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

OVERVIEW OF OUR PRINCIPAL BUSINESS

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

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

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

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

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

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

Financial Information About Our Business Segments

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

THE RENTECH PROCESS

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

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

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

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

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

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

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BUSINESS PLAN

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

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

FISCHER-TROPSCH TECHNOLOGY

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

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

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

DEVELOPMENT OF THE RENTECH PROCESS

We developed our Fischer-Tropsch technology in the early 1980s, based on research and development conducted by two of our founders, Dr. Charles Benham and Dr. Mark Bohn. The ability of the Rentech Process to convert carbon-bearing gases into valuable liquid hydrocarbons was first established in our original pilot plant. This was a small, skid-mounted system operated periodically between 1982 and 1985. This capability was again demonstrated in our second and larger pilot plant operated during 1989. Additional confirmation of several significant aspects of the Rentech Process was obtained from tests conducted between 1991 and 1998 in a third pilot plant. We continue to use our third pilot plant at our testing laboratory to further advance development of the Rentech Process and to develop data in response to inquiries from our licensees and prospective licensees.

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

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

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

Our technology was also successfully used by Texaco Energy Systems at a plant in Laporte, Texas in 2000. Texaco leased the use of this plant from the U.S. Department of Energy on a short-term basis to conduct a joint demonstration with us of the results of using the Rentech Process with Texaco’s gasification process. The Laporte plant had the capacity to produce approximately ten barrels of product per day using our Rentech Process. This task demonstrated the ability of the Rentech Process to convert synthesis gas produced by Texaco’s proprietary coal gasification technology.

COMPETITION IN FISCHER-TROPSCH TECHNOLOGY

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

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

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

RISKS RELATING TO OUR TECHNOLOGY

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

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

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

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

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

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

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

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

SOURCES OF FEEDSTOCKS FOR THE RENTECH PROCESS

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

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

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

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

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

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PRODUCTS AND MARKETS FOR LIQUID HYDROCARBON PRODUCTS

Plants using the Rentech Process can be designed and configured to produce a variety of liquid hydrocarbon products. Our synthetic liquid hydrocarbon products are similar to analogous products derived from crude oil refining, but have environmental benefits that traditional refinery products do not possess. We expect the principal liquid hydrocarbon product that we make at the East Dubuque plant will be clean-burning, premium-grade diesel fuel produced by our Rentech Process.

The products we can produce using the Rentech Process are:

Because of the way they are produced, our liquid hydrocarbon products are substantially free of contaminants usually found in crude oil, such as sulfur, aromatics, nitrogen and heavy metals. Vehicle engine tests of our synthetic diesel product conducted by independent labs have demonstrated that our synthetic diesel fuel is clean-burning with excellent combustion qualities, and substantially reduces harmful air emissions from vehicles. Our diesel fuel can be used directly or as a blending component with conventionally refined petroleum diesel to reduce harmful emissions. Moreover, we believe our diesel can be used in currently available diesel engines without requiring any modifications of the engines. We also believe that our ultra-clean diesel fuel and naphthas may be good feedstocks for use in fuel cells such as those that are currently under development, although we do not expect that market to develop in the near future. We believe the environmental benefits of our products may enable us to sell our products at a premium.

• Diesel Fuel. Independent third-party tests of our diesel fuel, both in vehicles and engine test stands, were completed by the High Altitude Research Center, Denver, Colorado under high altitude conditions, and by Detroit Diesel, Michigan, and the California Air Resources Board, under low altitude conditions. Our diesel fuel demonstrated significant reductions in harmful exhaust gas emissions and improved combustion characteristics. These tests indicate that our diesel fuel is a high-grade diesel fuel with environmental advantages, compared to diesel fuel derived from crude oil. Compared to Commercial No. 2 diesel fuel, our diesel fuel has three properties that make it less polluting, namely an absence of sulfur, absence of aromatics by volume, and a higher cetane value.

