (asbestos removal)			27				27
Total construction in progress		$	36,757			$	28,037

The Company has a legal obligation to handle and dispose of asbestos at its plant at East Dubuque, Illinois (the “East Dubuque Plant”) and at the site of its proposed project near Natchez, Mississippi (the “Natchez Project”) in a special manner when undergoing major or minor renovations or when buildings at these locations are demolished, even though the timing and method of settlement are conditional on future events that may or may not be in its control. As a result, the Company has a conditional obligation for this disposal. In addition, the Company, through its normal repair and maintenance program, may encounter situations in which it is required to remove asbestos in order to complete other work. The Company applied the expected present value technique to calculate and record the fair value of the asset retirement obligation for each property. In accordance with the applicable guidance, the liability is increased over time and such increase is recorded as accretion expense. The liability at June 30, 2010 and accretion expense for the nine months ended June 30, 2010 were $260,000 and $23,000, respectively.

Note 7 — Investment in ClearFuels Technology Inc.

On June 23, 2009, the Company acquired 4,377,985 shares of Series B-1 Preferred Stock, representing a 25% ownership interest in ClearFuels Technology Inc. (“ClearFuels”), and rights to license ClearFuels’ biomass gasification technology, in exchange for a warrant to purchase up to 5 million shares of the Company’s common stock, access to the Company’s Product Demonstration Unit (“PDU”) in Colorado for construction and operation of a ClearFuels gasifier, and certain rights to license the Rentech Process, including the exclusive right for projects using bagasse as a feedstock. The warrant vests in three separate tranches with one tranche of 2 million shares vested as of the closing date, and two tranches of 1.5 million shares each to vest on the achievement by ClearFuels of established milestones. The exercise price for the first tranche is $0.60 per share and the exercise price per share for the second and third tranches will be set at the ten-day average trading price of the Company’s common stock at the time of vesting. The fair value of the warrant was calculated using the Black-Scholes option-pricing model at $628,815. This fair value was based on the vested tranche of 2 million shares because the Company cannot currently determine the probability that ClearFuels will achieve the milestones that would trigger vesting of the second and third tranches.

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

During the nine months ended June 30, 2010, pursuant to the warrant agreement, ClearFuels acquired 832,390 shares of Company common stock through the cashless exercise of warrants representing 1,500,000 shares.

ClearFuels is a private company and a market does not exist for its preferred stock. As a result the Company determined the fair value of its investment in ClearFuels to be equal to the fair market value of the vested warrant issued to ClearFuels at the closing. The investment in ClearFuels is recorded in other assets and deposits under the equity method of accounting. At June 30, 2010, the investment balance was $79,000 and the Company’s share of ClearFuels loss for the three and nine months ended June 30, 2010 was $188,000 and $465,000, respectively, which is included in other income (expense) on the consolidated statements of operations.

Note 8 — Debt

On June 13, 2008, the Company and its wholly-owned subsidiary, Rentech Energy Midwest Corporation (“REMC”), executed a $53,000,000 amended and restated credit agreement (the “Credit Agreement”) by and among REMC as the borrower, the Company as a guarantor, Credit Suisse, Cayman Islands Branch (“Credit Suisse”), as administrative agent and collateral agent and the lenders party thereto.

