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**FORM 10-QSB**

** **

**U.S. SECURITIES AND EXCHANGECOMMISSIONWASHINGTON, D.C. 20549**

 

**QUARTERLY REPORTUNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

** **

**FOR THE QUARTERLY PERIOD ENDEDJune 30, 2001**

** **

**Commission file number 0-24285**

 

**THE RICEX COMPANY**

 

|                          | **68-0412200**                   |
|-------------------------------|----------------------------------|
| **Incorporated  in Delaware** | IRS Employer  Identification No. |

 

 

**1241 Hawk's Flight Court, El Dorado Hills, CA 95762**Registrant's Telephone No. (916) 933-3000

 
| 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 ý  No o     |

Number of shares of common stock outstanding as ofJune 30, 2001: 38,829,350

TRANSITIONALSMALL BUSINESS DISCLOSURE FORMAT (Check One):

 

Yeso  No ý

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TheRiceX Company

**Form 10-QSB for the QuarterEnded June 30, 2001**

 

**Index**

| Part  I.   | Financial  Information                                     |                                                                                                       |   |
|------------|------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|--------|
|       |                                                       |                                                                                                       |   |
| Item  1.   | Financial  Statements                                      |                                                                                                       |   |
|       |                                                       |                                                                                                       |   |
|       | a)                                                    | Consolidated Balance Sheet  at June 30, 2001                                                               |   |
|       |                                                       |                                                                                                       |   |
|       | b)                                                    | Consolidated  Statements of Operations for the quarter and six month periods ended June 30,  2001 and 2000 |   |
|       |                                                       |                                                                                                       |   |
|       | c)                                                    | Consolidated  Statements of Cash Flow for the quarter and six month periods ended June 30,  2001 and 2000  |   |
|       |                                                       |                                                                                                       |   |
|       | d)                                                    | Notes to  financial statements                                                                             |   |
|       |                                                       |                                                                                                       |   |
| Item  2.   | Management's  Discussion and Analysis or Plan of Operation |                                                                                                       |   |
|       |                                                       |                                                                                                       |   |
| Part II.   | Other Information                                          |                                                                                                       |   |
|       |                                                       |                                                                                                       |   |
| Item  1.   | Legal  Proceedings                                         |                                                                                                       |   |
|       |                                                       |                                                                                                       |   |
| Item 2.    | Changes In Securities                                      |                                                                                                       |   |
|       |                                                       |                                                                                                       |   |
| Item 3.    | Defaults  Upon Senior Securities                           |                                                                                                       |   |
|       |                                                       |                                                                                                       |   |
| Item  4.   | Submission  of Matters to a Vote of Security Holders       |                                                                                                       |   |
|       |                                                       |                                                                                                       |   |
| Item  5.   | Other  Information                                         |                                                                                                       |   |
|       |                                                       |                                                                                                       |   |
| Item 6.    | Exhibits  and Reports on Form 8-K.                         |                                                                                                       |   |
|       | a)                                                         | Exhibits                                                                                                   |   |
|       |                                                       |                                                                                                       |   |
|       | b)                                                         | Reports  on Form 8-K                                                                                       |   |
|       |                                                       |                                                                                                       |   |
| Signatures |                                                       |                                                                                                       |   |
|            |                                                            |                                                                                                            |        |  |

 

THE RICEX COMPANYCONSOLIDATED BALANCE SHEETJune 30, 2001(unaudited)

 

| ASSETS                                          |                                                                                                               |        |
|-------------------------------------------------|--------------------------------------------------------------------------------------------------------------------|-------------|
|                                            |                                                                                                               |        |
| CURRENT ASSETS:                                 |                                                                                                               |        |
|                                            | Cash and cash  equivalents                                                                                         | $           | 528,168 |   |
|                                            | Trade accounts  receivable                                                                                         | 761,668     |   |
|                                            | Inventories                                                                                                        | 106,813     |   |
|                                            | Deposits and other  current assets                                                                                 | 80,705      |   |
|                                            |                                                                                                                    |        |
|                                            |                                                                                                               |        |
| Total current assets                            | 1,477,354                                                                                                          |        |
|                                            |                                                                                                               |        |
| PROPERTY AND  EQUIPMENT, net                    | 2,059,968                                                                                                          |        |
|                                            |                                                                                                               |        |
| OTHER ASSETS                                    | 91,986                                                                                                             |        |
|                                            |                                                                                                                    |        |
|                                            | $                                                                                                                  | 3,629,308   |   |
|                                            |                                                                                                                    |        |
|                                            |                                                                                                               |        |
| LIABILITIES  AND SHAREHOLDERS' EQUITY (DEFICIT) |                                                                                                               |        |
|                                            |                                                                                                               |        |
| CURRENT LIABILITIES:                            |                                                                                                               |        |
|                                            | Accounts payable and  accrued liabilities                                                                          | $           | 506,021 |   |
|                                            | Deferred revenue                                                                                                   | 206,981     |   |
|                                            |                                                                                                                    |        |
|                                            |                                                                                                               |        |
|                                            | Total current  liabilities                                                                                         | 713,002     |   |
|                                            |                                                                                                                    |        |
|                                            | Total liabilities                                                                                                  | 713,002     |   |
|                                            |                                                                                                                    |        |
|                                            |                                                                                                               |        |
| SHAREHOLDERS' EQUITY  (DEFICIT)                 |                                                                                                               |        |
|                                            | Preferred stock, par  value $.00l per share, 10,000,000 shares authorized, no shares issued and  outstanding       | -           |   |
|                                            | Common stock, par  value $.001 per share, 100,000,000 shares authorized, 38,829,350 shares  issued and outstanding | 38,829      |   |
|                                            | Additional paid-in  capital                                                                                        | 29,107,206  |   |
|                                            | Accumulated deficit                                                                                                | (26,229,729 | ) |
|                                            |                                                                                                                    |        |
|                                            |                                                                                                               |        |
|                                            | Total shareholders'  equity                                                                                        | 2,916,306   |   |
|                                            |                                                                                                                    |        |
|                                            | $                                                                                                                  | 3,629,308   |   |
|                                            |                                                                                                                    |        |
|                                                 |                                                                                                                    |             |  |  |  |

The accompanying notes are an integral part of these consolidated financialstatements.