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

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

We believe the diesel fuel produced by use of the Rentech Process would be an excellent blending stock to upgrade non-specification fuels or to improve the quality of the commercial diesel currently being produced in refineries. Blending with our diesel fuel lowers the aromatic and sulfur content and increases the cetane index of commercial diesel. We have obtained a United States patent on the blending of our Fischer-Tropsch diesel with conventional diesel.

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

In 2000, Congress designated domestically produced Fischer-Tropsch fuels made from natural gas as an alternative fuel under the Energy Policy Act of 1992. The Act also designates liquid fuels from coal as an alternative fuel. The designation of F-T fuels, such as those produced by use of our Rentech Process, could lead to reduction of the federal excise taxes and road taxes that apply to conventional fuels. This may reduce the costs of F-T fuels to our customers. It could also reduce the expensive capital costs that government agencies must otherwise undertake to modify their vehicle fleets to meet the emission goals of the Energy Policy Act.

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

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

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

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

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

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

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

FT SOLUTIONS LLC — JOINT VENTURE WITH HEADWATERS

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

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

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

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

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

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

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

RESEARCH AND DEVELOPMENT

We own a development and testing laboratory located in Denver. Our pilot plant, consisting of a bubble column slurry reactor, is located at this site. The laboratory contains other state-of-the-art equipment and support facilities that we believe provides us with a resource for development and testing that is unmatched in the field of Fischer-Tropsch technology. Our laboratory staff currently consists of 10 employees.

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

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

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INTELLECTUAL PROPERTY AND PATENTS

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

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

Our patents were granted for terms of twenty years from the date of the application to the U.S. Patent Office. Our first patent application was filed in 1992. Our latest application was filed in 2004. Our trade secrets and confidential proprietary information will remain our property for as long as we keep them secret and confidential. Our federal trademarks have initial terms of six years. They can be renewed within ten years from the initial date of filing and every ten years after that if we continue to use them with the sale of our products.

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

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

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

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

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

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information to the mineral owner in real time. The essential elements of these programs and devices are proprietary, and are maintained as trade secrets. Petroleum Mud Logging relies upon confidentiality agreements to protect these trade secrets.

REN Corporation’s computer-controlled testing equipment depends upon computer software programs and proprietary computer hardware devices. The programs and hardware components are developed by REN’s employees. This proprietary information is maintained as trade secrets. REN relies upon confidentiality agreements to protect its proprietary interests.

Protecting and enforcing our intellectual property position involves complex legal, scientific and factual questions and uncertainties. This may be especially true in foreign countries, which often do not provide as much protection of intellectual property rights as the United States. Our ability to protect and enforce our intellectual property position requires diligent actions by us to strictly maintain the confidentiality of our trade secrets and to protect our patents and trade names. If we are not successful in protecting and maintaining our exclusive rights to our intellectual property, the value of our technologies that are affected would be severely limited. To date, no claims of patent infringement have been made against us, and we have not made any patent infringement claims against any of our competitors.

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

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

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

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

LICENSING AND ENGINEERING SERVICES

Fischer-Tropsch or coal-to-liquid plants that use the Rentech Process may be designed to produce from several thousand to 50,000 or more barrels per day of product. Smaller plants could be assembled from modular systems that can be trucked into remote locations where inexpensive sources of feedstock may be available. Plants with the largest production capabilities may have to be constructed directly at the sites where they are to be operated. We focus on licensing our technology in connection with small to medium-sized projects with production capacities ranging from 500 to 50,000 barrels per day of liquid hydrocarbon products. While our technology would enable us to pursue larger projects, we believe that small to medium size projects are economic and represent a substantial portion of the near-term market.

Under our licensing arrangements, we typically have the right to receive license fees and ongoing royalties for each barrel of liquid hydrocarbons produced by process plants that use the Rentech Process. After we grant a license, our licensees are responsible for financing, constructing and operating their own plants to use the licensed technology. They must also acquire their own feedstock, purchase catalyst from FT Solutions, and sell the products that their plants produce. We generally expect licensees to pay for our synthesis gas reactor modules that we or our fabricator supplies to meet the unique specifications required for each plant.