On January 29, 2010, the Company and REMC replaced the Credit Agreement with a collateralized term loan facility with a four and one-half-year maturity, pursuant to a credit agreement (the “New Credit Agreement”) with Credit Suisse, as administrative agent and collateral agent, and the lenders party thereto. REMC borrowed $62.5 million under the New Credit Agreement in the form of new collateralized term loans (the “New Term Loans”), the proceeds of which were used to repay its prior term loan facility (the principal amount of which had already been reduced from the original $53 million to approximately $37 million), to make a loan to the Company in the amount of approximately $18 million and to pay related fees and expenses. The payoff of the prior term loan is considered an early extinguishment of debt. As a result, for the nine months ended June 30, 2010, loss on debt extinguishment of $2.3 million is recorded in the consolidated statements of operations. The New Term Loans are guaranteed by the Company and certain of its subsidiaries and contain restrictions on the amount of cash that can be transferred from REMC to the Company or its non-REMC subsidiaries after the initial transfer to the Company on the closing date of the New Credit Agreement. The New Credit Agreement also includes an uncommitted incremental term loan facility under which REMC may request up to $15 million in incremental term loans (which amount was increased to $35 million pursuant to the First Amendment described below), subject to the satisfaction of conditions, including the condition that, after giving effect to the incurrence of the incremental term loans, the total outstanding principal amount of all term loans under the New Credit Agreement may not exceed $50 million (which condition was waived pursuant to the First Amendment in connection with the First Incremental Loans, as described below). The New Term Loans were issued with original issue discount of 3%, and bear interest, at the election of REMC, at either (a)(i) the greater of LIBOR or 2.5%, plus (ii) 10.0% or (b)(i) the greatest of (w) the prime rate, as determined by Credit Suisse, (x) 0.5% in excess of the federal funds effective rate, (y) LIBOR plus 1.0% or (z) 3.5% plus (ii) 9.0%. Interest payments are generally made on a quarterly basis. The New Term Loans mature on July 29, 2014 and are subject to annual amortization, payable quarterly, of 7.5% of the original principal amount in calendar years 2010 and 2011, 15.0% of the original principal amount in calendar years 2012 and 2013, and the remainder payable in the last six months prior to maturity. The New Term Loans are subject to mandatory prepayment and reduction under certain circumstances, with customary exceptions, from the proceeds of the sale of assets and the sale or issuance of certain indebtedness, and from certain insurance and condemnation proceeds. The New Credit Agreement also requires that a certain percentage of excess cash flow from REMC, as defined in the New Credit Agreement, be applied to repay the New Term Loans and any incremental term loans under the New Credit Agreement. The percentage of REMC’s excess cash flow required to be applied as a prepayment will depend on REMC’s leverage ratio as of the relevant calculation date and the aggregate outstanding principal amount of loans under the New Credit Agreement on such date. If the leverage ratio is greater than or equal to 1.00:1.00, then 100% of the excess cash flow will be required to be applied as a prepayment. If the leverage ratio is less than 1.00:1.00 and the aggregate outstanding principal amount of loans under the New Credit Agreement is (a) greater than or equal to $50 million, then 100% of excess cash flow will be required to be applied as a prepayment to such loans, (b) greater than or equal to $40 million but less than $50 million, then 75% of excess cash flow will be required to be applied as a prepayment to such loans or (c) less than $40 million, then 50% of excess cash flow will be required to be applied as a prepayment to such loans.

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

On July 21, 2010, REMC and Rentech entered into an amendment to credit agreement, waiver and collateral agent consent to the New Credit Agreement (the “First Amendment”). The First Amendment, among other things, modified the excess cash flow calculation, the prepayment premium schedule, the interest coverage financial covenant and the maximum leverage financial covenant; waived the EBITDA (as defined in the New Credit Agreement) and maximum principal requirements in connection with the First Incremental Loan (as described below); and increased the maximum aggregate incremental term loan amount to $35 million. The First Amendment also included an early prepayment of $15 million of principal of the New Term Loans outstanding under the New Credit Agreement made from cash at REMC that had been held for such purpose. The $15 million prepayment will be deducted from the mandatory excess cash flow prepayment for fiscal year 2010, if any, pursuant to the terms of the New Credit Agreement.

Simultaneously upon entering into the First Amendment, REMC and Rentech entered into an incremental loan assumption agreement to borrow an additional $20 million (the “First Incremental Loan”), with proceeds of approximately $18.5 million transferred to Rentech in the form of an intercompany loan. The First Incremental Loan was issued with original issue discount of 6%, and is subject to annual amortization, payable quarterly, of 3.75% of the original principal amount for the remainder of calendar year 2010, 7.5% of the original principal amount for calendar year 2011, 15.0% of the original principal amount for calendar years 2012 and 2013, and the remainder payable in the last six months prior to maturity. The other terms of the First Incremental Loan, including without limitation, the maturity date, interest rate and collateral security, are the same as the New Term Loans.