THE RICEX COMPANYCONSOLIDATED STATEMENTS OFOPERATIONS(unaudited)

|                                                | Quarters  ended                    |    | Six  months ended |     |
|-----------------------------------------------------|------------------------------------|---------|-------------------|----------|
|                                                |                                    |    |                   |     |
|                                                | June  30,   2001                   |    | June  30,   2000  |     | June  30,   2001 |   | June  30,   2000 |   |
|                                                |                                    |    |                   |     |  |   |  |   |
| Revenues                                            |                               |    |              |     |   |   |   |   |
|                                                | Sales                              | $       | 1,674,593         |     | $ | 950,310 |   | $ | 2,843,236 |   | $ | 1,818,047 |   |
|                                                | Royalties                          | 5,407   |              | 3,395    |   | 12,624 |   | 12,564 |   |
|                                                |                                    |    |                   |     |  |   |  |   |
|                                                | 1,680,000                          |    | 953,705           |     | 2,855,860 |   | 1,830,611 |   |
|                                                |                               |    |              |     |   |   |   |   |
| Cost of sales                                       | 820,262                            |    | 513,162           |     | 1,509,785 |   | 1,088,791 |   |
|                                                |                                    |    |                   |     |  |   |  |   |
|                                                | 859,738                            |    | 440,543           |     | 1,346,075 |   | 741,820 |   |
|                                                |                               |    |              |     |   |   |   |   |
| Research and  development expenses                  | 31,631                             |    | 122,628           |     | 101,304 |   | 175,620 |   |
| Selling, general and  administrative expenses       | 332,795                            |    | 203,120           |     | 715,385 |   | 510,622 |   |
| Stock option and  warrant compensation to employees | -                                  |    | 24,948            |     | - |   | 49,896 |   |
| Professional fees                                   | 108,109                            |    | 88,730            |     | 242,007 |   | 202,862 |   |
| Investor relations                                  | 66,935                             |    | 50,681            |     | 70,500 |   | 416,175 |   |
|                                                |                                    |    |                   |     |  |   |  |   |
|                                                | Income (loss) from  operations     | 320,268 |              | (49,564  | ) | 216,879 |   | (613,355 | ) |
|                                                |                               |    |              |     |   |   |   |   |
| Other income  (expense):                            |                               |    |              |     |   |   |   |   |
|                                                | Interest and other  income         | 29,591  |              | 15,809   |   | 42,936 |   | 71,648 |   |
|                                                | Interest and other  expense        | (5,874  | )                 | (256,019 | ) | (7,899 | ) | (511,964 | ) |
|                                                |                                    |    |                   |     |  |   |  |   |
|                                                | Income (loss) before  income taxes | 343,985 |              | (289,774 | ) | 251,916 |   | (1,053,671 | ) |
|                                                |                               |    |              |     |   |   |   |   |
| Provision for income  taxes                         | (800                               | )       | (800              | )        | (800 | ) | (800 | ) |
|                                                |                                    |    |                   |     |  |   |  |   |
|                                                | Net income (loss)                  | $       | 343,185           |     | $ | (290,574 | ) | $ | 251,116 |   | $ | (1,054,471 | ) |
|                                                |                                    |    |                   |     |  |   |  |   |
|                                                |                               |    |              |     |   |   |   |   |
| Basic and diluted  earnings per share:              |                               |    |              |     |   |   |   |   |
|                                                | Net income (loss) per  share       | $       | 0.01              |     | $ | (0.01 | ) | $ | 0.01 |   | $ | (0.03 | ) |
|                                                |                                    |    |                   |     |  |   |  |   |
| Weighted average  number of shares outstanding      | 38,829,350                         |    | 36,364,861        |     | 38,829,350 |   | 36,241,547 |   |
|                                                |                                    |    |                   |     |  |   |  |   |

 

The accompanying notes are an integral partof these consolidated financial statements.
THE RICEX COMPANYCONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)
 Quarters  ended Six  months ended     June  30,  2001 June  30,  2000 June  30,  2001 June  30,  2000      Cash flow from  operating activities:        Net income (loss)$343,185 $(290,574)$251,116 $(1,054,471)Adjustments to  reconcile net income (loss) to net cash from operating activities         Depreciation and  amortization204,544 172,904 409,089 335,733  Shares, warrants and  options issued for compensation and services22,138 48,948 44,277 130,023  Amortization of  investor relations fees- - - 281,527  Deferred revenue  received206,800 - 206,800 -  Deferred revenue  recognized(620,400)- (1,340,800)-  Amortization of  prepaid processing fees19,531 19,531 39,064 39,062  Amortization of  prepaid interest and debt issuance costs- 254,972 - 509,945 Net changes in  operating assets and liabilities         Trade accounts  receivable(353,252)(147,592)(119,988)(209,549) Inventories189,453 87,610 206,021 120,377  Deposits and other  current assets49,686 (56,709)(34,853)(81,409) Accounts payable and  accrued liabilities3,074 (74,957)(110,125)(40,832)     Net cash from  operating activities64,759 14,133 (449,399)30,408      Cash flows from  investing activities         (Purchases) sales of  property and equipment, net13,625 (72,971)9,825 (96,392)     Net cash from  investing activities13,625 (72,971)9,825 (96,392)     Cash flows from  financing activities         Proceeds from issuance  of common stock- - - 26,000  Proceeds, issuance of  common stk, exercise of options- (1,500)- (1,500) Issuance of common  stock on equipment purchase- 68,750 - 68,750  Private Placement  financing expenses- 34,244 - (9,600)     Net cash from  financing activities- 101,494 - 183,650      Net (decrease)  increase in cash and cash equivalents78,384 42,656 (439,574)117,666 Cash and cash  equivalents, beginning of period449,784 1,105,059 967,742 1,030,049      Cash and cash  equivalents, end of period$528,168 $1,147,715 $528,168 $1,147,715      
Theaccompanying notes are an integral part of these consolidated financialstatements.
THE RICEX COMPANYNOTES TO CONSOLIDATED FINANCIALSTATEMENTS