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

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

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

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

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

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during startup of licensed plants. In addition, we may reserve the right to contract for the engineering and supply of the synthesis gas conversion reactors that are essential for use of the Rentech Process. The reactors must be specially configured for each plant according to the composition of the synthesis gas to be converted and the products desired. Our patented catalyst available through FT Solutions is a necessary component of the Rentech Process and must be used by our licensees.

The successful use of the Rentech Process by licensees largely depends upon their ability to successfully finance, design, construct and operate commercial scale plants. The design of a plant for use of the Rentech Process is complex. Each design must be developed to fit the chemical composition of the feedstock and must also be tailored to produce the desired products. The ability of a licensee to obtain low-cost feedstock is essential to economical use of the technology. The licensees must obtain adequate financing, construct plants specifically designed for the chemical composition of the feedstock, and assure that the plant equipment and machinery is mechanically adequate. The cost of constructing plants that use the Rentech Process will vary depending upon production capacity; available infrastructure such as electrical power, water supplies, roads, gas pipelines and other utilities; location; cost of financing; whether the feedstock is a gas or carbon-bearing solid that must first be converted to synthesis gas; and other factors. Licensees are also responsible for obtaining governmental permits and for successfully operating their plants. In remote locations, licensees may be required to add supporting infrastructure such as roads and utilities. Business dealings in foreign countries, the ability of licensees to obtain financing for construction of plants, and the complexity of design are among the factors that may result in delays in schedules for financing, design, construction and startup of operations of our licensees’ plants following the initial decision to proceed with construction. This may result in delays or loss of revenues to us.

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

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

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

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

• Early Entrance Coproduction Plant . In August 1999, we, as part of a team led by Texaco, were selected by the U.S. Department of Energy to develop the data and designs for what the DOE calls a coproduction facility, or more specifically, an “Early Entrance Coproduction Plant.” Texaco’s goal was

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

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

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

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

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

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

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

OTHER SUBSIDIARIES AND INTERESTS

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

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OKON, Inc.

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

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

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

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

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

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

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

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

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

Petroleum Mud Logging, Inc.

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

PML owns 35 manned mobile well logging units that are moved from well to well. During fiscal 2004, PML added eight remote controlled mobile well logging units that perform most of the same functions and can be operated without a human operator at the drill site. The logging equipment within the mobile units measures traces of gases and water throughout the depth of a well hole by analyzing the drilling mud recovered from the well as drilling progresses. The results are transmitted to customers and their geologists immediately, either by land lines or satellite uplink. The mineral owners use this information to detect the presence of oil and gas deposits in underground formations and to direct their exploration and development drilling.

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

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

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The market for PML’s services may not continue at the current level.

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

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

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

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

REN Corporation

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

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

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

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

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

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

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

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

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

Investment In Advanced Technology Companies

We own minority interests in two advanced technology companies. We own 2.28% of Global Solar Energy, Inc., which is engaged in production of thin-film photovoltaics. We also own a 5.76% ownership interest in Infinite Power Solutions, Inc., which is developing thin-film micro batteries.

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

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

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

The value of our interests in advanced technologies depends upon the efforts of others. We do not control their actions.

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

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The advanced technologies in which we have an interest may not be applied to additional products or accepted by the target markets.

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

The advanced technology businesses may not operate at a profit. If they do not, our economic benefit from ownership of interests in them will be limited and may not materialize.

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

We do not expect that the advanced technology businesses will distribute dividends to shareholders. There is no market for the common stock of these companies. Without dividends, we may not realize revenue for our investment in advanced technologies.

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

EMPLOYEES

At September 30, 2004, we had 109 employees. Among our subsidiaries, Rentech Services Corporation had 10 employees, who work at our development and testing laboratory; OKON, Inc. had 11 employees; Petroleum Mud Logging, Inc. had 63 employees; and REN Corporation had 9 employees. If we succeed in acquiring the East Dubuque plant, we will have approximately 100 employees at that facility.