Long-term debt consists of the following:

		As of
		June 30,				September 30,
		2010				2009
		(in thousands)
Face value of term loan under the credit agreements		$	59,838			$	37,112
Less unamortized discount			(1,480	)			(696	)
Book value of term loan under the credit agreements			58,358				36,416
Less current portion			(30,001	)			(36,416	)
Term loan, long-term portion		$	28,357			$	—
Mortgage dated February 8, 1999; monthly principal and interest payments of $7,000 with interest at 6.5%; unpaid principal and accrued interest originally due March 1, 2029; collateralized by land and building		$	—			$	931
Less current portion			—				(24	)
Mortgage debt, long-term portion		$	—			$	907

The mortgage was paid off in April 2010 when the property was sold.

Note 9 — Convertible Debt

In April 2006, the Company issued $57,500,000 in aggregate principal amount of 4.00% Convertible Senior Notes due 2013 with net proceeds to the Company of $53,700,000 after deducting $3,800,000 of underwriting discounts, commissions, fees and other expenses. The Company recognized these deductions as prepaid debt issuance costs which is a component of other assets and deposits on the consolidated balance sheets. An over-allotment option was exercised and the issuance of the notes from the over-allotment resulted in a beneficial conversion feature of $875,000, which was recognized as debt discount and was to be amortized to interest expense over the seven-year term of the notes. Upon adoption of the new accounting standard on convertible debt instruments, the beneficial conversion feature and the related interest expense amortization were reversed. See Note 1 regarding the change in value of the convertible debt as a result of adopting the accounting standard on convertible debt instruments.

Upon achievement of the conversion criteria, the notes may be converted into 14,332,002 shares of common stock, subject to adjustment.

Based on the market prices, the estimated fair value of the 4.00% Convertible Senior Notes was approximately $39 million as of June 30, 2010.

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10 — Commitments and Contingencies

Natural Gas Agreements

The Company’s policy and practice is to enter into fixed-price purchase contracts for natural gas to minimize monthly and seasonal gas price volatility and in conjunction with contracted product sales in order to substantially fix gross margin on those product sales contracts. The Company has entered into multiple natural gas supply contracts, including both fixed- and indexed-price contracts, for various delivery dates through September 30, 2010. Commitments for natural gas purchases consist of the following:

		As of
		June 30,				September 30,
		2010				2009
		(in thousands, except weighted average rate)
MMBTU’s under fixed-price contracts			686				1,398
MMBTU’s under index-price contracts			209				—
Total MMBTU’s under contracts			895				1,398
Commitments to purchase natural gas		$	3,934			$	6,615
Weighted average rate per MMBTU based on the fixed rates and the indexes applicable to each contract		$	4.40			$	4.73

The Company is required to make additional prepayments under these purchase contracts in the event that market prices fall below the purchase prices in the contracts.

Litigation

The Company is party to litigation from time to time in the normal course of business. While the outcome of the Company’s current matters cannot be predicted with certainty, the Company maintains insurance to cover certain actions and believes that resolution of its current litigation will not have a material adverse effect on the Company.

In October 2009, the United States Environmental Protection Agency (the “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. The Company continues to engage in dialogue with the EPA regarding the Company’s defenses to the alleged violations and has had a preliminary technical meeting with the EPA to discuss technical issues associated with the installation of any new pollution control technology to resolve the EPA’s alleged violations. The EPA has informed the Company that it has referred this matter to the United States Department of Justice. The Company cannot at this time estimate the cost to resolve this matter, but it does not believe that the matter will have a material adverse effect on the Company.

Between December 29, 2009 and January 6, 2010, three purported class action shareholder lawsuits were filed against the Company and certain of its current and former directors and officers in the United States District Court for the Central District of California (“C.D. Cal.”) alleging that the Company and the named current and former directors and officers made false or misleading statements regarding the Company’s financial performance in connection with its financial statements for fiscal year 2008 and the first three quarters of fiscal year 2009. Plaintiffs in the actions purport to bring claims on behalf of all persons who purchased Rentech securities between May 9, 2008 and December 14, 2009 and seek unspecified damages, interest, and attorneys’ fees and costs. The cases were consolidated as Michael Silbergleid v. Rentech, Inc., et al. (In re Rentech Securities Litigation), Lead Case No. 2:09-cv-09495-GHK-PJW (C.D. Cal.) (the “Securities Action”), and a lead plaintiff was appointed on April 5, 2010. Lead plaintiff filed a consolidated complaint on May 20, 2010, and the Company’s response is due on October 15, 2010. The Company intends to vigorously defend this action. The Company cannot at this time estimate the cost to resolve these matters, but it does not believe that these matters will have a material adverse effect on the Company.