 

1.          DESCRIPTIONOF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

The RiceX Company ("RiceX"),formerly Food Extrusion, Inc., was incorporated in California in 1989 and in1998 was reincorporated in Delaware and changed its name to The RiceX Company.RiceX has a wholly owned subsidiary, Food Extrusion Montana, Inc. (FoodExMontana). The consolidated financial statements include the accounts of RiceXand FoodEx Montana (collectively "the Company"), after theelimination of all inter-company balances and transactions.

The Company is an agribusiness foodtechnology company, which has developed a proprietary process to stabilize ricebran. RiceX is headquartered in El Dorado Hills, California and hasstabilization equipment located at two rice mills in Northern California.  The Company purchases raw rice bran fromthese two mills.  Mill employees, underCompany supervision, operate the Company's equipment to stabilize rice bran.The Company pays a processing fee to the mills for this service. Under anagreement with one of the mills, that mill may use the Company's equipment to stabilizerice bran for its customers in exchange for the payment of a royalty fee to theCompany.

FoodEx Montana is engaged in the businessof custom manufacturing grain-based products for food ingredient companies atits production facility in Dillon, Montana. The facility has specializedprocessing equipment and techniques for the treatment of grain products tocook, enzyme treat, convert, isolate, dry and package finished foodingredients. The soluble and fiber complex form of the Company's rice bran productsare produced at the Montana facility.

There have been no changes in theCompany's significant accounting policies as set forth in the Company's auditedfinancial statements for the year ended December 31, 2000, which were includedin the Company's Form 10-KSB. These unaudited financial statements for the sixmonths ended June 30, 2001 have been prepared in accordance with generallyaccepted accounting principles for interim financial information. Accordingly,they do not include all of the information and footnotes required by generallyaccepted accounting principles for complete financial statements. In theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included. Theresults of operations for the six months ended June 30, 2001 are notnecessarily indicative of the results expected for the full year.

2.          PROPERTYAND EQUIPMENT

At June 30, 2001, property and equipmentconsists of the following:
Land and buildings$367,961 Equipment4,297,331 Leasehold improvements381,641 Furniture and fixtures225,417    5,272,350 Less accumulated  depreciation and amortization(3,414,282)   1,858,068 Equipment not placed  in service201,900    $2,059,968   
3.          ACCOUNTSPAYABLE AND ACCRUED LIABILITIES

At June 30, 2001, accounts payable andaccrued liabilities consist of the following:
Trade accounts payable$303,525 Other accrued  liabilities202,496 Deferred revenue206,981    $713,002   
4.          PROVISIONFOR INCOME TAXES

While the Company has net income in 2001,the Company expects to utilize net operating loss carry-forwards, which willreduce income tax expense to the state minimum tax of $800, or $1,600 for yearended December 31, 2000. Net operating loss carry-forwards expire for federaltax purposes at various dates from 2009 through 2020 and expire for state taxpurposes in 2003 through 2010.

5.          NETINCOME (LOSS) PER SHARE

Basic net income (loss) per share iscomputed by dividing net income (loss) by the weighted average number of commonshares outstanding during all periods presented.  Options and warrants are excluded from the basic net income(loss) per share calculation because they are currently anti-dilutive.

Item2.  MANAGEMENT'S DISCUSSION AND ANALYSISOR PLAN OF OPERATION

The following is a discussion of theconsolidated financial condition of The RiceX Company and the results ofoperations for the quarters ended June 30, 2001 and 2000.

When used in this report, the words"believe," "expect," "anticipate" and similarexpressions, together with other discussion of future trends or results, areintended to identify forward-looking statements within the meaning of Section27A of the Securities Act of 1933, as amended (the "Securities Act")and Section 21E of the Securities Exchange Act of 1934, as amended (the"Exchange Act"). Such statements are subject to certain risks anduncertainties, including those discussed below that could cause actual resultsto differ materially from those projected. These forward-looking statementsspeak only as of the date hereof. All of these forward-looking statements arebased on estimates and assumptions made by management of the Company which,although believed to be reasonable, are inherently uncertain and difficult topredict; therefore, undue reliance should not be placed upon such statements.The following important factors, among others, could cause the Company'sresults of operations to be adversely affected in future periods: (i) increasedcompetitive pressures from existing competitors and new entrants; (ii)increases in interest rates or the Company's cost of borrowing or a defaultunder any material debt agreements; (iii) deterioration in general or regionaleconomic conditions; (iv) adverse state or federal legislation or regulationthat increases the costs of compliance, or adverse findings by a regulator withrespect to existing operations; (v) loss of customers or sales weakness; (vi)inability to achieve future sales levels or other operating results; (vii) theunavailability of funds for capital expenditures; and (viii) operationalinefficiencies in distribution or other Company systems. Many of such factorsare beyond the control of the Company. There can be no assurance that theCompany will not incur new or additional unforeseen costs in connection withthe ongoing conduct of its business. Accordingly, any forward-lookingstatements included herein do not purport to be predictions of future events orcircumstances and may not be realized. In addition, assumptions relating tobudgeting, marketing, advertising, litigation and other management decisionsare subjective in many respects and thus susceptible to interpretations andperiodic revisions based on actual experience and business developments, theimpact of which may cause the Company to alter its marketing, capitalexpenditure or other budgets, which may in turn affect the Company's financialpositions and results of operations.