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Between January 22, 2010 and February 10, 2010, five shareholder derivative lawsuits were filed against certain of the Company’s current and former officers and directors in the United States District Court for the Central District of California and the Superior Court of the State of California for the County of Los Angeles (“LASC”). The initial complaints allege that the named current and former directors and officers caused the Company to make false or misleading statements regarding the Company’s financial performance in connection with its financial statements for fiscal year 2008 and the first three quarters of fiscal year 2009. The plaintiffs, who purport to assert claims on behalf of the Company, seek various equitable and/or injunctive relief, unspecified restitution to the Company, interest, and attorneys’ fees and costs. The cases before the United States District Court are consolidated as John Cobb v. D. Hunt Ramsbottom, et al. (In re Rentech Derivative Litigation), Lead Case No. 2:10-cv-0485-GHK-PJW (C.D. Cal.), and the cases before the Superior Court are consolidated as Andrew L. Tarr v. Dennis L. Yakobson, et al., LASC Master File No. BC430553. Consolidated complaints have not yet been filed in either action, as they have been stayed pending resolution of motions to dismiss the Securities Action. Accordingly, the Company has not yet filed a response to the complaints but intends to vigorously defend these actions. The Company cannot at this time estimate the cost to resolve these matters, but it does not believe that these matters will have a material adverse effect on the Company.

Note 11 — Stockholders’ Equity

During February 2008, the Company sold 400,000 shares of restricted common stock to an individual professional services provider for cash of $2,000 and notes receivable of $606,000. The stock was subject to transfer restrictions and repurchase by the Company at the original issuance price if specified performance milestones were not accomplished by December 31, 2008. During fiscal year 2008, the Company recognized $380,000 as marketing expense with a corresponding accrued liability under restricted stock awards. The notes receivable were recorded as a contra-equity since the notes are non-recourse, other than with respect to the shares. During the first quarter of fiscal year 2009, the service provider informed the Company that the specified performance milestones would not be achieved. In December 2008, the Company repurchased all 400,000 shares for the price at which the shares had been sold. The repurchase resulted in the reversal of $380,000 of previously recognized marketing expense, a corresponding reversal of the accrued liability under restricted stock awards, the reversal of the contra-equity notes receivable and the reversal of associated common stock and additional paid-in capital.

In February 2010, the Company entered into an Equity Distribution Agreement (the “Distribution Agreement”), which permits the Company to sell up to $50 million aggregate gross sales price of common stock over a period of six months. Sales of shares may be made by means of ordinary brokers’ transactions on the NYSE Amex at market prices or as otherwise agreed by the Company and its sales agent. The sales agent will receive a commission of 1.5% based on the gross sales price per share. On a daily basis, the Company may sell a number of shares of its common stock up to twenty-five percent of the average daily trading volume of the Company’s common stock for the thirty trading days preceding the date of the sale. The net proceeds from any sales under the Distribution Agreement are expected to be used for general corporate purposes. For the period from March 1, 2010 through June 30, 2010, the Company sold a total of approximately 6,172,000 shares of common stock which resulted in aggregate net proceeds of approximately $6.2 million after sales commissions of approximately $95,000. In August 2010, the Distribution Agreement was extended for an additional six month period, which will end February 2, 2011. Pursuant to the Distribution Agreement, as amended, we may sell up to approximately $43.7 million of remaining aggregate gross sales price of common stock until February 2, 2011.