QUARTERS ENDED JUNE 30, 2001 AND 2000

Consolidated revenues in the quarterended June 30, 2001 were $1,680,000, an increase of $726,000, or 76%, from thesame period last year. The sales increase was primarily attributed to anincrease in one product category, Solubles. Solubles increased $723,000 to $918,000compared to the second quarter last year. The increased sales of Solubles weremostly the result of sales to The Christians Children’s Fund in Guatemala andan increased demand domestically. Stabilized Rice Bran ("SRB")regular sales showed an increase in revenue of $54,000 to $694,000, while, SRBfine decreased $1,000 to $28,000 and fiber decreased $47,000 to $39,000compared to sales for quarter ended June 30, 2000.

Gross margins for quarter ended June 30,2001 were $860,000, or 51%, compared to $441,000, or 46%, during the sameperiod last year. The increase in gross margin was the result of increasedtotal revenues and more directly an increase in sales of our higher marginSolubles product line in quarter ended June 30, 2001 versus the same periodlast year. Gross margins on the Company's various products vary widely and thegross margins are impacted from period to period by sales mix and utilizationof production capacity. The Company expects that gross margins will improve assales volumes increase.
Research and development("R&D") expenses reflected a decrease for quarter ended June 30,2001 compared to the same period last year. R&D expenditures decreased$91,000, or 74%, from $123,000 for quarter ended June 30, 2000 to $32,000 forthe current quarter. The reduction of R&D expenses is partly due to thereimbursement from a customer for R&D expenditures in process research.

Selling, General, and Administration("S,G&A") expenses were $333,000 for quarter ended June 30, 2001,compared to $203,000 for quarter ended June 30, 2000, an increase of $130,000.In general, these expenses have increased with increased activities over thesame period last year. These increases have been anticipated by managementbased upon their 2001 business development plan. This trend is not expected bymanagement to continue for the next six months on a comparative basis to thesame time period last year.

Stock option and warrant compensation toemployees was $25,000 for quarter ended June 30, 2000 and zero for quarterended June 30, 2001. Stock option compensation expense is a non-cash chargerelating to the issuance of favorably priced stock options to employees anddirectors to attract and retain key personnel to the Company. The chargerepresents the difference between the exercise price and the trading value onthe date of the grant. The difference is recognized over the vesting period ofeach grant, which generally ranges from two to three years, except for thedirectors' grants, which vest over one year.

Professional fees increased to $108,000for quarter ended June 30, 2001 compared to $89,000 for the second quarter lastyear. The increase of $19,000 is due primarily to a consulting agreement andrelated fees that were not present in the same period last year.

Investor relations’ fees increased from$51,000 during this period last year to $67,000 for quarter ended June 30,2001. The increase of $16,000 was primarily associated with expenses related toan investor relations firm combined with expenses for the printing of ourannual report to shareholders and expenses associated with the June 29, 2001annual meeting.

Interest expense for quarter ended June30, 2001 was reduced by $250,000 to $6,000 compared to $256,000 for the sameperiod last year. The $250,000 decrease for quarter ended June 30, 2001,compared to quarter ended June 30, 2000, is mostly associated with theeliminated amortization of interest expense on a note to a shareholder that waspaid in December 2000.

For quarter ended June 30, 2001, theCompany's net income was $343,000, or $.01 per share, compared to a net loss of$291,000 or $.01 per share, a substantial improvement of $634,000 over the sameperiod last year. The improvement for the quarter is primarily due tosuccessful marketing efforts resulting in increased revenues, increasedefficiencies in production, and increased gross margins. Combining asubstantial decrease in interest expenses, strong Solubles sales to theChristians Children’s Fund in Guatemala, and increased sales of Solubles domestically,the Company experienced an improvement in net income and expects the trend tocontinue through 2001.

While the Company has net income in 2001,the Company expects to utilize net operating loss carry-forwards which willreduce income tax expense to the state minimum tax of $800, or $1,600 for yearended December 31, 2001.  Net operatingloss carry-forwards expire for federal tax purposes at various dates from 2009through 2020 and expire for state tax purposes in 2003 through 2010.

SIX MONTHS ENDED JUNE 30, 2001 AND 2000

Consolidated revenues through June 30,2001 of $2,856,000 increased $1,025,000, or 56%, from the same period lastyear. The sales increase is attributed to a year to date increase in oneproduct category, Solubles. Solubles increased $1,170,000, or 315%, from$369,000 last year to $1,539,000 for the same period ended June 30, 2001. Theincreased sales of Solubles were the result of sales to the ChristiansChildren’s Fund in Guatemala and an increased demand domestically. SRB regular 2001sales showed a decrease in revenue of $43,000 to $1,223,000, while SRB finedecreased $5,000 to $47,000 and fiber decreased $72,000 to $40,000 compared tosales through June 30, 2000. Although the Company experienced reduced sales inall product lines except Solubles on a comparative basis to last year, theCompany does not expect this trend to continue for year end December 31, 2001results.

Gross margins through June 30, 2001 were$1,346,000, or 47%, compared to $742,000 or 41%, during the same period lastyear. The increase in both margin dollars and percentage was the result ofstrong Solubles sales to the Christians Children’s Fund in Guatemala, andincreased sales of Solubles domestically. Gross margins on the Company'svarious products vary widely and the gross margins are impacted from period toperiod by sales mix and utilization of production capacity. The Company expectsthat gross margins will improve as sales volumes increase.
R&D expenses reflect significantdecreases for period ended June 30, 2001 compared to the same period last year.R&D expenditures decreased from $176,000 for the period ended June 30, 2000to $101,000 for the current period ended June 30, 2001. The reduction ofR&D expenses is mostly due to the reimbursement from a customer for R&Dexpenditures in process research.

S,G&A expenses were $715,000 for theperiod ended June 30, 2001, compared to $511,000 for the period ended June 30,2000, an increase of $205,000. The increase is attributed to no reimbursementsfrom an affiliate for office, insurance, and rent expenses in 2001, as well asexpenses relating to increased marketing efforts. Also, some administrativeexpenses have increased with increased activities over the same period lastyear. These increases have been anticipated by management based upon their 2001business development plan. This trend is not expected by management to continuefor the next six months on a comparative basis to the same time period lastyear.

Stock option and warrant compensation toemployees was $50,000 for six months ended June 30, 2000 and zero for sixmonths ended June 30, 2001. Stock option compensation expense is a non-cashcharge relating to the issuance of favorably priced stock options to employeesand directors to attract and retain key personnel to the Company. The chargerepresents the difference between the exercise price and the trading value onthe date of the grant. The difference is recognized over the vesting period ofeach grant, which generally ranges from two to three years, except for thedirectors' grants, which vest over one year.

Professional fees increased to $242,000for the period ended June 30, 2001 from $203,000 for the prior year's period.The increase of $39,000, is due primarily to a consulting agreement and relatedfees that were not present in the same period last year.

Investor relations’ fees decreased from$416,000 for this period last year to $71,000 quarter ended June 30, 2001. Thedecrease of $345,000 was primarily associated with the absence in 2001 of expensesrelated to an investor relations firm for the issuance of stock and warrants inreturn for services in 2000. Expenditures at 2001 levels are expected tocontinue for the remainder of year ending December 31, 2001.

Interest expense for the period endedJune 30, 2001 was $8,000 compared to $512,000 for the same period last year.The decrease was mostly associated with the eliminated amortization of interestexpense on a note to a shareholder that was paid off in December 2000.

For the first time in the Company’shistory, the Company experienced a year to date net income. For the six monthsended June 30, 2001, the Company’s net income was $251,000 or $.01 per share,compared to a net loss of $1,054,000 or $.03 per share, an improvement of$1,306,000 over the same period last year. The improvement is primarily due tosuccessful marketing efforts resulting in increased revenues, increasedefficiencies in production, and increased gross margins. Combining a decreasein interest expenses, strong Solubles sales to the Christians Children’s Fundin Guatemala, and increased sales of Solubles domestically, the Companyexperienced a significant improvement in the Company’s net income andanticipates that this trend will continue through 2001.

While the Company has net income in 2001,the Company expects to utilize net operating loss carry-forwards which willreduce income tax expense to the state minimum tax of $800, or $1,600 for yearended December 31, 2001.  Net operatingloss carry-forwards expire for federal tax purposes at various dates from 2009through 2020 and expire for state tax purposes in 2003 through 2010.

LIQUIDITY AND CAPITAL RESOURCES

Duringthe first six months ended June 30, 2001, the cash balance decreased comparedto the same period last year. Cash balance at June 30, 2001 decreased $620,000to $528,000 from $1,148,000 at June 30, 2000. Cash balances during the year 2000 were building in anticipation ofretiring the Company’s final long-term debt of $1,850,000 at December 31, 2000.

Sixmonths ended June 30, 2001 showed $891,000 in cash provided from operatingactivities before recognizing $1,341,000 of deferred revenue that was receivedin December 2000. After recognizing deferred revenue for six months ended June30, 2001, cash used in operations was $449,000 compared with generating $30,000from operating activities for six months ended June 30, 2000. As disclosedbelow, the Company has $207,000 of product prepayment in deferred revenue atJune 30, 2001 for the July shipment to the Christians Children’s Fund inGuatemala. The Company expects to continue the balance of six months ofshipments to The Christians Children’s Fund in Guatemala. Cash flows fromfinancing activities were $101,000 and zero at quarters ended June 30, 2000 and2001 respectively.
InDecember 2000, the Company entered into an international joint venture withPRODESA and the Christians Children’s Fund for supplying nutritionally denseingredients for regional nutritional enhancement and school breakfast/lunchprograms at the community level throughout Guatemala. As a result, the Companyreceived an initial order from PRODESA for $2,500,000 that required the Companyto deliver product to Guatemala over twelve months starting January 2001. Alsoin December 2000, the Company received $1,240,800 as prepayment for the firstsix months of said purchase order to Guatemala. During 2001 the Company hasbeen delivering product to The Christians Children’s Fund in Guatemala on amonthly basis. At June 30, 2001 the Company has $207,000 of product prepaymentrecorded in deferred revenue. The Company and PRODESA expect the twelve-monthprogram in Guatemala to be successful and expand into other countries of theregion. The Company anticipates it will start shipping Solubles to Hondurasduring the third quarter of 2001. The Honduras program will be similar to thatestablished in Guatemala.

During 2000, the Company finalized andentered into a joint venture agreement with NutraStar, Incorporated(“NutraStar”) for developing and marketing the nutraceutical and value-addedfunctional foods markets for human nutrition. NutraStar was granted anexclusive license to sell RiceX products in the nutraceutical market. Byyear-end 2000 NutraStar had not finalized its pending funding, consequently theCompany established a reserve of $250,000 against a receivable from NutraStar.For six months ended June 30, 2001, the Company has a receivable from NutraStarfor approximately $55,000 net of allowance for doubtful accounts of $250,000.There have been no changes in the pending funding for NutraStar as of June 30,2001.

During 2000, initial market developmentfocused on nutritionally dense ingredients in the international market place:first in Latin America and then Asian countries. These market segmentscurrently represent multi billion dollar potential market opportunities. Alsoduring 2000, the Company initiated strategic alliance discussions with majordomestic premium pet food and equine feed manufacturers and distributors.Domestic markets for these segments currently represent a potential opportunityof over $250 million annually. The Company anticipates the focus during 2001will be to aggressively finalize a joint venture with a major premium pet andequine product producer. The Company hopes the results of these successfulalliances will have a significant financial effect on the Company’s annualrevenues and profit lines. There can be no assurance the Company will obtainadditional strategic partners.