On April 1, 2010, the SEC declared effective a shelf registration statement filed by the Company, which permits it to issue up to $99,297,330 of common stock, preferred stock, debt securities and other securities from time to time. As of June 30, 2010, approximately $94.3 million aggregate offering price of securities was available to be sold under the shelf registration statement. This report shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful under the securities laws of such jurisdiction.

On April 30, 2010, Credit Suisse exercised warrants to purchase 624,172 shares of Company common stock that were scheduled to expire in May 2010 for total consideration to the Company of $575,000. On May 28, 2010, SOLA LTD and Solus Core Opportunities Master Fund Ltd. exercised warrants to purchase 529,957 and 94,215 shares of Company common stock, respectively, that were scheduled to expire in May 2010 for total consideration to the Company of $575,000.

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

On May 11, 2010, the Company’s shareholders approved an amendment to the Company’s Amended and Restated Articles of Incorporation, as amended, to increase the authorized common stock of the Company from 350,000,000 shares to 450,000,000 shares.

See Note 1 regarding the change in additional paid-in-capital as a result of adopting the accounting standard on convertible debt instruments.

Note 12 — Income Taxes

The provision for income taxes is based on earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently enacted tax laws and relates to the expected reversal of the cumulative temporary differences between the carrying value of the assets and liabilities for financial statement and income tax purposes. Deferred income tax expense is measured by the change in the deferred income tax asset or liability during the year. The Company has recorded a full valuation allowance against its deferred tax assets.

Note 13 — Segment Information

The Company operates in two business segments as follows:

	•		Nitrogen products manufacturing: The Company manufactures a variety of nitrogen fertilizer and industrial products.
	•		Alternative energy: The Company develops and markets processes for conversion of low-value, carbon-bearing solids or gases into valuable hydrocarbons and electric power.

The Company’s reportable operating segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measure is segment operating income.

The Company generally considers its short-term liquidity requirements to consist of those items that are expected to be incurred within the next 12 months. The Company will require additional capital to fund its planned non-REMC activities during the next twelve months. The Company expects its principal non-REMC liquidity needs to include costs to fund the current development phases of its renewable energy project in Rialto, California (the “Rialto Project”) (including FEED), the Natchez Project and other projects, operation of the PDU, continued research and development of its technologies and general working capital and administrative needs. In the event that such capital were not available, the Company would not be able to continue these corporate and development activities. Pre-FEED development activities for its projects require relatively low levels of spending. However, if the Company elects to enter additional phases of development on those projects, such as FEED, or procurement of equipment, it will need significantly more capital in order to fund those activities. In the event that the Company needs additional capital for these projects, depending on the availability of such capital, it expects to obtain it through various combinations of project debt and equity, corporate equity, asset sales, equity from strategic partners and suppliers, and various forms of government support.

		For the Three Months								For the Nine Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
		(in thousands)								(in thousands)
Revenues
Nitrogen products manufacturing		$	49,377			$	93,262			$	95,583			$	160,757
Alternative energy			399				71				514				133
Total revenues		$	49,776			$	93,333			$	96,097			$	160,890
Operating income (loss)
Nitrogen products manufacturing		$	14,612			$	50,012			$	14,997			$	50,377
Alternative energy			(12,404	)			(12,805	)			(34,061	)			(33,285	)
Total operating income (loss)		$	2,208			$	37,207			$	(19,064	)		$	17,092
Income (loss) from continuing operations
Nitrogen products manufacturing		$	11,929			$	48,002			$	6,389			$	44,388
Alternative energy			(13,606	)			(14,454	)			(39,538	)			(37,257	)
Total income (loss) from continuing operations		$	(1,677	)		$	33,548			$	(33,149	)		$	7,131

		As of
		June 30,				September 30,
		2010				2009
		(in thousands)
Total assets
Nitrogen products manufacturing		$	110,374			$	115,030
Alternative energy			71,842				85,570
Total assets		$	182,216			$	200,600

RENTECH, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 14 — Net Income (Loss) Per Common Share

Basic income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding plus the dilutive effect of unvested restricted stock, outstanding stock options and warrants, and convertible debt using the “treasury stock” method.

The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share data).

		For the Three Months								For the Nine Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
Basic net income (loss) per common share:
Numerator:
Income (loss) from continuing operations		$	(1,677	)		$	33,548			$	(33,149	)		$	7,131
Income from discontinued operations			2				2				8				66
Net income (loss)		$	(1,675	)		$	33,550			$	(33,141	)		$	7,197
Denominator:
Weighted average common shares outstanding			216,175				167,258				214,161				166,836
Continuing operations		$	(0.01	)		$	0.20			$	(0.15	)		$	0.04
Discontinued operations			0.00				0.00				0.00				0.00
Basic net income (loss) per common share		$	(0.01	)		$	0.20			$	(0.15	)		$	0.04
Diluted net income (loss) per common share:
Numerator:
Income (loss) from continuing operations		$	(1,677	)		$	33,548			$	(33,149	)		$	7,131
Income from discontinued operations			2				2				8				66
Net income (loss)		$	(1,675	)		$	33,550			$	(33,141	)		$	7,197
Denominator:
Weighted average common shares outstanding			216,175				167,258				214,161				166,836
Effect of dilutive securities:
Warrants			—				89				—				160
Common stock options			—				1				—				1
Restricted stock			—				203				—				147
Diluted shares outstanding			216,175				167,551				214,161				167,144
Continuing operations		$	(0.01	)		$	0.20			$	(0.15	)		$	0.04
Discontinued operations			0.00				0.00				0.00				0.00
Diluted net income (loss) per common share		$	(0.01	)		$	0.20			$	(0.15	)		$	0.04

For the three and nine months ended June 30, 2010, approximately 36.9 million shares and for the three and nine months ended June 30, 2009, approximately 34.6 million shares of the Company’s common stock issuable pursuant to stock options, stock warrants, restricted stock, and convertible debt were excluded from the calculation of diluted earnings (loss) per share because their inclusion would have been anti-dilutive.

Note 15 — Subsequent Events

On July 21, 2010, REMC and Rentech entered into the First Amendment to the New Credit Agreement; see Note 8 — Debt. In August 2010, the Distribution Agreement was extended for an additional six month period; see Note 11 — Stockholders’ Equity.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain information included in this report 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 our good faith belief and best judgment based upon current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties. Factors that could affect Rentech’s results include the risk factors detailed in “Part II. Other Information-Item 1A. Risk Factors” below, “Part I, — Item 1A, Risk Factors” in the Annual Report and from time to time in the Company’s other periodic reports and registration statements filed with the Securities and Exchange Commission. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, and thus are current only as of the date made. We undertake no responsibility to update any of the forward-looking statements after the date of this report to conform them to actual results.

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

In its Annual Report, the Company restated its consolidated balance sheet at September 30, 2008, and its consolidated statement of operations, its changes in stockholders’ equity and cash flows for the fiscal year ended September 30, 2008. For additional information regarding the restatement, see Note 1 to the consolidated financial statements in this report.

OVERVIEW OF OUR BUSINESSES

Rentech, incorporated in 1981, provides clean energy solutions. The Company’s Rentech-SilvaGas biomass gasification process can convert multiple biomass feedstocks into synthesis gas (“syngas”) for production of renewable fuels and power. Combining the gasification process with Rentech’s unique application of proven syngas conditioning and clean-up technology and the patented Rentech Process based on Fischer-Tropsch chemistry, Rentech offers an integrated solution for production of synthetic fuels from biomass. The Rentech Process can also convert syngas from fossil resources into ultra-clean synthetic jet and diesel fuels, specialty waxes and chemicals. Pursuant to an alliance agreement with us, UOP, a Honeywell company, has agreed to provide technologies for final product upgrading and acid gas removal to us or our licensees. Rentech Energy Midwest Corporation, a wholly-owned subsidiary of the Company, manufactures and sells nitrogen fertilizer products including ammonia, urea ammonia nitrate, urea granule, and urea solution in the corn-belt region of the central United States.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. The most significant estimates and judgments relate to: revenue recognition, inventories, construction in progress, the valuation of financial instruments, long-lived assets and intangible assets, stock-based compensation and the realization of deferred income taxes. Actual amounts could differ significantly from these estimates. There has been no material change to our critical accounting policies and estimates from the information provided in our Annual Report.