The Company has retained the services ofThe University of Illinois, Animal Science Department to study thephysiological effects of RiceX Bran on companion pets. The results of thiseight-week clinical trial will be scientifically reviewed and published uponcompletion. The Company hopes that this study will have a positive effect onits marketing efforts worldwide. The United States market for companion petfoods is estimated to be $12 billion annually and $27 billion worldwide.

For2001, the Company expects to expand its sales and marketing efforts, researchand development, and professional and legal fees for patent and trademarkapplications. The Company has various ongoing business development strategiesthat target international markets and domestic premium pet food and equine feedmarkets.

Theseefforts could significantly increase demand for the Company's products beyondthe Company's current production capacity. While the Company believes it canincrease its production capacity to meet sales demand, significant additionalcapital could be required to meet such expansion requirements.

The timing and amount of any capitalrequirements cannot be predicted at this time. There can be no assurance thatany financing will be available on acceptable terms.  If such financing is not available on satisfactory terms, theCompany may be unable to develop or expand its business, develop new products,or develop new markets at the rate desired and its operating results may beadversely affected.
PARTII. OTHER INFORMATION

Item1.  LEGAL PROCEEDINGS

TheCompany is from time to time involved in litigation incidental to the conductof its business. While the outcome of lawsuits and other proceedings againstthe Company cannot be predicted with certainty, in the opinion of management,none of the litigation in which the Company is currently involved, individuallyor in the aggregate, is expected to result in a material effect on theCompany’s financial position or results of operations.

Item 2.  CHANGES IN SECURITIESNone

Item 3.  DEFAULTS UPON SENIOR SECURITIESNone

Item4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS

The annual Meeting of Stockholders of theCompany was held on June 29, 2001. At the 2001 Annual Meeting, the Company’sstockholders considered and voted upon the following matters:
1.Approving  the election of Daniel L. McPeak Sr. and Todd C. Crow as Class III directors  of the Company; and  2.Approving  the increase of authorized shares of common stock to be issued under the  Company’s 1997 Stock Option Plan from 5,000,000 to 10,000,000 and increasing  the number of reserved shares of Common Stock from 5,000,000 shares to  10,000,000 shares.
At the time of the meeting, proxiesrepresenting 32,128,855 votes were cast approving the election of Daniel L.McPeak Sr. and Todd C. Crow as directors of the Company. In addition, proxiesrepresenting 20,078,115 votes were cast approving the increase of authorizedshares of common stock to be issued under the Company’s 1997 Stock Option Planfrom 5,000,000 to 10,000,000 and increasing the number of reserved shares of CommonStock from 5,000,000 shares to 10,000,000 shares.

The directors whose terms of office asdirectors continued after the meeting are Kirit S. Kamdar, Steven W. Saundersand Kenneth L. Miller.

The final tabulation of votes cast for,against, or withheld, as well as the number of abstention and broker non-votesfor each director nominee and amending the 1997 Stock Option Plan.

 
 VOTES            FOR AGAINST WITHHELD ABSTENTIONS BROKER  NON-VOTES       Daniel L. McPeak Sr.32,128,855 - 155,028 - - Todd C. Crow32,128,855 - 155,028 - - Amending 1997 Stock  Option Plan20,078,115 309,183 - 49,611 - 
 