RESULTS OF OPERATIONS

More detailed information about our consolidated financial statements is provided in the following portions of this section. The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto as presented in this report and in the Annual Report.

Seasonality

Results of operations for the interim periods are not necessarily indicative of results to be expected for the year primarily due to the impact of seasonality on the sales at REMC. Our nitrogen products manufacturing segment and our customers’ businesses are seasonal, based on planting, growing and harvesting cycles. The following table shows product tonnage shipped by quarter for the last three fiscal years and the nine months ended June 30, 2010.

		For the Fiscal Years Ended September 30,
		2010				2009				2008				2007
		(in thousands of tons)
First Quarter			124				115				171				160
Second Quarter			86				65				103				77
Third Quarter			206				203				170				209
Fourth Quarter			n/a				150				199				125
Total Tons Shipped for Fiscal Year			416				533				643				571

The highest volume of tons shipped is typically during the spring planting season during the third fiscal quarter and the next highest volume of tons shipped is typically after the fall harvest during the first fiscal quarter, although, as reflected in the table above, sales volumes may fluctuate due to various circumstances. These seasonal increases and decreases in demand can also cause sales prices to fluctuate accordingly.

As a result of the seasonality of shipments and sales, we experience significant fluctuations in our revenues, income and net working capital levels from quarter to quarter. Weather conditions can significantly affect quarterly results. Our receivables and deferred revenues are seasonal and relatively unpredictable. Significant amounts of our products are typically pre-sold for later shipment, and the timing of these pre-sales and the amount of down payments as a percentage of the total contract price may vary with market conditions. The variation in the timing of these pre-sales and of these contract terms may add to the seasonality of our cash flows and working capital.

THREE AND NINE MONTHS ENDED JUNE 30, 2010 COMPARED TO THREE AND NINE MONTHS ENDED JUNE 30, 2009:

Continuing Operations

Revenues

		For the Three Months								For the Nine Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
		(in thousands)								(in thousands)
Revenues:
Product shipments		$	49,224			$	93,018			$	93,579			$	158,828
Natural gas sales of excess inventory			153				244				2,004				1,929
Total nitrogen products manufacturing		$	49,377			$	93,262			$	95,583			$	160,757
Alternative energy			399				71				514				133
Total revenues		$	49,776			$	93,333			$	96,097			$	160,890

		For the Three Months								For the Three Months
		Ended June 30, 2010								Ended June 30, 2009
		Tons				Revenue				Tons				Revenue
		(in thousands)								(in thousands)
Product Shipments:
Ammonia			51			$	20,813				67			$	55,353
Urea Ammonium Nitrate			112				23,198				93				30,734
Urea (liquid and granular)			9				3,681				13				5,452
Carbon Dioxide			31				816				28				779
Nitric Acid			3				716				2				700
Total			206			$	49,224				203			$	93,018

		For the Nine Months								For the Nine Months
		Ended June 30, 2010								Ended June 30, 2009
		Tons				Revenue				Tons				Revenue
		(in thousands)								(in thousands)
Product Shipments:
Ammonia			118			$	43,695				115			$	87,536
Urea Ammonium Nitrate			195				35,722				163				53,346
Urea (liquid and granular)			25				10,131				30				13,678
Carbon Dioxide			71				1,888				68				1,947
Nitric Acid			7				2,143				7				2,321
Total			416			$	93,579				383			$	158,828

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 solutions, 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 revenues for the three and nine months ended June 30, 2010 compared to the three and nine months ended June 30, 2009 was primarily due to decreased sales prices for all products which was partially offset by an increase in urea ammonium nitrate sales volume.