Item5.  OTHER INFORMATIONNone

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K
(a)  EXHIBIT NO DESCRIPTION  OF EXHIBIT 2.1 Certificate  of Incorporation of the Company. (1)2.2 Form  of Incorporation of the Company. (1)3.1 Certificate  of Incorporation of the Company. (1)3.2 Form  of Corporate By-laws (2)4.1 Option Agreement between the Company and David  B. Lockton dated August 1, 1996. (1)4.2 Security Agreement between Food Extrusion,  Inc. and Monsanto Company dated November 1, 1996. (1)4.3 Promissory  Note of the Company in favor of Monsanto Company in the amount of $5,000,000  dated November 1, 1996. (1)4.4 Registration  Rights Agreement by and among the Company and Monsanto Company dated February  5, 1997. (1)4.5 Form  of Registration Rights Agreement between the Company and certain officers and  directors. (1)4.6 Form of Warrant Agreement between the Company  and certain investors dated February 9, 1996. (1)4.7 Letter Agreement between the Company and  certain investors dated January 15, 1999. (5)4.8 Shareholders Agreement between CF Corporation  (formerly Centennial Foods, Inc.) and the Company dated March 19, 1997. (1)4.9 Amendment No. 1 to the Shareholders Agreement  between CF Corporation and the Company dated January 15, 1999. (5)4.10 Registration Rights Agreement between the  Company and CF Corporation dated January 22, 1999. (5)4.11 Form of Directors Stock Option Agreement.  (1)(3)4.12 Form  of Non-statutory Stock Option Agreement not issued under the 1997 Stock  Option Plan, governing options granted to employees by the Company. (1)(3)4.13 Note Agreement between Monsanto Company and  the Company dated October 31, 1996. (1)4.14 Addendum No. 1 to Note Agreement dated October  31, 1996 between Monsanto Company and the Company dated February 6, 1997. (1)4.15 Creditor  Agreement between Centennial Foods, Inc., the Company and Ike Lynch dated  October 14, 1996. (1)4.16 Creditor Agreement between Centennial Foods,  Inc., the Company and Montana Department of Environmental Quality dated  October 18,1996. (1)4.17 Assignment of Commercial Security Agreement  and Business Loan and Credit Agreement dated March 4, 1996 between Seattle–First  National Bank and Company 19 General Partnership. (1)4.18 Assignment of Subordination Agreements and  Negotiable Collateral between Seattle­-First National Bank and Company 19  General Partnership dated March 4, 1996. (1)4.19 Creditor Agreement between Centennial Foods,  Inc. and Company 19 General partnership dated October 14, 1996. (1)4.20 Form  of Subordination Agreement between certain creditors of Centennial Foods,  Inc. in favor of Seafirst. (1)4.21 Creditor's Agreement between Centennial Foods  and Montana Department of Commerce dated October 11, 1996. (1)4.22 Form of Creditor's Agreement between  Centennial Foods, Inc. and certain convertible note holders. (1)4.23 Amended  and Restated Loan Agreement between the Company and FoodCeuticals dated as of  December 31, 1998. (5)4.24 Promissory Note in the amount of $1,850,000  payable to FoodCeuticals dated December 31, 1998. (5)4.25 Registration  Rights Agreement between the Company and FoodCeuticals dated December 31,  1998. (5)4.26 Warrant  Agreement number 98-1 between the Company and FoodCeuticals dated December  31, 1998. (5)4.27 Warrant  Agreement number 99-1 between the Company and FoodCeuticals dated January 15,  1999. (5)4.28 Security  Agreement between the Company and FoodCeuticals dated December 31, 1998. (5)4.29 Form  of Warrant Agreement between the Company and certain former officers of the  Company dated as of December 1998. (5)4.30 Subscription  Agreement between the Company and Heldomo, A.G. dated September 10, 1998. (5)4.31 Warrant  Agreement between the Company and Heldomo, A.G. dated September 10, 1998. (5)4.32 Stockholder  Agreement by and among Patricia McPeak, The RiceX Company, Inc., Joseph  Pagano, Eugene Mulvihill, and BioCeutics, Inc. dated November 1, 1999. (6)4.33 Warrant  Agreement between the Company and Dorchester Group dated April 26, 1999. (6)4.34 Form  of non-statutory Stock Option Agreement issued under the 1997 Stock Option  Plan between the Company and employees dated October 1, 1999. (3)(6)4.35 Warrant  Agreement between the Company and JDK & Associates dated November 1,  1999. (6)4.36 Addendum  No. 2 to the October 31, 1996 Monsanto Security Agreement dated November 30,  1999. (6)4.37 Form  of non-statutory Stock Option Agreement issued under the 1997 Stock Option  Plan between the Company and Vice President, Operations, Ike Lynch dated  November 1, 1999. Identical Agreements with Vice President and General  Manager, Daniel McPeak, Jr. and Vice President of Finance, Chief Financial  Officer, Todd C. Crow. (3)(6)4.38 Form  of Subscription Agreement to the Private Placement Offering 1999. (6)4.39 Form  of Warrant Agreement to the Private Placement Offering 1999. (6)4.40 Memorandum  of Understanding dated June 29, 2000 between the Company and Intermark  Partners, LLC to convert to equity the note for $2,500,000. (8)4.41 Warrant  agreement between the Company and GBV Intermark Fund, LLC dated September 29,  2000. (9)4.42 Warrant  agreement between the Company and Gilbert L. McCord, Sr. dated September 29,  2000. (9)4.43 Definitive  agreement between the Company and Intermark Partners, LLC dated September 29,  2000. (9)4.44 Form  of Warrant Agreement between the Company and certain former employees dated  as of March 31, 2000. (10)4.45 Non-statutory  Stock Option Agreement issued under the 1997 Stock Option Plan between the  Company and Daniel L. McPeak, Sr. dated October 27, 2000. (3)(10)4.46 Warrant  agreement between the Company and Intermark Partners Strategic Management,  LLC representing the Class I Warrant dated October 2, 2000. (10)4.47 Warrant  agreement between the Company and Intermark Partners Strategic Management,  LLC representing the Class II Warrant dated October 2, 2000. (10)4.48 Warrant  agreement between the Company and Intermark Partners Strategic Management,  LLC representing the Class III Warrant dated October 2, 2000. (10)4.49 Form  of Board Member Non-statutory Stock Option Agreement issued under the 1997  Stock Option Plan between the Company and the Board Members dated February  22, 2001.10.1 Employment  Agreement between the Company and Cherukuri Venkata Reddy Sastry dated April  14, 1996. (1)(3)10.2 Employment Agreement between the Company and  Rukmini Cheruvanky dated April 14, 1996. (1)(3)10.3 Employment Agreement between the Company and  Daniel McPeak dated April 1, 1997. (1)(3)10.4 Employment Agreement between the Company and  Patricia Mayhew dated April 1, 1997. (1)(3)10.5 Employment Agreement between the Food  Extrusion Montana, Inc. and Ike E. Lynch dated March 19, 1997. (1)(3)10.6 Form of Indemnification Agreement by and among  the Company and certain officers and directors. (1)(3)10.7 Agreement  between the Company and Wolcott Farms, Inc. dated March 1, 1997. (1)*10.8 Stabilized Rice Bran Processing, Sales and  Marketing Agreement between Farmer's Rice and the Company dated June 28,  1994. (1)*10.9 Amendment dated April 16, 1996 to Stabilized  Rice Bran Processing, Sales and Marketing Agreement between Farmers' Rice  Cooperative and the Company dated June 28, 1994. (1)10.10 Stabilized Rice Bran Processing, Sales and  Marketing Agreement between California Pacific Rice Milling, Ltd. and the  Company dated August 1995. (1)*10.11 Agreement between the Company and Dry Creek  Trading, Inc. dated February 1, 1997. (1)10.12 Letter Agreement between DuCoa, L.P. and the  Company dated February 25, 1998. (1)*10.13 Letter of Intent between Monsanto Company and  Company dated March 16, 1998. (1)*10.14 First Amendment to Letter Agreement between  Monsanto Company and Company dated July 27, 1998. (2)10.15 Security Agreement between CF Corporation,  Food Extrusion Montana, Inc. and the Company dated March 19, 1997. (1)10.16 Promissory Note in favor of Dominion  Resources, Inc. in the amount of $1,750,000 dated July 30, 1996. (1)10.17 Commercial Lease and Deposit Receipt between  Roebbelen Land Company and the Company dated December 23, 1991. (1)10.18 First Amendment of Lease between Roebbelen  Land Company and the Company dated January 19, 1994. (1)10.19 Second Amendment of Lease between Roebbelen  Land Company and the Company dated July 11, 1996. (1)10.20 Third Amendment of Lease Agreement between  Roebbelen Land Company and the Company dated February 1, 1998. (1)10.21 Lease Agreement between Roebbelen Land Company  and the Company dated July 11, 1996. (1)10.22 First Amendment of Lease between Roebbelen  Land Company and the Company dated September 1996. (1)10.23 Second Amendment of Lease Agreement between  Roebbelen Land company and the Company dated February 1, 1998. (1)10.26 Asset Purchase Agreement between Centennial  Foods, Inc., Food Extrusion Montana, Inc. and the Company dated January 2,  1997. (1)10.27 BioCeutics  License Agreement dated November 1, 1999. (3)10.28 Executive  Employment Agreement for Daniel L. McPeak Jr. Executives Todd C. Crow and Ike  Lynch have similar employment agreements. (3)10.29 Intermark  Partners, LLC Addendum to Letter of Intent to Invest, Agreement in Principal  dated                                                           November 16, 1999. (6)10.30 Intermark  Partners, LLC Supplemental Agreement dated March 10, 2000. (7)10.31 Consulting  Agreement between The RiceX Company, Inc. and JDK & Associates, Inc.  dated October 20, 1999. (3)(8)10.32 Termination  of Consulting Agreement between The RiceX Company, Inc. and JDK &  Associates, Inc. dated February 2000. (3)(7)10.33 Stabilized  Rice Bran Processing, Sales, and Marketing Agreement between Farmers’ Rice  Cooperative and the Company dated May 1, 1999. * (3)(6)10.34 Stabilized  Rice Bran Processing, Sales, and Marketing Agreement between California  Pacific Rice Milling, Inc. and the Company effectively dated January 1, 2000.  (7)10.35 Licensing  Agreement between NutraStar, Inc. and the Company. (7)10.36 Sublease  Agreement between the Company and NutraStar, Inc. effective November 1, 1999.  (8)10.37 Settlement  and General Release among three executive officers and The RiceXTM Company  effective June 30, 2000. (8)10.38 Employment  Agreement between Daniel L. McPeak, Sr. and the Company dated April 1, 2000.  (3)(10)10.39 Consulting  Agreement executed as of February 22, 2001, by and between The RiceX Company  and Dr. Glenn H. Sullivan (3)(11)10.40 Consulting  Agreement between JDK and Associates, Inc. and the Company executed as of  March 15, 2001.16.1 Letter from PricewaterhouseCoopers, LLP  (formerly Coopers & Lybrand LLP) dated July 28, 1998. (2)16.2 On August 17, 1999, The RiceX Company  dismissed PricewaterhouseCoopers; LLP (formerly Coopers and Lybrand, LLP)  dated July 28, 1998. (4)16.3 On September 17, 1999, Grant Thornton, LLP was  engaged by the Company as its principal accountant to audit the Company’s  financial statements. (4)16.4 Effective January 1, 2000, Grant Thornton,  LLP, the independent accountants for The RiceX Company, sold its Stockton and  Sacramento, California offices to Moss Adams, LLP, an accounting and  consulting firm. Since the individuals performing services for the Company at  Grant Thornton are now in the employ of Moss Adams, effective January 01,  2000, the Company dismissed Grant Thornton as its independent accountants and  engaged the services of Moss Adams to act as the Company’s principal  accountants to audit the Company’s financial statements. (4)
 