The average sales price per ton in the third quarter of the current fiscal year as compared with that of the prior fiscal year decreased by 51% for anhydrous ammonia and by 37% for urea ammonium nitrate solutions. These two products comprised approximately 89% and 93% of the product sales for the three months ended June 30, 2010 and 2009, respectively. The average sales price per ton in the nine months ended June 30, 2010 as compared with the nine months ended June 30, 2009 decreased by 51% for anhydrous ammonia and by 44% for urea ammonium nitrate solutions. These two products comprised approximately 85% and 89% of the product sales for the nine months ended June 30, 2010 and 2009, respectively. Average sales prices per ton decreased because the prices for a majority of the previous period’s shipments had been determined in pre-sale contracts that were signed when fertilizer prices were at peak levels in 2008. Management believes that the significant decline in prices for nitrogen fertilizer that occurred between calendar 2008 and the end of calendar 2009 were due to, among other things, a substantial drop in the price of natural gas, a key input, and weak economic conditions.

Alternative Energy. This segment generates revenues for technical services and licensing activities related to Rentech’s technologies, and previously generated revenues from rental income for leasing part of a building we owned. This rental income was included in our alternative energy segment because the rental income was generated from a building, which was sold in April 2010, used in the past by some of our research and development employees. The revenue earned in this segment during fiscal 2010 was technical service revenue. The revenue earned during fiscal 2009 included both technical service revenue of $40,000 and rental revenue of $93,000.

Cost of Sales

		For the Three Months								For the Nine Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
		(in thousands)								(in thousands)
						(As Restated)								(As Restated)
Cost of sales:
Product shipments		$	33,864			$	42,245			$	72,047			$	81,282
Turnaround expenses			—				—				3,995				—
Natural gas sales of excess inventory			138				257				2,259				3,497
Natural gas sales with simultaneous purchase			—				83				57				22,776
Total nitrogen products manufacturing		$	34,002			$	42,585			$	78,358			$	107,555
Alternative energy			587				—				693				—
Total cost of sales		$	34,589			$	42,585			$	79,051			$	107,555

Nitrogen Products Manufacturing. The cost of sales for product shipments for the three and nine months ended June 30, 2010 decreased from the prior comparable periods primarily due to a large decrease in natural gas prices which was partially offset by the higher volume of sales of urea ammonium nitrate. Natural gas and labor and benefit costs comprised approximately 61% and 13%, respectively, of cost of sales on product shipments for the three months ended June 30, 2010. Natural gas and labor and benefit costs comprised approximately 59% and 13%, respectively, of cost of sales on product shipments for the nine months ended June 30, 2010.

Turnaround expenses represent the cost of shutting down the plant for scheduled maintenance, which is done approximately every two years. A plant turnaround occurred in October 2009. As a result, during the nine months ended June 30, 2010, the Company incurred turnaround expenses of $3,995,000. There was no plant turnaround during the nine months ended June 30, 2009.

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 revenue and the related cost is recorded as a cost of sales. Natural gas may also be sold to a third party with a simultaneous purchase of gas by the Company of the same quantity at a lower price in order to realize a reduction of raw material cost. In this case, no revenue is recorded for the sale of gas, and the difference between the cost of the gas that was sold and the cost of gas that was simultaneously purchased is recorded directly to cost of sales.

Depreciation expense included in cost of sales from our nitrogen products manufacturing segment was $3,194,000 and $3,621,000 for the three months ended June 30, 2010 and 2009, respectively. Depreciation expense included in cost of sales from our nitrogen products manufacturing segment was $7,312,000 and $6,335,000 for the nine months ended June 30, 2010 and 2009, respectively.

Alternative Energy. The cost of sales for our alternative energy segment during the three and nine months ended June 30, 2010 was for costs incurred for work performed under technical services contracts.

Gross Profit (Loss)

		For the Three Months								For the Nine Months
		Ended June 30,								Ended June 30,
		2010				2009				2010				2009
		(in thousands)								(in thousands)
						(As Restated)								(As Restated)
Gross profit (loss):
Product shipments		$	15,360			$	50,773			$	21,532			$	77,546
Turnaround expenses			—				—				(3,995	)			—
Natural gas sales of excess inventory			15				(13	)			(255	)			(1,568	)
Natural gas sales with simultaneous purchase			—				(83	)			(57	)			(22,776	)
Total nitrogen products manufacturing		$	15,375			$	50,677			$	17,225			$	53,202
Alternative energy			(188	)			71				(179	)			133
Total gross profit		$	15,187			$	50,748			$	17,046			$	53,335