(1)         Previously filed as an exhibit to theCompany's Registration Statement No. 000-24285 filed with the Commission on           May 18, 1998.

(2)         Previously filed as an exhibit to theCompany’s Amendment No. 2 to the Registration Statement No. 000-24285 filed          with the Commission on August 26, 1998.

(3)         Represents a management contract orcompensatory plan or arrangement.

(4)         Previously filed as Item (4) on Form8-K dated August 26, 1999, September 22, 1999, or January 7, 2000.

(5)         Previously filed as an exhibit to theCompany’s Form 10-KSB filed with the Commission on April 15, 1999.

(6)         Previously filed as an exhibit to theCompany’s Form 10-KSB filed with the Commission on March 30, 2000 and i   ncorporated herein by reference.

(7)         Previously filed as an exhibit to theCompany’s Form 10-QSB filed with the Commission on May 12, 2000 and        incorporated herein by reference.

(8)         Previously filed as an exhibit to theCompany’s Form 10-QSB filed with the Commission on August 18, 2000 andincorporated herein by reference.
(9)         Previously filed as an exhibit to theCompany’s Form 10-QSB filed with the Commission on November 14, 2000 and              incorporated herein by reference.

(10)       Previously filed as an exhibit to theCompany’s Form 10-KSB filed with the Commission on April 17, 2001 and       incorporated herein by reference.

(11)       Previously filed as an exhibit to theCompany’s Form 10-QSB filed with the Commission on May 15, 2001 and        incorporated herein by reference.

(b) Reports on Form 8-K

             None

* Confidential treatment granted as tocertain portions.

 

SIGNATURES

In accordance with the requirements ofthe Exchange Act, the registrant caused this to be signed on its behalf by theundersigned, thereto duly authorized.

 
  THE  RICEX COMPANY     Date:  August 10, 2001 By:/s/  Daniel L. McPeak        Daniel  L. McPeak    Chairman  of the Board and  Chief Executive Officer      Date:  August 10, 2001 By:/s/  Todd C. Crow        Todd  C. Crow    Vice  President of Finance and  Chief Financial Officer